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Money and Mobility
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Smart Move |
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You will receive income from the Uniformed Services Retirement System when you retire from the military. |
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If you are a younger servicemember, retirement may seem a
long way off. The good news is that the longer you have until
retirement, the easier it can be to build funds for a comfortable
and secure retirement—especially if you choose tax-advantaged
plans. You have a number of excellent retirement investment
plan choices.
Retirement Plans for Servicemembers
You will receive income
from the Uniformed Services Retirement System when you retire
from the military. The amount depends on your years of service
and rank at retirement. You have no investment decisions
to make about your participation in this plan. Another retirement
plan you can choose to join is the Thrift Savings Plan (TSP).
The amount you receive at retirement from your TSP depends
on how much you invest and what investments you choose.
Here’s a summary of how TSPs work.
Thrift Savings Plans At a Glance
| Eligibility |
Contributions |
Tax Benefits |
Investment Choices |
| As soon as you join the military |
• Up to 10 percent of basic pay each pay period.
• Plus, up to 100 percent of incentive or special
pay, including bonus pay. |
• Contributions from basic pay (taxable income)
are tax deferred.
• Contributions from combat zone pay (nontaxable
income) are tax exempt.
• Earnings are tax deferred until you withdraw
them. |
• Government Securities Fund
• Fixed Income Index Fund
• Common Stock Index Fund
• Small Capitalization Stock Index Fund
• International Stock Index Fund
• Lifecycle Funds |
When you leave the military, you can have
money in your TSP “rolled over”
(transferred) to a new employer’s retirement plan or
a Traditional IRA. There’s
a lot more information about TSPs on the Thrift Savings Plan Web site.
Other Tax-Advantaged Retirement Plans
Many nonmilitary employers offer civilian versions
of the TSP called 401(k) and 403(b) plans. Perhaps your
spouse is eligible to participate in one of these plans. In addition, both servicemembers and civilians may
be eligible to open IRAs or Roth IRAs. The following
is more detail about these retirement plan choices.
Other Tax-Advantaged Retirement Plans
| Plan |
Eligibility |
Contributions |
Tax Benefits |
Investment Choices |
| 401(k) or 403(b) |
• Determined by the employer; usually requires
employment for a certain period of time. |
• A percentage of your pay, usually deducted
monthly. May require a minimum of 1 to 2 percent to participate
in the plan with a maximum of 10 to 15 percent.
You can change the percentage annually.
• Your employer may match the amount of your
contributions. |
• Contributions are tax deferred.
• Earnings are tax deferred until you withdraw
them.
• Matching contributions and earnings are tax deferred. |
• Set by each plan.
• Minimum of three investment choices. Average plan offers eight
to 12 alternatives.
• Some plans offer brokerage accounts, giving
you a choice of investments from the full range
of stocks, bonds, mutual funds, and other types
of assets rather than having to choose among the
plan’s alternatives. |
| IRA |
• Must have earned income of at least $4,000. |
• Contributions may be made any time up
to your tax filing date for that year (April 15
for most people). Maximum of $4,000 if under age
50 (2005); maximum of $4,500 if over age 50 (2005).
• You may “roll over” proceeds
from a TSP or
401(k) plan into an IRA any time. |
• Contributions may be tax deductible, depending on income and employment.
• Earnings are tax deferred until you withdraw
them. |
Determined by where you open your IRA:
• Bank
• Credit union
• Mutual fund company
• Brokerage firm |
| Roth IRA |
• Must have earned income of at least $4,000,
but no more than $110,000 for single taxpayers
and $160,000 for couples. |
• Contributions may be made any time up
to your tax filing date for that year (April 15
for most people). Maximum of $4,000 if under age
50 (2005); maximum of $4,500 if over age 50 (2005). |
• Contributions are not tax deductible and
can be withdrawn any time without taxes or fees.
• Earnings may be withdrawn tax-free as long
as the account has been open at least five years and you are
59 1/2 or older. |
Determined by where you open your IRA:
• Bank
• Credit union
• Mutual fund company
• Brokerage fi rm |
Protect Your Retirement Money When Changing Jobs
Tip: When you get ready to leave the military, or your spouse is changing jobs, protect the value of your retirement funds by “rolling over” (transferring) your money from a TSP, 401(k), or 403(b) into an IRA. The safest way is to have the funds transferred directly from one institution to another. That way you won’t be tempted to spend the money you have saved—and you won’t get stuck paying what can be significant taxes and penalties.
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