Thrift Savings Plan (TSP) for Veterans

The Thrift Savings Plan (TSP) is the federal government's defined-contribution retirement plan, similar to a private-sector 401(k). Military members under the Blended Retirement System (BRS), effective January 1, 2018, receive automatic 1% contributions and up to 4% matching from DoD. Legacy (High-3) retirement system members can contribute but receive no match.

When a servicemember separates, their TSP account does not disappear. They retain full access and multiple options.

TSP's total expense ratio is approximately 0.035% (about $0.35 per $1,000 invested per year) — less than 1% of the roughly 170,000 investment funds tracked by FactSet report expenses below this level.

Source: tsp.gov; TSP Expenses and Fees

Per TSP Fact Sheet 29, your account stays open as long as your vested balance is $200 or more. The account continues to grow, and you can still change your investment allocations. You cannot make new contributions unless you become a federal civilian employee.

Four Withdrawal Options

1. Keep the account open — money stays invested, no taxes owed until withdrawal. You can still change fund allocations and make interfund transfers.
2. Partial withdrawal — take out some funds while leaving the rest invested. Minimum partial withdrawal is $1,000.
3. Full withdrawal (total distribution) — receive your entire TSP balance. Subject to income tax on the Traditional balance; Roth qualified distributions are tax-free.
4. Installment payments — receive regular payments monthly, quarterly, or annually. You can also purchase a life annuity from MetLife through TSP for guaranteed lifetime payments.

How to request: Log in at tsp.gov (My Account) or call the ThriftLine at 1-877-968-3778.

Source: TSP Withdrawals in Retirement; TSP Fact Sheet 29

Per IRS Notice 2025-67 (IR-2025-111) and TSP Bulletin 25-3:

Maximum Possible Contributions in 2026

• Under age 50: $24,500
• Age 50+ (not 60–63): $24,500 + $8,000 = $32,500
• Ages 60–63: $24,500 + $11,250 = $35,750

Source: IRS IR-2025-111; TSP Bulletin 25-3; TSP Contribution Limits

TSP offers 5 individual funds and a series of Lifecycle (L) funds:

L Funds (Lifecycle): Target-date funds that automatically rebalance a mix of G, F, C, S, and I funds, becoming more conservative as the target retirement date approaches. Available: L Income, L 2030, L 2035, L 2040, L 2045, L 2050, L 2055, L 2060, L 2065. L Funds have no separate expenses — they reflect the weighted expenses of their underlying funds.

Source: TSP Individual Funds; TSP Lifecycle Funds

Traditional TSP

• Contributions are pre-tax (reduce current taxable income)
• Withdrawals are taxed as ordinary income
• Tax-exempt combat zone contributions to Traditional TSP are tracked separately — those specific contributions are not taxed again on withdrawal, but earnings on them are taxable

Roth TSP

• Contributions are after-tax (no current tax break)
• Qualified distributions are completely tax-free (contributions AND earnings)
• Qualified = account open 5+ years AND you are age 59½, permanently disabled, or deceased
• Combat zone tax-exempt pay contributed to Roth is effectively double tax-free — never taxed going in, never taxed coming out (if qualified)

When Each May Be Better

Source: TSP Traditional and Roth Contributions

• Repayment after separation can be made by direct debit, check, or money order (no more payroll deductions)
• A taxable distribution triggers income tax on the amount and potentially a 10% early withdrawal penalty if you are under age 59½ (unless the age 55 separation rule applies)
• After a taxable distribution is declared, you may be able to roll over the taxable amount into an IRA or eligible employer plan within 60 days to avoid taxes and penalties — but you must have the cash from other sources since the money is gone from TSP

Source: TSP Loans

Rollover Compatibility

Bottom line: Always do a direct rollover to avoid the 20% withholding and 60-day risk.

Source: TSP Rollovers (Fact Sheet 5); IRS Topic 413; IRS Rollovers

Pay earned in a designated combat zone is partially or fully exempt from federal income tax. How tax-exempt pay interacts with TSP contribution limits matters — it can let deployed servicemembers contribute far more than the standard limit.

• Tax-exempt contributions to Traditional TSP: do NOT count toward the $24,500 elective deferral limit (§ 402(g)), but DO count toward the $72,000 annual additions limit (§ 415(c))
• Tax-exempt pay contributed to Roth TSP: never taxed going in (already tax-exempt) and never taxed coming out under Roth qualified distribution rules — effectively double tax-free
• Roth catch-up from combat zone pay: only Roth contributions toward the catch-up limit are allowed from combat zone tax-exempt pay
• Roth contributions from tax-exempt pay still count toward the $24,500 elective deferral limit
• Combat zone loans: you cannot take a TSP loan while deployed to a combat zone, but existing loan payments are suspended and the loan term is extended

Result: A deployed servicemember in a combat zone can potentially contribute well over $24,500 in a calendar year, up to the $72,000 annual additions limit.

Source: TSP Contribution Limits

Many servicemembers separate well before age 59½. The Separation of Service exception under IRC § 72(t)(2)(A)(v) allows penalty-free TSP withdrawals if:

• You separate from federal service (including military) during or after the calendar year you turn 55
• The funds stay in TSP — this rule does NOT apply if you roll the money into an IRA (then you must wait until 59½)
• It applies to the TSP account associated with the job you separated from

For those who separate before 55, the 10% early withdrawal penalty applies to most distributions until age 59½, unless another exception applies (total and permanent disability, 72(t) substantially equal periodic payments, etc.).

Source: IRC § 72(t)(2)(A)(v); tsp.gov withdrawal rules

• Under the SECURE 2.0 Act, the RMD age is 73 (for those born 1951–1959) or 75 (for those born 1960 or later)
• TSP participants must begin taking RMDs by April 1 of the year after reaching the applicable age
• If you don't withdraw enough, the IRS penalty is 25% of the shortfall (reduced from 50% by SECURE 2.0)
• Roth TSP balances are subject to RMDs (unlike Roth IRAs) — rolling Roth TSP to a Roth IRA eliminates this requirement

Source: IRS RMDs

• VA disability compensation is tax-free — not included in gross income (38 USC § 5301; IRS Publication 907)
• VA disability pay does not affect TSP withdrawals or their tax treatment
• VA disability pay is not “earned income” — it cannot be used as the basis for IRA contributions (you need earned income for that)
• If a veteran's only income is VA disability compensation and they withdraw from Traditional TSP, the TSP withdrawal is taxable as ordinary income — though the effective tax rate may be low since VA pay doesn't push them into higher brackets
• Disability exception: if you are totally and permanently disabled, you may be exempt from the 10% early withdrawal penalty regardless of age (IRS rules, not VA-specific)

Source: IRS Veterans Tax Information; IRS Pub 907; 38 USC § 5301