Take advantage of your military Thrift Savings Plan

I'm a Navy man, and have been since January 7 of this year. As a personal finance junkie, I could kick myself for failing to understand and take advantage of the military's Thrift Savings Plan when I was sworn in. It's not too late to take advantage of it, however, and it's definitely worth adding to my (and maybe your) personal finance toolkit.

I'll be summarizing a lot of what I learned at the Thrift Savings Plan official website, so if you've already been there, you won't find anything new here.

The Thrift Savings Plan is the equivalent of a 401(k) in the private sector, designed to provide retirement income for members of the military. It's a defined contribution retirement plan, meaning that the amount available at retirement is based on the returns seen by your contributions. This is different than the military retirement system, which is a defined benefit retirement plan, and pays the same amount at retirement for anyone who has served a specific amount of time and achieved a specific rank.

The Thrift Savings Plan is optional. That's why I missed the boat: I had the choice when I signed the Navy papers, but I didn't sign up for it. Don't worry, though, if you've done the same as me. You can sign up to contribute at any time, and start contributing in the first full pay period after your application is accepted. Your contributions are automatically deducted from your pay, and you can easily modify the contribution amounts at any time.

The neat thing about the TSP is that it is fully compatible with civilian retirement accounts. Upon leaving the service, you can roll your Thrift Savings Plan into a traditional IRA or 401(k). There are additional similarities between the TSP and civilian retirement accounts. For example, as with a traditional IRA, your contributions are tax deferred until withdrawal. Unfortunately, TSP does not offer matching contributions at this time. However, you can contribute up to 10% of your base pay and 100% of your special pay, with an annual limit of $14,000 (or $42,000 for those in tax-free combat zones).

If you're in the service, and you don't already have a retirement plan set up, take advantage of your Thrift Savings Plan. It's quick and easy to set up, easy to understand, and once you've done the initial paperwork, you may not have to think about it for 20 years.