By Margaret McKenzieMarch 1, 2007
ALEXANDRIA, Va. (Army News Service, March 1, 2007) - The Thrift Savings Plan, a voluntary savings and investment retirement program for federal employees and uniformed servicemembers, 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, according to Isaac Templeton, chief of transition support services at the 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 Pilot 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 it as pay. The contributions are not considered taxable gross income for the year in which they are contributed. The Internal Revenue Code allows Soldiers to contribute up to $45,000 to TSP this year.
The Savings Deposit Program (not to be confused with TSP) is also available to Soldiers serving in designated combat zones. Participants may deposit all or part of their unalloted pay into a DoD savings account, up to $10 thousand during a single deployment. Interest accrues on the account at an annual rate of 10% and compounds quarterly. While federal income earned in hazardous duty zones is tax-free, interest accrued on earnings deposited into the SDP is taxable.
A recent TSP survey shows that Soldiers who make regular deposits to a savings account are by far the minority, and even fewer are planning for retirement. Of almost 20,000 uniformed and civilian federal employees surveyed, less than 21 percent of active-duty servicemembers 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. 25 thru March 4 is designated Military Saves Week."
Retirement is not all Soldiers should be saving for. Unexpected emergency expenses can occur at any time and deplete savings, so Soldiers and families members are encouraged to plan for these unexpected expenses with a regular savings account, said Templeton.
A modest savings account in each household could ease the stress and prevent Soldiers from using predatory lenders, who may charge as much as 500 percent interest, 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 TSP, which builds up over time. "When you do that a little, it 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, severe debt can result in the loss of security clearances and disciplinary or administrative actions. It also adds to their stress during deployment, as they are distracted about payments, repossessions and the welfare of their dependents rather than focusing on the mission.
For more information on saving money go to www.militarysaves.org.
(Margaret McKenzie writes for the Family and Morale, Welfare and Recreation Command.)