main story image for facebook sharing

Pay and Benefits

You Down With TSP?

Savings plan provides investment options for Sailors

In early 2001, while stationed onboard the USS Emory S. Land, a representative came onboard talking about the Thrift Savings Plan (TSP).

Like most of the crew, I initially ignored the idea of setting up a savings plan. I was a 24-year-old third class, living in Italy and a savings account was just not a priority for me at the time.

However, my boyfriend was quite the opposite. He was good with money and was always looking for good investments and ways to secure a solid future (which probably explains why he is an officer right now.) He came to my office and said, come with me; we are going to sign up for TSP.

TSP is a retirement savings plan for federal employees, and since 2000, it has been open to military personnel. The TSP is a defined contribution plan, similar to the 401(k) plans that many private companies offer their employees. As with any defined contribution plan, the income you receive from your TSP account will depend on how much you put into the account and the earnings on your investments.

All of that was mumbo jumbo to me (still kind of is). All I knew is I had now signed on to deposit three percent of my income (before taxes) into this cloud bank. Then they asked me how I wanted to invest it. Uh, what?

Turns out you can also keep track of where your money is going and how much of a return you are getting. And that amount differs depending on where you invest.

The safest fund in the TSP is the G fund and that is where I decided to put my money. That is basically government bonds. I'm a low risk, low rewards kind of girl apparently. The S, I and C funds are riskier because they invest in shares of stocks in publicly traded companies. But with the higher risk, comes the higher return. The F fund is a mix of bonds and stocks, and the L fund invests in all of the funds previously mentioned.

My boyfriend chose C, S and I. Just jumping in head first with his E-5 paycheck! After all, he was doing well with online penny stocks and was feeling lucky. But the L fund is probably the best bet for a young Sailor just starting with the TSP, said Chief Aviation Maintenance Administrationman Rhoda Rothwell, USS John C. Stennis' (CVN 74) lead command financial specialist.

So after a couple of years I was shocked to see how much money I had saved. It was nice knowing it was there. It was also nice knowing that I could borrow against it if I needed to. You can do this with no penalty, but you are required to pay yourself back.
Three photo collage (L-R) TSP website; Sailor viewing TSP; TSP on MyPay wbsite


You can also withdraw all of your TSP, which I did in 2008. And boy was I sorry.

If a service member decides to withdraw all of their TSP before the age of 59 1/2, the amount will be subject to a 20 percent federal income tax in addition to a 10 percent early withdrawal penalty. Yeah, that happened. Not to mention the following year I had to claim the entire amount as income (even though I only actually only received 70 percent of the funds).

Ouch!

If you separate from the military you can keep your investment in TSP until you are around 70, but by then you either need to take it out or roll the amount over into a private 401(k) or individual retirement account (IRA).

You can invest a percentage of your base pay up to 18K annually and no less than 1 percent. There are special occasions when the program will allow you to invest more than that during specific years but that's too rich for my blood. If you are investing that much then you probably have "people" who are advising you on the best ways to invest your money, and chances are you should be writing this article.

However, I presume that a lot of people are like me. I don't exactly know where all the money is going, but I'm just hoping that it's there when I get old. As a soon-to-be 40 year old, it is amazing how your priorities change.

For more information on TSP contact your commands financial specialist or visit:
http://www.dfas.mil/militarymembers/tspformilitary/tspac.html
http://www.dfas.mil/civilianemployees/employeebenefits/TSP.html

Information from this story was used in this article: http://www.navy.mil/submit/display.asp?story_id=94705