Federal Retirement Thrift Investment Board Paula Austin Gradwell TSP Liaison Specialist 1250 H Street, NW, Washington, D.C Army Awareness/Participation in the Thrift Savings Plan

TSP Awareness/Participation Improving Army awareness and participation Participation Rates What is the TSP TSP Benefits Contribution Rules

TSP Awareness/Participation (cont’d) Investment options Loan program In-service withdrawals Post-service withdrawals Death benefits

Improving TSP Awareness and Participation  The Secretary of Defense recently expressed interest in making service members aware of potential benefits of the TSP program  The Secretary of Defense has asked for semiannual updates beginning 1 Jun 06 on participant numbers and improvements in TSP awareness/participation from each service  Currently the Army has the lowest participant rate of any service  Deputy Assistant Secretary (Human Resources) established a working group to develop and implement a plan to improve TSP awareness and participation

Uniformed Services Participation Rates Active Duty September % 20% 30% 40% 50% 60% 70%

Recommendations to Improve TSP Awareness and Participation  Development of an Army Communication Plan to increase awareness of TSP  Incorporate information on TSP into recruiting and retention programs  Increase emphasis on TSP benefits in existing Army and DoD personal financial readiness programs and initiatives  Provide periodic TSP information briefings at the installation and/or unit level  Establish periodic TSP enrollment campaigns  Incorporate information on TSP into professional military education

What is the Thrift Savings Plan?  Defined contribution plan established as part of the Federal Employees’ Retirement System (FERS) Act of 1986  The TSP was established to enable FERS covered employees to receive a total retirement benefit equitable to Civil Service Retirement System (CSRS) counterparts  Integral part of FERS benefit  Supplemental benefit for CSRS  In January 2002, the TSP was opened to members of the Uniformed Services as a supplemental benefit

Comparison of Federal “Pensions” Understanding Why Some Civilians Receive Matching Contributions Basic Pension Formulas:  Uniformed Services formula* is 2.5% for each year of service (20 years = 50%; 30 years = 75% of final or high 3; If REDUX taken, 20 years = 42% of high 3; 30 years = 75% of high 3)  CSRS** formula 2% for each year of service (20 years = 36 ¼%; 30 years = 56¼% of high 3)  FERS** formula is 1% for each year of service, formula increases to 1.1% for each year if age 62 or older with at least 20 years of service (20 years = 20%; 30 years = 30% of high 3)

 Federal Retirement Thrift Investment Board (Board) administers the TSP  By Statute, TSP contributions are deferred from Federal income taxes  Members of the Uniformed Services can make contributions to the TSP from Combat Zone Tax Exempt (CZTE) pay  TSP is taxable when withdrawn, except for tax-exempt contributions. Earnings attributable to tax-exempt contributions are taxable when withdrawn  State tax-deferred benefits for TSP are determined by each state What is the Thrift Savings Plan?

Who Is Eligible for TSP?  Active duty members of the Uniformed Services  Members of the Ready Reserve in any pay status

What are some of the Benefits of the Thrift Savings Plan?  Ease of making contributions to the TSP using MyPay  Low cost way to invest for the future  Advantage of tax deferred or tax exempt contributions  Transfer or rollover other qualified plans into the TSP  Choice of diversified investments to include the TSP “lifecycle funds”  Option of keeping the TSP account or transferring the account to another qualified plan or IRA after separation/retirement from the military

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Army Point of Contact to Order TSP Publications Eduardo Marquis Phone: (703)

Thrift Savings Fund Expense Ratio

Enlisted Soldier Career Participation in TSP Enlisted (E-3) age 20 starts contributing to TSP January Contributes a percentage at the same numerical number as the pay grade held ( E-3 is 3%, E-4 is 4%, etc.). Contributions are from base pay only (no bonus, special, incentive, over 50 catch-up, etc.). Figures computed using DoD 2006 pay table. Annual rate of return 7%. Contribution $2,541 Earnings $342 Contribution $37,139 Earnings $27,354 Contribution $89,857 Earnings $114,075 Contribution $89,857 Earnings $578,243 Contribution $89,857 Earnings $452,025

Enlisted Soldier Career Participation in TSP ($10,000 Bonus) Enlisted (E-3) age 20 starts contributing to TSP January Contributes a percentage at the same numerical number as the pay grade held ( E-3 is 3%, E-4 is 4%, etc.). Contributions are from base pay and $10,000 froml enlistment bonus. Figures computed using DoD 2006 pay table. Annual rate of return 7%. Contribution $12,541 Earnings $3,561 Contribution $47,139 Earnings $57,737 Contribution $99,857 Earnings $ Contribution $99,857 Earnings $970,718 Contribution $99,857 Earnings $655,332 Contribution $99,857 Earnings $970,718

Senior Officer/Enlisted Member Participation in TSP Senior Officer or Enlisted member makes either $500 or $750 contribution to TSP for 10 years. The first figure is contribution and earnings for 10 year period. Second figure is the growth if remaining in TSP for an additional 15 years. Annual rate of return 7%. Contribution $60,000 Earnings $26,678 Contribution $60,000 Earnings $186,941 Contribution $90,000 Earnings $40,017 Contribution $90,000 Earnings $280,411

TSP Tax Benefits  All participants receive a Federal tax deferral on contributions made to the TSP  Contributions are deducted from pay before Federal taxes are withheld  Federal taxes are computed and withheld from the reduced salary  Participants defer taxes on the TSP account until a withdrawal of the account is made  Tax deferral of TSP is determined by each State or County Example: E-6 (10 yrs) basic pay $2, TSP election x 10% TSP deduction: $ Basis for Federal tax withholding: $2, Taxable income $2, Annual Income Earned: $33, Annual TSP contributions: $ 3, Taxable Income: $29,921.40

Retirement Savings Contributions Credit MarriedHead of All otherCredit ($1,000 filing jointhouseholdfilersmax per person) $0-$30,000$0-$22,500$0-$15,00050% of contributions $30,001-$22,501-$15,001- $32,500$24,375$16,25020% of contributions $32,501-$24,376$16,251- $50,000$37,500$25,00010% of contributions Over $50,000Over $37,500Over $25,000Credit not available Adjusted Gross Income

Retirement Savings Contribution Credit  The tax credit reduces the amount of taxes owed  The amount of the reduction is based on: –the amount of taxes owed –the income bracket the participant falls under, and –The participant contributing to a plan like the TSP, or a tax- deductible IRA  Maximum reduction is the amount owed or the credit, but not more than $1,000 per saver  Information regarding the credit can be obtained from the IRS at Same married employee from previous page, sole wage earner in household Annual Income Earned: $33, (Not eligible for the tax credit based on taxable income earned) If employee contributes 10% to the TSP: Annual TSP contributions: $ 3, Taxable Income: $29, (Now eligible for the tax credit!) Federal taxes owed between $1 and $1, will be reduced. For example, if the participant owed $500 in taxes, the $500 tax liability would be eliminated; if the participant owed $2,000 in taxes then he would owe $1,000 after the credit is applied

Contribution Sources  Basic Pay  Incentive Pay (e.g. submarine, hazardous duty, aviation career incentive or enlisted flyer pay)  Special Pay (most other pay not listed as incentive or bonus pay)  Bonus Pay

TSP Contribution Rules Uniformed Services  Employee Contributions –Up to 100% of basic pay –Any percentage from incentive, special, and bonus pay –Contributions are subject to the Internal Revenue Code annual limitations section 402(g), elective deferral limit ($15,000 for 2006) ($15,500 for 2007) section 415(c), annual additions limit ($44,000 for 2006) ($45,000 for 2007) –Contributions deducted from Combat Zone Tax Exempt (CZTE) pay are subject section 415(c) limits but not 402(g)

TSP Contribution Rules Uniformed Services  Matching Contributions (If designated by Service Secretary) – Based on first 5% of basic pay –4% maximum  $1/$1 for 1st 3%  50¢/$1 for next 2% –Requires 6 year active duty obligation –Your service will provide information on requirements when offered

TSP Contribution Rules Uniformed Services  Congressional pilot program for uniformed services matching contributions –Pilot program for active Army enlistees only with a start date of April 2006 –Secretary selects limited number of MOS to be used –Matching is received for the period of the first enlistment only –Army must report on success of program to Congress in February 2007 –Through September ,635 recruits have selected the matching option –Congress extended the program for another year in the FY 07 Defense Authorization Act –Through 27 Oct FY 07, 831 recruits have selected the matching option

Over 50 Catch-Up Contributions  The catch-up contributions are tax-deferred but do not count toward the IRS elective deferral limit ($15,000 for 2006) ($15,500 for 2007)  Over 50 Catch-Up limit for 2006 is $5,000 and for 2007 is $5,000  To become eligible for the catch-up a participant must: –Be age 50 or older, or will turn age 50 in the calendar year the contribution is deducted from pay –Not be in the 6 month termination period because of a TSP financial hardship in-service withdrawal

TSP Transfers and Rollovers  Active or separated participants may transfer or rollover into the TSP money from: –Eligible employer plans under the I.R.C. e.g. 401(k), 403(a), 403(b) or 457(b) governmental plans –Traditional and SIMPLE individual retirement accounts or annuities (IRAs) under section 408(a) or 408(b) of the I.R.C. does not include Roth or education IRAs  Participant submits Form TSP-U-60 available from the TSP Web site. Participant certifies the amount transferred or rolled over includes tax-deductible/deferred amounts  The amount transferred or rolled over into the TSP account is allocated according to the current contribution allocation on file  The amount will be reflected as employee contributions in the account after it has been valued by the TSP

Contribution Allocation or Interfund Transfer? Allocates future contributions and loan payments until superseded by new allocation election ThriftLine, Web site or telephone request with TSP record keeper Column 1 of Form TSP-U-50 Change in allocation is generally effective as of close of business each day based on 12 noon ET cutoff Confirmation via web site or mail One-time transaction; account balance remains as invested until participant makes another interfund transfer ThriftLine, Web site or telephone request with TSP record keeper Column 2 of Form TSP-U-50 Change in account balance distribution is generally effective as of close of business each day based on 12 noon ET cutoff Confirmation via web site or mail When you want to “change” your investments, make sure you make the correct investment election! Contribution Allocation IFT

TSP Investment Funds  Government Securities Investment Fund (G Fund)  Fixed Income Index Investment Fund (F Fund)  Common Stock Index Investment Fund (C Fund)  U.S. Small-capitalization Stock Index Investment Fund (S Fund)  International Stock Index Investment Fund (I Fund)  Lifecycle Investment Funds (L Funds)

USA 48% Emerging Markets 7% Canada 3% EAFE Countries 42% World Stock Markets Allocation of Stock Market Value December 31, 2005

Initial L Funds Investment Allocation L 2040 L 2030 L 2020 L 2010

L Funds Investment Allocation L 2030 L 2020L 2010 L 2040

L Income Fund Investment Allocation Note: When each L Fund reaches its target date, its distribution will match the L Income Fund investment and it will “roll into” the L Income Fund. A new L Fund will be introduced when an L Fund reaches its target date.

Residential For purchase or construction of a primary residence and Types of Loans General Purpose No documentation required

In-Service Withdrawals  Age-based withdrawal  59 ½ or older  Financial hardship withdrawals

Post-Service Withdrawal Options  Automatic cashout  Leaving money in the TSP  Partial Withdrawal of at least $1,000  Full Withdrawal –Single payment –Monthly payments –Life annuity  Mixed Withdrawal

IRS Early Withdrawal Penalty If you separate/retire before the year in which you reach age 55 and you withdraw your TSP account in a single payment or series of monthly payments, you will be subject to the 10% early withdrawal penalty on all amounts received before you become age 59½. NOTE: If you separate on an service approved disability retirement, you may be exempt from the early withdrawal penalty. If you elect to receive monthly payments based on life expectancy or a TSP life annuity, this early withdrawal payments based on life expectancy or a TSP life annuity, this early withdrawal penalty does not apply. Death benefit payouts are also excluded. penalty does not apply. Death benefit payouts are also excluded.

TSP Death Benefits  To Whom –Form TSP-U-17, Information Regarding Deceased Participant –Based on Form TSP-U-3,Designation of Beneficiary Maintained at TSP record keeper If there is no TSP-U-3 on file at the TSP record keeper, then: –Statutory Order of Precedence Spouse, natural and adopted children, parents, estate, next of kin  How –Paid as a single payment Spouse subject to mandatory 20% Federal tax withholding Other beneficiaries subject to 10% Federal tax withholding (beneficiary can request waiver of tax withholding) –Spouse can Transfer entitled amount to IRA Eligible employer plan His/her TSP account No taxes withheld if transferred –Beginning January 2007, other beneficiaries can transfer entitled amount to an Inherited IRA

TSP Death Benefits  To Whom –Based on Form TSP-U-3, Designation of Beneficiary Maintained at TSP record keeper If there is no TSP-U-3 on file at the TSP record keeper, then: –Statutory Order of Precedence Spouse, natural and adopted children, parents, estate, next of kin  How –Form TSP-U-17, Information Regarding Deceased Participant –Paid as a single payment Spouse subject to mandatory 20% Federal tax withholding Other beneficiaries subject to 10% Federal tax withholding (beneficiary can request waiver of tax withholding) –Spouse may transfer entitled amount to IRA Eligible employer plan His/her TSP account No taxes withheld if transferred

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