Thrift Savings Plan Helps Soldiers Prepare for the Future
February 20, 2008
The Thrift Savings Plan, a voluntary savings and investment retirement program for federal employees and uniformed service members, is designed to make it easy for Soldiers to save for retirement.
There are huge taxes and savings benefits to Soldiers who participate in this program, especially while deployed said Isaac Templeton, chief of transition support services at Family and Morale Welfare and Recreation Command.
Some new recruits who enlist in critical military occupational specialties areas may also be entitled to receive a matching contribution. Participants in the TSP Matching Funds Program receive matching contributions on the first five percent of pay that is contributed each pay period of their initial term. The first three percent of pay that is contributed is matched dollar-for-dollar; the next two percent is matched at 50 cents on the dollar.
Whether or not the savings are "matched" elective deferrals are tax-deferred amounts that participants contribute to TSP, instead of receiving as pay. The contributions are not considered as taxable gross income for the year in which they are contributed. For military service members, pay earned in a combat zone is tax exempt, as well. This is a great opportunity to tuck that extra net income into savings.
For members of the uniformed services, there is provision of the Internal Revenue Code, which limits the total amount of contributions that can be made to the TSP account. In 2007, this limit was $45,000. Check with a tax advisor for current restrictions.
Another program, the Savings Deposit Program (not to be confused with TSP), is available only to those serving in designated combat zones. Military members deployed in combat zones, qualified hazardous duty areas, or certain contingency operations may deposit all or part of their unallotted pay into a DOD savings account, up to $10,000 during a single deployment. Interest accrues on the account at an annual rate of 10% and compounds quarterly.
Although federal income earned in hazardous duty zones is tax-free, interest accrued on earnings deposited into the SDP is taxable. Members can designate the allotment amount in five-dollar increments. To determine a dollar amount of contributions for each pay period so that your contributions are spaced out over all the remaining pay dates in the year, use the Elective Deferral Calculator on the TSP Web site at www.tsp.gov.
Regardless of the rank or marital status, the Soldiers who make regular deposits to a savings account are by far the minority, and even fewer are planning for retirement, according to a recent survey by the Thrift Savings Plan. Of almost 20,000 uniformed and civilian federal employees surveyed, less than 21 percent of active duty service members are saving for retirement. Lack of funds was cited as the largest reason for not contributing to a savings or retirement account.
"Financial Management is an important part of Soldier readiness," said Kenneth O. Preston, Sergeant Major of the Army, in public service announcement to Soldiers. "Reducing debt and building personal savings takes time and discipline. To assist Soldiers and their Families in establishing a sound financial plan, Feb. 24 thru March 2 is designated Military Saves Week."
It is not just a retirement future that service members should be worried about. Unexpected emergency expenses can occur at any time and deplete savings, so Soldiers and Families are encouraged to plan for these unexpected expenses with a savings account.
Americans take out an estimated $2 billion a year in pay-day loans, which often charge as much as 500 percent interest, to cover emergency expenses, according to a recent report. A modest savings account in each household could ease the stress and prevent Soldiers from using predatory lenders in an emergency. It could also mean the difference between staying afloat and falling into serious debt.
"Save yourself by saving money," said Suze Orman, in a public service announcement to Soldiers during the Military Saves Campaign. She says Soldiers can do this by putting away small amounts of money in the Thrift Savings Plan, which builds up over time. "When you do that, a little becomes a lot and you will have the financial foundation you need, so you can always save yourself." Orman is a financial specialist for CNBC and author of "The Money Book for the Young, Fabulous & Broke."
For Soldiers, the risk of falling behind financially causes more problems; severe debt can result in the loss of security clearances and disciplinary or administrative actions. It also adds to their stress when they deploy, as they are distracted about payments, repossessions, and the welfare of their Families rather than focusing on the mission.
According to Templeton, financial security directly affects Army readiness by reducing stress for Soldiers and their Families. "Army saves equals Army Strong," he said.
The Army's Family and Morale, Welfare and Recreation Command, with the Office of the Chief of Public Affairs, is coordinating the Army's response to Under Secretary of Defense David Chu's message urging all departments to participate in Military Saves Week.
The Department of Defense has teamed with the Consumer Federation of America to provide tools, resources and financial counseling to service members through the Web site www.militarysaves.org to help with reaching financial goals.
Soldiers and their Families are encouraged to participate in a variety of events especially geared to promoting savings. Many installation credit unions and banks are participating by offering reduced minimum deposits for savings accounts and special offers to service members to entice them to make short- and long-range savings plans.