No problem. Like I said, I just learned it myself. It’s good to know about this loophole, especially for people who leave the service but still want to take advantage of the extremely low costs in the TSP funds.

I probably wasn’t clear in the article, but I was referring to making new contributions. For example, I still have my TSP, but I cannot make contributions to the account with money earned elsewhere. Thanks for the comment!

We actually CAN contribute to our TSP after leaving the military. I recently learn how to do so myself, so I’m not bragging, just providing additional info.

To do so, the money must be considered an “eligible rollover distribution” for Federal income tax purposes. In other words, if we contribute to a traditional IRA during a year, file taxes, and wait to the money to clear as being eligible for rollover, we can sink this money into our TSP.

This info can be found in the “Summary of the Thrift Savings Plan” August 2010 newsletter, pg 7.

Why would we do so? Well, I’d gladly pay only .028% on $16,500 for the next twenty years as opposed to 0.82% for even the least expensive mutual funds.

Romeo

Then think about what would happen in the case of a divorce (I’m not implying anything for your situation, but that is the reality of many marriages nowadays)… How would the money be split? What if there was an agreement that one spouse would make all the retirement contributions from his/her check while the couple lived on the other check? It would work great until there was a need to split the money later.

I think it would just get to complicated.

“No matching funds for military. Unless you are civil service, you do not get matching funds. In that case, it is usually better to max out your Roth IRA before contributing to the TSP.”

There is some talk about altering the 20 yr pension for matching contributions. This is a poor way to implement the change. The government should keep the system the way it is and let the “market timers” make up the difference in annual returns

The Roth is great for younger military members because it gives them longer tax free growth and more tax diversification. Since they are already in a low tax bracket, the TSP won’t lower it.

In my opinion though, anyone just starting out can’t go wrong with either the TSP or a Roth IRA. The point is to get started. I also think the TSP is a great place to begin because there aren’t too many investment options, which can be overwhelming to new investors.