When you were in the military, you probably had access to a Thrift Savings Plan (TSP) to save for retirement and Servicemembers' Group Life Insurance (SGLI) to help your family in the event of your untimely death. But once you are no longer on active duty—what are your options? Should you change your TSP to a different type of retirement plan and take out a civilian life insurance policy? Here are a few factors to consider when exploring your post-military options.
Your TSP Options
Once you separate from active duty, you may keep your TSP plan. However, TSP contributions come from a federal government payroll deduction, so you may not be able to make any additional contributions unless you find other federal government employment. An alternative is to move TSP funds to a qualified retirement plan such as an eligible employer 401 (k) plan or an individual retirement account (IRA). If a qualified retirement plan does not accept tax-exempt contributions, any tax-exempt funds held in a TSP are paid directly to the TSP participant1
There are advantages and disadvantages to consider:
- Keeping your TSP as it is may help you to "set it and forget it"—you may be less tempted to change your retirement elections or modify your asset allocation. Even if you are no longer contributing to the TSP, you may continue to save for retirement by saving funds in a separate IRA, 401(k), or another retirement account.
- Moving your TSP funds to another qualified retirement account like a 401(k) or an IRA may allow you to continue making contributions and might increase your investment options.
- You may be able to fully or partially cash out the TSP account value if you are willing to pay taxes on the non-tax-exempt portion of the funds.
Ultimately, this choice for your TSP funds may depend on many factors, such as your risk tolerance, how actively you want to manage your retirement, your projected retirement date, and your future job prospects. Talking over your options with a financial professional may help you determine an appropriate choice for your situation.
Term Life Insurance
Once you separate from active military service, you may no longer have access to SGLI. However, there might still be some very good reasons to maintain a term life insurance policy. Suppose you have a spouse, a child, or another loved one who depends on your income or the care you provide. In that case, term life insurance may help pay bills in the event of your sudden or untimely death. The younger and healthier you are, the lower the premiums for term life insurance policies may be.
Some term life insurance policies are specifically designed for military veterans and may provide seamless coverage once you are no longer eligible for SGLI. It makes sense to consult a financial professional about Life insurance to help determine whether continuing to maintain life insurance is appropriate for your situation and to assess just how much coverage you may need for how long.
This material was created for educational and informational purposes only and is not intended as ERISA, tax or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material.
Investing involves risks including possible loss of principal.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by WriterAccess. 1 https://www.tsp.gov/publications/tspfs05.pdf
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