LEVEL FOUR / I'M AN ACADEMY CADET!
Lesson 3: Your Ensign TSP
The Thrift Savings Plan (TSP.gov) is a retirement plan for the military and federal employees, very similar to a civilian 401(k), but even better. Unfortunately, you aren’t allowed to contribute to your TSP as a cadet. In fact, back when I was a 3/c and learned about the TSP I eagerly asked Cadet Admin if we could participate. Despite my multiple pleas, the answer was always “wait until you’re an Ensign.” By the end of this lesson, you'll have learned: 1) the basics of the TSP, and 2) a "hack" on how to max your TSP as an Ensign.
The hack
You’ll get your commission in May of 2020 and will have about 7 full months of Ensign base pay, which will probably total about $22,000. The current TSP max per year is $19,000, and may even be $19,500 by 2020. (It goes up by $500 every few years for inflation.) Since you’ll only earn $22,000 in 2020, it’d be hard to put $19,500 into your TSP. You’d have barely any money to live on, except for some BAH savings if you choose to live with classmates (an excellent idea, by the way.)
So the idea is to stash some cash away now and earmark it for your 2020 TSP contribution. Since you can’t just write a check to your TSP account, you’ll have to jack up your TSP contribution percent (to say 85%), which will route almost all of your base pay to your TSP account. Then, you’ll use the cash you earmarked to live on. Essentially you are shifting money from one bucket to another. (In late 2020 when your shipmates ask you how you could possibly max out your TSP for the year, you can say you read this great article last year and you set aside $15,000 of your car loan for this very reason)!
did ens shaye do this?
I didn’t think of this strategy until recently, so I wasn’t able to max my TSP my first year as an Ensign. Fortunately, I learned quickly and I maxed it every year after that. Alas, I have just one ding on my otherwise perfect TSP contribution record :) Remember that if you are part of the Blended Retirement System (BRS), you’ll want to evenly spread your TSP contributions out across the entire year, in order to max your matching funds from the government. In other words, don’t front-load your TSP and max it early -- you won’t get the full 5% government match!
other uses
You could also use some of the earmarked money for your 2020 Roth IRA contribution. That window opens on Jan 1, 2020. Remember to keep the earmarked money in a high yield savings account and ensure it’s earning at least 2.10%. You may be tempted to invest it in the stock market, however, since it will be needed in 12-18 months, I suggest keeping it in cash. This can also serve as an emergency fund should you need it sooner.
Hungry for more TSP info?
You're in luck! CDR Shad Thomas wrote an excellent article about the TSP in the Bulletin. Then a year later, CDR Thomas and I co-authored an article about the differences between Roth and Traditional TSP Contributions.