Ten Reasons To Contribute to TSP

The 2012 contribution limits for the Thrift Savings Plan (TSP) have been released, and they’ve gone up just a bit.  Individuals may contribute up to $17,000 in regular, pre-tax compensation.  In addition, individuals over the age of 50 may add an addition $5,500 each year, and you may contribute up to $50,000 per year while you are in a tax-free combat zone.

Why should you contribute to the Thrift Savings Plan?

  1. It is easy to set up and manage.  No poring over prospectus trying to decide which company to go with and never making any progress.  You can be set up with a TSP account today, and contributions will occur automatically.
  2. Low fees mean that more of your money stays in your account.  TSP consistently has exceptionally low management fees.
  3. Regular contributions come from pre-tax money, meaning that your total tax liability will be less for the current year.
  4. Contributions made while in a combat zone are totally tax free:  they go in tax-free and come out tax-free.
  5. You get to decide what to do with the money when you leave the service.  You can leave the balance in your TSP account to continue to grow, you may roll it into an Individual Retirement Account, you may roll it into a new employers 401k plan, you may cash it out, or you may transfer it to a qualified annuity.
  6. It is possible to take a loan against your TSP account for certain purposes.  It isn’t always a great choice, but the option is available if you have the need.  The interest is paid back to your account.
  7. It is easy at tax time.  Your W-2 already includes the necessary information to make sure that you aren’t taxed on TSP contributions.
  8. There are a variety of simple funds from which to choose – there is something for every investment style.  I love the targeted retirement date funds because they automatically adjust their asset allocation as you near retirement.  There are also five basic index funds that track certain sectors of the economy.
  9. Some states offer preferential tax treatment on TSP distributions taken during retirement.
  10. You can direct a portion of regular pays, special pays, and bonuses to your TSP account.  It is easy to divert a small part of each pay raise to your account, making it painless to increase your contributions regularly.

This is the best time of year to start or increase your TSP contributions.  Changes made today and through early January will be effective in January, when you are already getting a raise.  You will never notice the difference until you check your TSP balance and see how much it has increased!  My husband has just increased his TSP contribution to take effect next year.  I encourage you to do the same.  I promise you will be glad that you did!

About the Author

Kate Horrell
Kate Horrell is a military financial coach, mom of four teens, and Navy spouse. She has a background in taxes and mortgage banking, and a trove of experience helping other military families with their money. Follow her on twitter @realKateHorrell.
  • You will never notice the difference until you check your TSP balance and see how much it has increased! My husband has just increased his TSP contribution to take effect next year.

  • Chris.

    i am retired military and did not get the TSP when i got out. Can i get it now.

    • guest

      Unfortunately no, once you separate from service TSP is no longer available unless you become a federal employee. If you are in federal service you should have access to it. And Kate TSP has the absolute lowest fees when I checked a few months ago. Like insanely low! Under .1% low, in comparison the 401k through my job is .9% (and in private companies that’s considered low lol)

  • RTO Trainer

    I have a reason not to: While deployed, they’ve made it completely impossible to access your TSP account to adjust anything or even to check the balance.

    • KateKashman

      RTO, I haven’t heard of this. Is the site blocked from remote locations? You can change your TSP contributions via the MyPay website, but to make changes within the account you need to get into the TSP website. Please, let me know more. This is definitely a problem!

      • RTO Trainer

        It is blocked in certain areas, and where it’s not blocked outright, some of the functionality is.

        Then, lord help anyone who forgets a password, as the only thing TSP will do is mail a notice to your home–which is no help.

        • J Rider

          This is even better since you will be able to check how much you’ve saved at the end of deployment instead of use it on a new Mustang like most young Troopies.

          • RTO Trainer

            Or lose your shirt when the fund you are currently rolling into is about to go belly up and you can’t do anything about it.

          • cthims

            TSP investments are long term, so you really shouldn’t get twisted over short term ups and downs.

    • CDO

      WRONG. Your account is SIMPLE to access when deployed. The issue is not TSP. You might want to check your internet status and other connections or blocked sites from the base you are at. I have been in the AOR to over 8 different DEPLOYED locations and my TSP account works just fine.

  • Ernest

    I was a federal employee and I still have some money in my TSP account. Can I still add to it or should I withdraw the money I have in it?

    • KateKashman

      Ernest, there is no single right answer, but nearly all experts recommend keeping your money in TSP. It has outrageously low fees and pretty good payout options. Unfortunately, you can’t continue adding to it.

  • t bo

    stocks are a ripoff…could fall 30% easy…

  • wanderfulwahine

    To all hardworking brother and sisters-in arms- TAKE heed.
    Love this article 10 reasons ro TSP your way aka SMTM ( show me the MOney)! Wish that TSP was made availabll when I entered military service in Nov 92. How time flew as I am now nearing the R zone ( retirement zone) that is, and little $start up has now grew:) God is GoOD, TSP is GREAT