Career Status Bonus (CSB) as part of the REDUX retirement
FAQ
- How do I know if I'm under High-3 or the pre-1980
system?
- I've always been told my Academy time doesn't count toward
my retirement. You're telling me differently?
- When do I have to decide?
- When do I get the bonus?
- Suppose I take the Career Status Bonus and later change my
mind, can I? Even if I give the bonus back?
- What happens if I take the Career Status Bonus and am forced
to separate?
- When is it advantageous to take the bonus?
- This is a hard decision; who can help me decide?
- I'm a member of the Reserves, how does this affect
me?
- I'm under High-3 (entered service and so have a DIEMS
before August 1986), can I take the bonus and switch to REDUX?
- Is the $30,000 bonus taxable?
- At what rate?
- Will I be able to put the bonus in my IRA?
- When do
Questions and Answers
Question: How do I know if I'm under High-3 or the pre-1980
system?
Answer. In the same way the Date Initially Entered Military Service
(DIEMS) determines who is in High-3 versus who may choose their retirement system,
your DIEMS determines if you are under High-3 or the pre-1980 system referred
to as Final Pay. Here are the common examples of circumstances that cross the
September 8, 1980, date.
- Academy graduates who entered the Academy prior to, but graduated after,
September 8, 1980, are under the Final Pay System.
- ROTC graduates who began a ROTC scholarship program or enlisted as a
Reserve in the Senior ROTC program prior to September 8, 1980, are also under the
Final Pay System.
- Officer and enlisted members who initially entered the military prior to
September 8, 1980, separated, and after a break in service, rejoined the
military, are under the Final Pay System, even if their paydate was adjusted to a date
of September 8, 1980, or later.
- Members who enlisted under the delayed entry program before September 8,
1980, are Final Pay even if they initially reported for duty, after September 8,
1980.
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Question: I've always been told my Academy time doesn't
count toward my retirement. You're telling me differently?
Answer: No. You've been told correctly. Academy time does not add to
your years of service and, thereby, increase your retirement pay. But, the date
you entered the Academy determines (in most cases) WHICH retirement system you
receive.
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Question: When do I have to decide?
Answer: You must decide between 14 ½ and 15 years of service. You can
find additional information at
Military Compensation website (http://www.defenselink.mil/militarypay/retirement/ad/04_redux.html).
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Question: When do I get the bonus?
Answer. You will receive your bonus within 90 days after you submit your
election paperwork and it is accepted by your Service. Thus, you will normally
be paid by the 15 year and 3 month point of your career.
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Question: Suppose I take the Career Status Bonus and later
change my mind, can I? Even if I give the bonus back?
Answer: Electing your retirement system is an irrevocable decision. You
can not change your election, even if you return the Career Status Bonus. Your
decision is not considered a final decision until you complete your 15th year
of active duty service. Check carefully with your Service to see when your
election will be considered final and thus, no longer revocable.
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Question: What happens if I take the Career Status Bonus and
am forced to separate?
Answer: Generally speaking, if you fail to complete a 20-year career, by
law, you are required to return a pro-rated share of the Career Status Bonus
for the time you did not complete. Service policies may offer alternatives to
this general policy for specific situations. The pro-rated amount would be
forgiven in cases of death, disability retirement, or separation under a service
program where you were requested to separate or retire early.
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Question: When is it advantageous to take the bonus?
Answer: Each individual's unique circumstances will determine which
retirement option is better. The CSB/REDUX option should be carefully considered
for individuals who are planning longer careers. The multiplier under REDUX comes
closer to the High-3 multiplier the longer the individual stays in beyond 20
years, and finally the multipliers become equal at 30 years. Also, everyone that
invests the bonus would have 5 to 15 years of compounded savings accumulated at
their retirement point.
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Question: This is a hard decision; who can help me
decide?
Answer: In the end, only you can make the decision, but there are many
sources of assistance. This webpage hosts a "calculator" that will aid you by
estimating the value of the two options in relation to your personal situation.
You should also seek assistance from resources on your base such as financial
counselors, your chain of command, and your personnel office.
From a personal perspective (which is slanted against REDUX), I tried to take
my biases out of it and just produce the facts and wrote the following article, REDUX - How to lose $500K
. Give it a look and spend some time running the numbers and come up
with what works for you.
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Question: I'm a member of the Reserves, how does this affect
me?
Answer: If you are a post-July 1986 member who is serving on active duty
with 14 and 1/2 years of retirement creditable service, you may also choose
between High-3 and CSB/REDUX option. The reduced retired pay Cost-of-Living
Adjustments (COLAs) of REDUX will apply only to persons who elect the CSB.
Reserve members anticipating a Reserve retirement at age 60 (called a
non-regular retirement) are not eligible to elect the CSB/REDUX option because the
non-regular retired pay multiplier was unaffected by the 1986 REDUX retirement
changes. They were, however, affected by the reduced COLA provision which set COLA
to CPI minus one percentage point (CPI-1%). Recent legislation removed this
provision so that Reservists who entered after July 1986 and who will receive a
Reserve retirement at age 60 will receive full CPI COLAs.
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Question: I'm under High-3 (entered service and so have a
DIEMS before August 1986), can I take the bonus and switch to REDUX?
Answer: No. Only service members who entered the service on August 1,
1986, or later are authorized to choose their retirement system.
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Question: Is the $30,000 bonus taxable?
Answer: Yes. With the TSP, you may shelter up to the IRS maximum, which
is expected to remain at $10,500 for the year 2001, from taxes by placing it
into a TSP account. Other rules and limits may apply to those in receipt of
non-taxable pays in a Combat Zone or Qualified Hazardous Duty Area (QHDA). Consult
your Service Tax authorities and TSP information sources for more specifics.
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Question: At what rate?
Answer: The bonus is taxed at your Federal, and, if applicable, state,
tax rate. Upon receipt, the portion not placed into the TSP will be subject to
normal withholding rules. Should this exceed your tax rate, you would have the
excess returned in your Federal tax refund.
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Question: Will I be able to put the bonus in my
IRA?
Answer: Standard IRA rules are unaffected. You may place up to $2,000*
in your IRA and shelter its earnings from taxes.
IRA contributions have increased to $4,000 depending on yearly income. Talk to
your Financial Planner or the Family Support Office for further information.
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Page Updated on:
07 May 2005
