Leverage Military Benefits and Keep More of Your Hard-Earned Money

For U.S. military families, tax season offers unique opportunities to save, thanks to the special benefits and exemptions provided for active-duty members. With the year’s end fast approaching, now is the perfect time to take action to reduce your tax liability and maximize your financial resources.

Here is one major action you can take right now to reduce your taxable income and increase your wealth building before Dec. 31, 2024.

Maximize Contributions to the Thrift Savings Plan (TSP)

The TSP offers a retirement savings option exclusively for military members and federal employees. Contributions to the traditional TSP lower your taxable income, while Roth TSP contributions grow tax-free.

MAX OUT! For 2024, the maximum amount an active-duty U.S. military member can contribute to their Thrift Savings Plan (TSP) is $23,000. Additionally, if you are 50 years old or older, you can contribute an extra $7,500 as a “catch-up” contribution, bringing your total possible contribution to $30,500 for the year.

These contributions are an excellent way to save for retirement while taking advantage of tax benefits, so maximizing them before the end of the year can be a smart financial move.


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Within the Thrift Savings Plan (TSP), you have five core investment options and additional options through the Lifecycle (L) Funds, which combine these into diversified portfolios.

Here are the primary choices:

Core TSP Funds

  1. G Fund (Government Securities):
    Offers steady but low-risk returns by investing in U.S. Treasury securities specially issued to TSP. Principal and interest are guaranteed, making it a very safe option but with lower growth potential.
  2. F Fund (Fixed Income):
    Tracks the Bloomberg U.S. Aggregate Bond Index, providing exposure to the bond market. It involves moderate risk and offers the potential for returns from interest income and bond price changes.
  3. C Fund (Common Stocks):
    Mirrors the performance of the S&P 500 Index, investing in large-cap U.S. companies. It has higher risk and the potential for significant growth over the long term.
  4. S Fund (Small Cap Stocks):
    Tracks the Dow Jones U.S. Completion TSM Index, providing exposure to smaller U.S. companies not in the S&P 500. This fund has high growth potential but also higher volatility.
  5. I Fund (International Stocks):
    Tracks the MSCI EAFE Index, investing in large-cap international companies from developed countries. It offers global diversification but comes with risks like currency fluctuations and foreign market volatility.

Lifecycle (L) Funds

L Funds combine the core funds into diversified portfolios based on a target retirement or withdrawal date. They automatically adjust from more aggressive to more conservative as the target date approaches.

Deploying?

Then take advantage of the Savings Deposit Program (SDP) for high-interest savings during deployment.

Top 3 TSP Investments for Long-Term Gains (Next 10 Years)

  1. C Fund (Common Stocks):
    • Reason: Historically, large-cap U.S. stocks have provided strong long-term growth. The S&P 500 has shown resilience and consistent performance, making the C Fund a reliable choice for wealth-building over a decade.
  2. S Fund (Small Cap Stocks):
    • Reason: Small-cap stocks offer higher growth potential than large-cap stocks. Over a 10-year horizon, the volatility can be smoothed out, and the S Fund may outpace larger companies in returns.
  3. L 2040 or L 2050 Fund:
    • Reason: These funds provide diversified exposure with an aggressive allocation to stocks for growth. They automatically rebalance and gradually shift toward more conservative investments as the target date approaches, offering a mix of growth and risk management.

Considerations

  • Risk Tolerance: The C and S Funds have higher risk but also higher return potential. Consider diversifying your investments if you prefer less volatility.
  • Time Horizon: If you’re planning to retire within 10 years, consider an L Fund closer to your timeline, such as L 2030, for more conservative growth.
  • Global Diversification: The I Fund can add international exposure, which may provide additional growth depending on global economic trends.

Get Started Now!  Enroll in TSP

Investing in the Thrift Savings Plan (TSP) is a straightforward process for U.S. military members, and it doesn’t require going through a broker or a military bank.

Here’s how you can start:

1. Enroll in the TSP

Active-duty military members are automatically eligible for the TSP. You can enroll through your myPay account on the Defense Finance and Accounting Service (DFAS) website or your respective branch’s payroll system.

2. Set Up Contributions

  • Log into myPay or your branch-specific payroll system.
  • Choose the percentage of your basic pay, special pay, or bonuses to contribute.
  • You can allocate contributions to either the Traditional TSP (pre-tax contributions) or the Roth TSP (post-tax contributions).

3. Allocate Funds

Once enrolled, you’ll need to allocate how your contributions are invested across the TSP core funds:

  • Log in to the TSP website (www.tsp.gov) using your TSP account credentials.
  • Go to the “Contribution Allocation” or “Interfund Transfers” section.
  • Select the percentage of your contributions to be invested in each fund (e.g., G, F, C, S, or I Fund).

4. Adjust Contributions as Needed

You can change your contribution amounts and allocations at any time through myPay or the TSP website. Periodically revisiting your investment choices can help align them with your financial goals.

Maximize Your Tax Savings: 10 Essential Steps for U.S. Military Middle-Class Families Before December 31, 2024

Tips for Maximizing Your TSP Investment

  • Contribute Consistently: Aim to contribute at least enough to maximize your yearly contribution limit ($23,000 in 2024).
  • Automate Increases: Use the automatic escalation feature to increase your contributions over time.
  • Diversify: Consider diversifying across funds to balance risk and potential returns.
  • Seek Advice: Utilize free financial counseling services offered on base or consult with a certified financial planner familiar with military benefits.

The TSP is a government-managed program, so you don’t need a broker or private bank to participate. It offers low fees, making it an excellent long-term savings vehicle for military members. If you’re unsure how to start, contact your base’s finance office or visit the TSP website for guidance.

IMPORTANT: For personalized advice, consider consulting a financial advisor familiar with military benefits and TSP investment options.  Or you can just contact me and I will coach you through the process and provide coaching on all things money.  So schedule a free call now and let’s do this!


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