Understanding the
Thrift Savings Plan
The Thrift Savings Plan (TSP) is a special investment account for Federal Employees. It allows you to save pre-tax dollars for retirement. The TSP is similar to a 401k account, but it does have some unique features. First... What's the same for TSP and 401ks? - Same contribution limits ($16,500 in 2009)
- Both allow extra contributions at age 50 and beyond (+$5,500)
- Both involve saving pre-tax dollars (you pay taxes later)
- Both allow you to take loans against the account value
What's different about the TSP?
- Only for Federal Government Employees
- Special investment fund choices
- Low fees, compared to most mutual funds
- Some employees get matching contributions
- Access at age 55 if you are retired (This is a biggie!)
TSP = Defined Contribution Plan
Your Thrift Savings Plan is a defined contribution plan. With the TSP, your contributions are a specific amount; but your benefit will change based on your investments. The opposite of defined contribution is defined benefit. Your Federal Retirement pension is a defined benefit plan. With your pension, you get a guaranteed amount when you retire; the benefit – your retirement income – is defined or fixed. Your contributions to your TSP account are optional. They are separate from your FERS or CSRS pension. The amount of money you get from your TSP will depend on how much you put in, and how well you managed it.
TSP is for FERS and CSRS
The Thrift Savings Plan was created as part of the Federal Employees Retirement System Act (FERS) in 1986. Even though the Thrift Savings Plan was created as a part of FERS - all Federal Employees are eligible to have a TSP. The only difference for the TSP between FERS and CSRS is the matching money. FERS get matching money from their agency and CSRS don't.
Matching Money for FERS
FERS employees can get matching contributions to their TSP account from their agency. The amount your agency puts in depends on how much money *you* put into your TSP.FERS can contribute up to 5% of their basic pay and the government will contribute an additional 5%. Any money you put in above 5% of your basic pay still goes to your TSP, it just doesn’t get any matching funds from the government. Click here to
learn more about the Matching Money for FERS.
How Much Money Can I Put In My TSP?
Years ago, your Thrift Savings Plan contributions were limited to a percentage of your pay. But now - TSP contribution limits are fixed dollar amounts. Where some people get mixed up is that you still use percentages to decide how much of each paycheck goes to your TSP. But your annual limit is a flat dollar amount. Each year, the amount of money you can put in to your TSP changes. It generally goes up by about $500 a year. In 2009, you can contribute up to $16,500. If you are over age 50, you can put in an additional $5,500, for a total of $22,000. These limits apply to *your* contributions. If you are a FERS and get matching money - you don't have to worry about the matching money going over that limit - just your own contributions. Now, most Federal Employees don't need to worry about going over. TSP will stop your contributions when you reach the limit for that year. But - if you have a part-time job that allows you to contribute to a private 401k account - you will need to watch the limits carefully. You can only contribute $16,500 to your TSP *and* a 401k ($22,000 if you are age 50+). For example, you could put $10,000 in your TSP and $6,500 in your 401k. The split between the two doesn't matter, as long as you don't put in more than $16,500. If you put in more than you are allowed, the IRS has fines and penalties.
How Much Should I Put in My TSP?
For most people, it makes sense to contribute the maximum amount that the government will match. Your TSP match is the closest thing you’ll get to free-money. Another way to look at it is that if you are putting in $1, and the government gives you another $1, you just doubled your money! You can’t beat that! Once you are contributing enough to get the maximum match, consider investing in an IRA or a Roth IRA. CSRS can also contribute to their TSP, but since CSRS don’t get a match, you should carefully consider whether your money would be better invested in an IRA or in the TSP.
What are My Investment Choices for TSP?
You can invest the money in your Thrift Savings Plan account in 5 different funds: - G Fund - Government Securities Investment Fund
- F Fund - Fixed Income Index Investment Fund
- C Fund - Common Stock Index Investment Fund
- S Fund - Small-Cap Stock Index Investment Fund
- I Fund - International Stock Index Investment Fund
Each fund has a different investment strategy. Four of the five funds are designed to earn the same return as the index it is designed to follow. Unlike some mutual funds, there is not a person or team of people managing the TSP funds. You can also select a Lifestyle Fund, or L Fund. The L Funds are designed to simplify your investment choices based on when you expect to need the money in your Thrift Savings Plan. Click here to
learn more about each of the TSP Funds.
Can I Take Money Out *Before* Retirement?
You can take money out of your TSP before you retire in two ways:
There are benefits and drawbacks to each of these options. Thrift Savings Plan Withdrawals can be good or bad - depending on how you use them. There is also a special type of withdrawal for people over 59 1/2 that can have big benefits. Click here to
find out more about Thrift Savings Plan Withdrawals.
Click here to learn more about the different types of
TSP Loans.
What Can I Do with My TSP at Retirement?
When you retire, you have several choices in what to do with your TSP:
- You can leave it in the TSP for a certain amount of time
- You can take monthly withdrawals
- You can annuitize your TSP with Met-Life
- You can transfer your TSP to an IRA
The option you select will have consequences on your retirement income. Click here to
learn about your TSP choices at retirement.
"Who Can Help Me?"
Wondering how your Thrift Savings Plan benefits apply to your personal situation?OPM and your HR department can give you information - but they simply aren't equipped to help you determine what benefit choices are the best for your personal situation. Are you looking for someone to help you get the most out of your Federal benefits and help you manage your personal and retirement finances? Consider finding a financial planner who is also experienced in Federal benefits. Learn more about
how a Federal Retirement Planner can help you.
Who Gets Your Last Paycheck, Your Pension, or TSP When You Die?
Could you be making a mistake in your retirement planning - and not even know it? What if you’ve forgotten to consider an important aspect of your federal retirement benefits? Could it really ruin your retirement? When I talk to Federal Employees about their retirement, I’ve seen seven particular mistakes that seem to come up again and again. In addition to teaching federal retirement classes, I’m also a Financial Planner for Federal Employees. I’ve helped many Federal Employees retire successfully – so I’ve seen the problems that come up, but I also know how to fix them. While I can still help Federal Employees get out of these mistakes – I’d rather help you avoid these mistakes all together. I’ve created a special report just for you, because I want to help Federal Employees avoid costly retirement mistakes. What are the most common retirement mistakes that federal employees make? Register to get access to my FREE Special Report on The 7 Classic Retirement Mistakes Federal Employees Mistake… and How to Avoid Them. I will also send you my monthly Newsletter (e-zine) Federal Retirement Planning. I am providing this Special Report totally free to subscribers of Federal Retirement Planning. Just complete the form below, and click on the “Subscribe” button. You will then receive a confirmation email asking you to confirm your request. Don’t let these 7 classic mistakes ruin your federal retirement. Register for my monthly Newsletter (e-zine) Federal Retirement Planning and get your copy of my FREE Special Report today.
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