Military retirement plans are separate from 401(k)s, but service members can use both

The military does not offer a 401(k). Instead, active-duty service members and retirees participate in either the Military Retirement System (MRS) or the Thrift Savings Plan (TSP), depending on when they joined. The TSP functions similarly to a 401(k) — it is a tax-deferred savings account where you contribute a percentage of your pay — but it is not a 401(k). The key difference is that the military retirement benefit itself is a defined-benefit pension, not a defined-contribution plan like a 401(k).

If you are a service member, you cannot open a traditional 401(k) through your employer because the military does not sponsor one. However, you can open an individual 401(k) or a SEP IRA if you have self-employment income outside the military. Many military members use the TSP as their primary retirement savings vehicle while on active duty, then add other retirement accounts after separation.

Key Takeaways

  • The military offers the Thrift Savings Plan (TSP) instead of a 401(k), which works like a 401(k) but is a federal employee plan with lower fees.
  • Active-duty service members receive a military pension after 20 years of service, separate from TSP contributions.
  • You can contribute to both the TSP and an individual retirement account (IRA) at the same time while on active duty.
  • After leaving the military, you can roll over your TSP balance into a traditional IRA or 401(k) if you choose to move it.

The Thrift Savings Plan (TSP) versus a 401(k)

The TSP is the military's version of a 401(k). You contribute a percentage of your base pay before taxes, the money grows tax-deferred, and you can withdraw it after age 59½ (with some exceptions). The TSP is available to all active-duty service members, National Guard members, and federal employees.

The main differences from a civilian 401(k) are the investment options and fees. A TSP account offers five core index funds (Government Securities Fund, Fixed Income Index Fund, Common Stock Index Fund, International Stock Index Fund, and Small Cap Stock Index Fund) plus target-date funds. There is no employer match in the traditional sense — the military does not match TSP contributions the way many civilian employers match 401(k)s. However, service members hired after January 1, 2018, receive an automatic 1% contribution from the military and can earn up to an additional 4% in matching contributions if they contribute themselves. Those hired before that date do not receive automatic contributions or matching.

TSP fees are significantly lower than most 401(k)s. The expense ratios on TSP funds typically range from 0.02% to 0.05% annually, compared to 0.5% to 1% or higher in many civilian 401(k) plans. This difference compounds over decades and can mean thousands of dollars in savings.

Military pensions and how they differ from 401(k)s

The military pension is a defined-benefit plan, meaning you receive a may provide monthly payment for life after you retire. This is fundamentally different from a 401(k), which is a defined-contribution plan where your retirement income depends on how much you saved and how well your investments performed.

To receive a military pension, you must serve at least 20 years. Your pension is calculated as a percentage of your base pay at retirement — typically 50% after 20 years, increasing by 2.5% for each additional year of service. For example, someone retiring after 20 years with a base pay of $60,000 would receive $30,000 per year for life. This payment is not affected by market performance or how much you contributed to the TSP.

The pension begins immediately upon retirement if you separate after 20 years, or you can defer it until age 60 if you separate earlier. The TSP, by contrast, is money you can access or leave untouched based on your own needs and timeline.

Contributing to TSP while on active duty

You enroll in the TSP through your military branch's personnel system. Contributions come directly from your paycheck as a percentage of your base pay. You can contribute up to the annual IRS limit, which changes each year — for 2024, the limit is $23,500 for those under 50 and $31,000 for those 50 and older (including catch-up contributions).

You choose how your contributions are invested among the five core funds or target-date funds. You can change your investment allocation at any time. Many service members use target-date funds, which automatically shift from stocks to bonds as you approach retirement age.

One advantage of the TSP is that you can borrow against your balance while still on active duty. You can take a loan for up to 50% of your vested balance (or $50,000, whichever is less) and repay it through payroll deductions. This option is not available in most civilian 401(k)s.

What happens to your TSP after you leave the military

When you separate from the military, your TSP account remains yours. You do not have to withdraw it immediately. You can leave the money in the TSP indefinitely, continue to invest it, and withdraw it on your own schedule starting at age 59½ (or earlier with a 10% penalty, with some exceptions).

Alternatively, you can roll over your TSP balance into a traditional IRA or a 401(k) offered by a civilian employer. A rollover does not trigger taxes or penalties — it simply moves the money from one account to another. Some people roll over to access more investment options or lower fees elsewhere; others keep the money in the TSP because the fees are already very low.

If you separate before 20 years of service, you do not receive a military pension, but your TSP contributions and any matching contributions (if you were hired after 2018) remain yours to keep.

Can military members open a separate 401(k)?

You cannot open a traditional 401(k) through the military because the military does not sponsor one. However, if you have self-employment income — from a side business, freelance work, or consulting — you can open a Solo 401(k) or a SEP IRA to save that income separately from your military pay.

Many military members use this strategy to save additional money beyond the TSP limit. A Solo 401(k) allows you to contribute as both an employee and an employer, which can result in higher annual contributions than a traditional IRA. A SEP IRA is simpler to set up and maintain but has lower contribution limits.

You can contribute to the TSP and a Solo 401(k) or SEP IRA in the same year. The TSP contributions count toward the overall annual limit for defined-contribution plans ($69,000 in 2024 for those under 50), so your combined contributions across all accounts cannot exceed that limit.

Frequently Asked Questions

Can I withdraw from my TSP before age 59½?

You can withdraw from your TSP before 59½ if you separate from the military, but you will owe income tax on the withdrawal plus a 10% early withdrawal penalty unless you meet a specific exception. One exception is the "Rule of 55," which allows withdrawals without the 10% penalty if you separate from the military in the year you turn 55 or later. Another exception is substantially equal periodic payments (SEPP), where you withdraw a fixed amount annually based on your life expectancy.

Does the military match TSP contributions?

It depends on when you joined. Service members hired after January 1, 2018, receive an automatic 1% contribution from the military and can earn up to an additional 4% in matching contributions if they contribute themselves. Those hired before 2018 do not receive automatic contributions or matching, though they can still contribute to the TSP.

What happens to my TSP if I die?

Your TSP balance goes to your designated beneficiary. You name a beneficiary when you open your TSP account and can change it at any time. If you do not name a beneficiary, the money goes to your estate and is distributed according to your will or state law.

Can I roll my TSP into a civilian 401(k)?

Yes. After you separate from the military, you can roll over your TSP balance into a traditional IRA or a 401(k) offered by a civilian employer. The rollover does not trigger taxes or penalties. Some people do this to access more investment options, though the TSP's low fees often make it a good place to leave the money.

Is the TSP better than a civilian 401(k)?

The TSP typically has lower fees than civilian 401(k)s, which can save you thousands over time. However, it offers fewer investment choices — only five core funds plus target-date funds, compared to dozens or hundreds in many 401(k)s. The best choice depends on your investment preferences and whether your civilian employer offers a 401(k) match, which the military does not (except for those hired after 2018).