How Military Retirement Benefits Work With a Civilian Job and a 401(k)

Quick question for anyone who just traded the uniform for a civilian badge. When HR set up your new 401(k), did anyone ask how much you already put in the TSP this year?

Probably not. Your new employer's payroll system has no idea the TSP exists, and that one gap can cost you money by next April.

After you retire from the military, you're running two benefit systems at once. The military side is the foundation, the civilian job gets built on top of it, and the planning goes a lot smoother when you take them in that order.

How your military retired pay is calculated

Your retired pay comes from three numbers multiplied together: a multiplier, your years of service, and your retired pay base. For anyone retiring today, that base is the average of your highest 36 months of basic pay.

The multiplier depends on your retirement system. High-36 pays 2.5% per year of service. The Blended Retirement System (BRS), which covers everyone who entered on or after January 1, 2018 plus anyone who opted in, pays 2.0% per year. Both need 20 years.

At 20 years, High-36 pays 50% of your base and BRS pays 40%. On a $6,000 monthly base, that's $3,000 a month under High-36 and $2,400 under BRS.

BRS makes up part of that gap through the TSP. The government adds an automatic 1% of basic pay and matches up to another 4%, so as much as 5% total. If you're under BRS, your TSP is part of your pension math and deserves the same attention.

Retired pay also gets a cost-of-living adjustment each year (2.8% for 2026). It's taxed federally, but Ohio lets you deduct military retirement income on your state return.

What to do with your TSP after you leave

Nothing, at least not right away. Your TSP stays where it is when you separate, and there's no deadline to move it.

The TSP is also one of the cheapest plans around. The C Fund's total expense ratio for 2025 was 0.035%, about 35 cents a year for every $1,000 invested, so compare that with your new 401(k) before you roll anything out.

Money can also move the other direction. You can roll a 401(k) or traditional IRA into the TSP after you've left service, and Roth 401(k) money can come over by direct rollover (Roth IRA money can't). Since January 28, 2026, the TSP also allows Roth in-plan conversions. The tax on a conversion has to be paid with money from outside the TSP, and once it's done you can't undo it.

What your VA rating pays, and when health care becomes free

VA disability compensation is paid monthly, rises each year with the same cost-of-living adjustment as Social Security, and isn't taxable. For 2026, a veteran with no dependents gets $180.42 a month at 10%, $1,132.90 at 50%, and $3,938.58 at 100%.

Your rating also decides what you pay for VA health care:

• With a rating of 10% or higher, you don't pay copays for VA inpatient or outpatient care.
• At 50% or higher, you move into Priority Group 1, and medication copays go away too.
• At 100%, you also qualify for comprehensive VA dental care.
• At any rating, care for a service-connected condition comes with no copay.

For the veteran, 50% is where VA care becomes close to free. One copay that can still show up in Priority Group 1 is $30 for urgent care after your third visit in a year.

VA health care covers you, not your spouse or kids. CHAMPVA, the VA's program for families, is only for families of veterans rated permanently and totally disabled who aren't eligible for TRICARE. Military retiree families are TRICARE-eligible, so their coverage usually runs through TRICARE or an employer plan.

There's one more threshold at 50%. Retirees with 20 or more years of service and a rating of 50% or higher can collect full retired pay and full VA pay through Concurrent Retirement and Disability Pay (CRDP). Below 50%, retired pay is reduced dollar for dollar by your VA amount, though the trade usually leaves you ahead after taxes because VA pay is tax-free. If your disability is combat-related, Combat-Related Special Compensation (CRSC) is a separate program worth checking.

How TRICARE works with an employer health plan

As a retiree, you and your family can keep TRICARE after you start a civilian job. What it costs depends on whether you're in Group A (entered service before January 1, 2018) or Group B (entered on or after). Here are the 2026 annual enrollment fees for retirees:

Set those next to what your new employer charges. You're allowed to keep both, and if you do, TRICARE pays after the employer plan by law. Whether both are worth paying for comes down to what each one costs your family against what it covers. A rated veteran might use the VA for their own care while the family stays on TRICARE or the employer plan.

Turning 65 changes the setup. TRICARE For Life requires Medicare Part B. If you're still working at 65 with employer coverage, Medicare lets you delay Part B, but you won't have TRICARE until you enroll. With a larger employer, the employer plan pays first, Medicare second, and TRICARE last.

How the TSP and your new 401(k) share one limit

Back to that HR question. For 2026, you can defer up to $24,500 of your own pay, and the limit covers every plan you contribute to during the year combined. Put $9,000 in the TSP before you separate in May, and you have $15,500 of room left in the new 401(k).

A few details help here:

• If you're 50 or older, you can add an $8,000 catch-up, and if you turn 60, 61, 62, or 63 in 2026 the catch-up is $11,250 instead.
• Your new employer's match doesn't count against the $24,500.
• Tax-exempt traditional TSP contributions made in a combat zone don't count against it either.
• If you go over, the extra has to come out by April 15 of the following year, or it gets taxed twice (once in the year you put it in and again when you take it out).

Once the limit is handled, think about what the 401(k) needs to do for you. Retired pay and VA pay already give you a floor of monthly income, so your savings may not have to carry as much later. And because taxable retired pay fills up the lower tax brackets, the choice between traditional and Roth contributions in the new plan deserves a fresh look.

Your benefits can help fund that saving, just not directly. Retired pay and VA pay can't go into a 401(k), and the IRS doesn't count either one as earned income for an IRA. Your civilian salary is what you contribute from.

So if retired pay and VA pay cover most of your monthly bills, more of your paycheck is free to save. That can mean a higher 401(k) contribution, and a Roth IRA too if your income allows it. For 2026 you can put up to $7,500 in a Roth IRA ($8,600 if you're 50 or older). The amount you're allowed starts shrinking once your modified adjusted gross income passes $153,000 for single filers or $242,000 for married couples filing jointly.

Anything beyond that can go into a regular taxable brokerage account. Set up an automatic transfer for the week your benefits land, and a set amount goes to work every month without you having to think about it.

Where to start

• Pull your retired pay statement and confirm whether you're under High-36 or BRS.
• Check your VA rating and priority group so you know where you sit against 10%, 50%, and 100%.
• Compare your TRICARE fees with the employer plan before your first open enrollment.
• Add up what went into the TSP this year before you choose a 401(k) contribution rate.
• Look at what the TSP costs before you roll it anywhere.

If you'd like a second set of eyes on how your pieces fit, that's what The ClearMind Clarity Method™ is for. Let's get it mapped out.

Cheers.

Common questions

At what VA disability rating is health care free?

With a rating of 10% or higher, VA doesn't charge copays for inpatient or outpatient care. At 50% or higher you're in Priority Group 1, which also removes medication copays, so VA care for the veteran is close to free from there. A 100% rating adds comprehensive dental care, and care for a service-connected condition has no copay at any rating.

Can I contribute to the TSP and a 401(k) in the same year?

Yes, but your own contributions to both count toward one limit, $24,500 for 2026 plus any catch-up if you're 50 or older. Employer matches and the government's TSP contributions don't count toward it. Your new employer won't see your TSP contributions, so it's on you to keep track.

Can I keep TRICARE if my employer offers health insurance?

Yes. Military retirees and their families stay eligible for TRICARE after taking a civilian job. If you have both, TRICARE pays after the employer plan.

Can I put my VA disability pay into a Roth IRA?

Not directly. IRA contributions have to come from earned income, and VA disability pay and military retired pay don't count. If you have a civilian salary, you can contribute up to $7,500 to a Roth IRA for 2026 ($8,600 if you're 50 or older) as long as your income is under the Roth limits, and your benefits can cover the bills that paycheck would otherwise pay.

Does VA disability reduce military retired pay?

It depends on your rating. Retirees with 20 or more years of service and a rating of 50% or higher can receive both in full through CRDP. Below 50%, retired pay is reduced by the amount of VA compensation, though the VA portion is tax-free.

Is military retirement pay taxed in Ohio?

Ohio lets you deduct military retirement income that's included in your federal adjusted gross income, so it isn't taxed at the state level. It's still subject to federal income tax.

Written byShane DuckworthPartner | Private WealthView bio →

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