Servicemembers have another retirement option. The government-sponsored Thrift Savings Plan generally works like a 401(k) plan offered by some civilian employers. You may contribute any whole percentage of your basic pay, bonuses, incentives or special pays, before federal income taxes, up to an allowable maximum. The plan offers a variety of options.

Features Of A TSP

You can contribute to the TSP and to an IRA, although your IRA contribution may not be tax-deductible based on IRS rules.
You can contribute tax-exempt contributions to the TSP while deployed in a designated combat zone.
You can borrow from your TSP account without penalty; repayments and interest go back into your account.
As with any retirement account, you are subject to federal income taxes and penalties if you withdraw your money before you are age 59½. If, however, you separate from military service at age 55 or older, withdrawals from your TSP are not subject to IRS penalties.
When you leave military service you have several options with your TSP.

Take the money in a lump sum.
Select an annuity.
Establish monthly payments.
Leave the money in the TSP until you must withdraw at age 70½.
Roll over into an IRA or other retirement account.

The Heroes Earned Retirement Opportunities (HERO) Act allows servicemembers to contribute federal income tax-free combat pay to a Roth or traditional IRA.

To learn more about the TSP, visit the Thrift Savings Plan Web site at www.tsp.gov.

Health Insurance

When you retire, health care from military facilities may be limited and most retirees will turn to the TRICARE program. Gaps in TRICARE coverage are more significant for retirees and their families than for active duty personnel and out-of-pocket expenses can be much higher.

Medicare-eligible military retirees age 65 and older, their family members and survivors are now covered under the TRICARE program as secondary coverage to Medicare. This is called TRICARE For Life and it restores the military's promise of lifetime health care for those who retired from military service.

Medicare pays first and TRICARE pays second. Medicare-eligible retirees can use TRICARE pharmacy benefits, including military pharmacies, retail pharmacies and the TRICARE mail-order pharmacy. Also, TRICARE will cover most out-of-pocket costs after Medicare has paid its share.

If you leave the military before retirement, you can purchase health insurance similar to TRICARE for up to 18 months for servicemembers and up to 36 months for family members.

Life Insurance

When you retire from the military, Servicemembers' Group Life Insurance (SGLI) remains in effect at no cost for 120 days. It can be converted to Veterans' Group Life Insurance (VGLI) without proof of good health within 120 days of retirement, usually with an increased premium. VGLI is renewable term insurance and may be converted to a commercial life insurance policy from a participating company at any time.

Additional Survivor Benefits
The federal government provides three other forms of benefits that protect your family following your death.
Benefit	Description
Dependency And Indemnity Compensation (DIC)	Spouse receives the benefit for life (unless remarries prior to age 57). Child receives the benefit until age 18 (23 if in school). Benefit is exempt from federal income tax.
Survivor Benefit Plan (SBP)	No cost while on active duty. Once you retire you can choose to buy SBP coverage up to certain limits. Spouse receives the benefit for life (unless remarries prior to age 55). Reduced by amount of DIC benefit for spouse. Child may receive benefit until age 18 (unless married or active duty); until age 22 (if full-time student). Benefit is taxable for federal income tax purposes.
Social Security Survivor Benefits (if qualified)	Spouse receives the benefit until youngest child is age 16. Child receives the benefit until age 18 (19 if in school). Benefit may be taxed for federal income tax purposes or reduced depending on other sources of income.

Next: Creating A Retirement Budget

Updated Thursday, October 08, 2009

HELPFUL FORMS & LISTS

Understanding Your Pension Plan

Projected Retirement Budget Work Sheet