Military savings accounts explained: Thrift Savings Plan, SDP and retirement strategies

Military service comes with access to special savings programs and retirement benefits that aren’t available to everyone. Military savings accounts are savings and retirement programs—including the Thrift Savings Plan (TSP) and the Savings Deposit Program (SDP)—that are available specifically to Servicemembers. Each account is designed for a different purpose, like short-term deployment savings or long-term retirement planning. These accounts can work together to support different financial goals over your military career.

Knowing how military savings accounts work and how they fit together can help you make confident choices about your money.

What’s the Thrift Savings Plan (TSP)?

The Thrift Savings Plan is a retirement savings account available to Servicemembers and federal employees. Think of it as the military’s version of a private-sector 401(k) or non-profit 403(b). The TSP is a tax-advantaged plan that lets you set aside some money each pay period to invest for retirement. 

Why do Servicemembers use the TSP? 

The TSP can be a good fit if you want a steady, long-term retirement option that’s simple to manage. It’s a government-sponsored plan, so the investment costs are among the lowest of any retirement accounts available. That means more of your money stays invested and working for you over time. Servicemembers in the Blended Retirement System (BRS) are also eligible to receive matching contributions from the Department of Defense (DoD). 

Traditional TSP vs. Roth TSP

The TSP offers 2 retirement savings options: traditional and Roth. The difference comes down to when you’ll pay taxes on your money.

Many Servicemembers choose a Roth TSP because they expect to be in a higher tax bracket later in life. That means they’ll pay taxes on the money they’re contributing now when they’re in a lower tax bracket, and they won’t owe taxes on the money they withdraw in retirement. Others prefer to contribute to a traditional TSP because it helps reduce their tax bill now. 

There’s no single right answer. Choose the option that fits your preferences and wealth-building strategy.

Contribution limits and matching opportunities

The IRS sets annual limits on how much money you can contribute to your TSP. Research the maximums and any catch-up contribution options before deciding how much to set aside. 

If you’re enrolled in the BRS, the DoD contributes 1% of your base military pay to your TSP, regardless of whether you contribute any money. If you choose to contribute from your base military paycheck, the DoD offers a match of up to 5%.

TSP investment options and strategies

Once you decide how you’ll contribute to your TSP, the next step is deciding where your money should be invested. You don’t need to be an investing expert to participate! The TSP offers several investment options designed for different comfort levels and time horizons.

The TSP isn’t a one-size-fits-all account. You can pick investment options based on how much risk you’re comfortable with and how far away your retirement is. The funds track different parts of the stock market, which helps give you more control over how your money is invested.

One option is to select from several individual funds:

5 core funds available in TSP

The G Fund is the most conservative option and the only one guaranteed not to lose value. The C, S and I Funds carry more investing risk, but they also offer more potential for long-term growth.

If you don’t want to build your own fund mix from the 5 core funds, Lifecycle (L) Funds provide a simple alternative. Each L Fund is a mix of those 5 core funds and automatically adjusts based on a target retirement date. As that date gets closer, the L Fund gradually shifts toward more conservative investments to help protect the wealth you’ve built.

Another option is the mutual fund window, which lets eligible Servicemembers access thousands of outside mutual funds. This is ideal for people who want more flexibility and control over how their money is invested. Just keep in mind that this option can come with additional fees.

Tips for maximizing your TSP savings

Consider adopting some consistent habits to help you get the most out of your TSP:

• Set up direct deposit so your savings can grow without any extra effort.
• Gradually increase your contribution rate after every pay raise.
• Review your fund mix at least once a year to make sure it still fits your financial goals.
• Maximize any eligible catch-up contributions (if you’re 50 or older).
• Contribute at least 5% of your base pay to capture the full available DoD match (BRS only).

What’s the Savings Deposit Program (SDP)?

The Savings Deposit Program (SDP) is administered by the Defense Finance and Accounting Service (DFAS) and available only during qualifying deployments. The SDP offers a guaranteed annual return of 10%, compounded quarterly, on up to $10,000 in savings. 

You can participate in the SDP if you’re serving in a designated combat zone, qualified hazardous duty area or certain contingency operations outside the United States for more than 30 consecutive days, or for at least 1 day in each of 3 consecutive months.

Why do Servicemembers use the SDP?

The SDP can be a smart option if you’re looking for a short-term, low-risk way to grow extra pay or bonuses during an eligible deployment. The rate of return is higher than most civilian savings accounts, but deposit amounts are capped per deployment.

How does the SDP work?

Once you’re eligible, you can start making deposits into your SDP account 31 days into a qualifying deployment. You can deposit unallotted pay, including bonuses, up to $10,000 per deployment. Your balance will earn a guaranteed 10% annual return that compounds quarterly. Interest continues to accrue for up to 90 days after you return home, which gives your savings a little extra time to grow.

Pay earned in designated hazardous duty zones is generally tax-free, but any interest you earn through the SDP is taxable. Withdrawals are typically available after you leave the combat zone. Emergency withdrawals may be approved earlier by your commanding officer.

How to take advantage of military pension programs

If you plan to serve for at least 20 years, a military pension can form the foundation of your retirement income. The BRS is the retirement plan for most Servicemembers who joined after Jan. 1, 2018. It combines a traditional pension with TSP matching contributions to give you 2 retirement income streams. 

Check out our guide to the military’s Blended Retirement System to learn how the BRS works and how it can fit into your retirement plan.

Other savings accounts to consider

The TSP, SDP and military pension are important savings tools that can be even more powerful when paired with other savings vehicles. Adding a few of these options to your savings portfolio can help you with different goals, from building an emergency fund to growing long-term wealth.

High-yield savings accounts

A high-yield savings account (HYSA) earns more interest than a standard savings or checking account. HYSA is ideal for earning returns on money you want to keep accessible, like your emergency fund or short-term savings goals. Keep an eye on rates, which can change over time, to make sure your account is still right for your savings goals.

Certificates

Certificates—like certificates of deposit (CDs) or share certificates—let you lock in a fixed interest rate for a set period of time. The longer the term, the higher the rate tends to be. They’re a predictable, low-risk way to earn more interest on money you won’t need to tap into for a while. The fixed interest rate is locked in for a set term, which makes it easy to estimate how much you’ll earn. Certificates can be a good fit if you want a lower-risk way to earn more interest on money you don’t need right away.

IRA accounts

An Individual Retirement Account (IRA) is a personal retirement savings account that gives you additional investment options. Like a TSP, IRAs also offer traditional and Roth options, depending on whether you prefer to pay taxes on your contributions (Roth) or your earnings (traditional). An IRA can be a good option if you want to supplement your TSP savings or prefer to have more investment options. IRAs can also be opened at banks and credit unions, often as IRA savings accounts or IRA certificates.

Tips to maximize savings across military savings accounts

The real power of military savings comes from using accounts together strategically. Each one serves a different purpose, and layering them can help you build wealth faster. 

Here’s a snapshot of the savings account types we’ve covered here—what each one is best suited for and where you can find them:

Many Servicemembers choose to contribute to their TSP so they can receive available DoD matching contributions, then use other accounts for different financial goals. For example, some people use a HYSA for emergencies and a Roth IRA for long-term, tax-advantaged growth. Some deployed Servicemembers choose to put money into the SDP because it offers a higher guaranteed return.

Set up your military savings accounts with Navy Federal Credit Union

Building savings across multiple accounts can be easier than it seems. Many Servicemembers start with military-specific programs, then add civilian accounts that support short- and long-term goals. 

Navy Federal offers savings, certificates and retirement savings accounts that complement the military benefits you’ve earned. Plus, you can use our MakingCents educational resources to keep learning about savings, retirement and investing.