TSP

John Grobe

US military personnel are eligible to participate in the Thrift Savings Plan under the same rules as those who work for federal civilian agencies and how they participate is based on which retirement system they belong to.

For years the military had only one retirement system (today it is called the “legacy” system), but those hired in 2018 and later were put into a new retirement system (called the “blended” retirement system). Some members of the legacy system had the opportunity to transfer to the blended system during a 2018 open season, and about 1/3 of them chose to do so. In a way, the dichotomy between the two military systems is like that between CSRS and FERS on the civilian side, at least as it deals with TSP matching contributions.

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Members of the legacy retirement system, like CSRS employees, do not receive matching contributions to the Thrift Savings Plan. And, again like CSRS employees, they have a more generous computation factor applied to their military retirement. On the other hand, members of the blended retirement system receive matching contributions just like FERS employees do. But their retirement computation is less generous.

The blended system was introduced at least partially because 80% of those who enlist in the military do not continue in uniformed service until they meet the retirement eligibility criteria. Adding a match to TSP contributions helps those who don’t stay until retirement build a better nest egg. Of course, you have to contribute to get the match. I haven’t seen any statistics on the percentage of blended system participants contribute to the Thrift Plan, but I suspect that it is no greater than the 90% of civilian FERS employees who do.

There is another difference between civilian and military TSP participants, and it has to do with how withdrawals are taxed. Combat zone pay is exempt from federal income taxes. If you contributed to your traditional TSP balance from your tax exempt combat zone pay, once you begin withdrawals, the portion of each TSP withdrawal that is based on your contribution from your combat pay will be free from federal income tax when you make a withdrawal. That amount will be noted on the Form 1099 you receive from the TSP.

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