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Suggest a Feature →TSP: Free Money You're Leaving on the Table
General information, not legal advice. For legal issues, contact Trial Defense Service (TDS) or your Legal Assistance Office.
“TSP doesn't matter because you'll get a pension if you do 20 years. And the government match is only like 1%.”
The government automatically contributes 1% of your base pay to TSP and matches your contributions up to an additional 4%, for a total of 5% free money. If you're not contributing at least 5%, you are literally refusing free compensation.
How The Match Works
Automatic 1%: The government puts 1% of your base pay into your TSP regardless of whether you contribute anything. You get this for free just for serving.
Matching contributions: On top of that 1%, the government matches your contributions dollar-for-dollar on the first 3% you contribute, and 50 cents on the dollar for the next 2%.
Here's the math for an E-4 with 3 years (base pay ~$2,800/month):
- You contribute 5% = $140/month
- Government auto 1% = $28/month
- Government match on first 3% = $84/month (dollar for dollar)
- Government match on next 2% = $28/month (50 cents on dollar)
- Total going into your TSP: $280/month. You only put in $140.
That's a 100% return on your money before investments even grow.
The Vesting Schedule
The automatic 1% and matching contributions are subject to a vesting schedule. You must serve at least 2 years to be fully vested in the government's contributions. If you leave before 2 years, you lose the matching contributions (but keep everything you contributed).
Which Fund To Choose
The default fund is the Lifecycle (L) fund closest to your expected retirement date. This is actually a reasonable default — L funds automatically adjust from aggressive (stocks) to conservative (bonds) as you get closer to retirement.
If you want more control, the key funds are:
- C Fund: Tracks the S&P 500 (large US companies)
- S Fund: Small and mid-cap US companies
- I Fund: International stocks
- F Fund: US bonds
- G Fund: Government securities (lowest risk, lowest return)
Many financial advisors suggest young service members put most of their TSP in C and S funds for long-term growth, since you have decades before retirement.
Roth vs Traditional TSP
Traditional TSP: Contributions are pre-tax. You pay taxes when you withdraw in retirement.
Roth TSP: Contributions are after-tax. Withdrawals in retirement are tax-free.
For most junior enlisted and junior officers, Roth TSP is often the better choice because you're likely in a lower tax bracket now than you will be in retirement. But this depends on your individual situation.
What To Do Right Now
1. Log into myPay and set your TSP contribution to at least 5% 2. Check which fund your money is going into 3. Consider switching to Roth TSP if you're in a low tax bracket 4. Set a reminder to increase your contribution by 1% every time you get promoted
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Contact your installation's Trial Defense Service (TDS) for UCMJ matters, or Legal Assistance Office for general legal issues. These services are free for active duty service members.