The Thrift Savings Plan (TSP) is a defined-contribution plan for Federal civil service employees and retirees. Members of the uniformed services also participate in it. It was established by federal law in 1986.
Through the Thrift Savings Plan, you can put some of your pay toward retirement savings. Depending on which retirement system you belong to, you may have an agency match. The tax treatment of your contributions will also depend on the type of TSP account you have.
How much income you will get from your TSP account will depend largely on three things. That includes:
- How much you received in lifetime earnings as a Federal Employee,
- How much you put away in the account (and your agency, if you qualify) during your career,
- And how much your retirement savings in the account grew over time.
What are Your TSP Investment Options?
For accumulation of retirement savings, Federal Employees have a variety of investment choices in the Thrift Savings Plan. Those options include:
- 5 individual TSP investment funds
- A multitude of lifecycle funds, or investments in the 5 TSP funds based on different asset allocations
Since the Thrift Savings Plan has many people participating in it, its maintenance cost is quite low. In fact, it’s generally much lower than the costs associated with many 401(k) plans and other employer-sponsored plans in the private sector.
What’s the Difference between Traditional and Roth TSPs?
The TSP comes in two flavors. One is a “traditional” TSP account, in which your contributions are made on a tax-deferred, or a pre-tax, basis. By deferring your taxes now, you choose to wait and pay taxes on money you will take from your TSP account in the future.
The second is a Roth TSP account. In this account, your contributions are on an after-tax basis. You will pay taxes upfront on your contributions, and later on you can pull money out on a tax-free basis. Of course, certain conditions must be satisfied.
Federal Employees are permitted to use traditional and Roth TSP accounts to save for retirement.
FERS Employees and the TSP
If you fall under FERS, the Thrift Savings Plan is a part of your retirement package. Your two other benefits include a pension annuity and Social Security benefits.
Because you are a FERS-covered employee, your agency will automatically contribute a sum that equals 1% of your base pay to your TSP account each pay period. Note that this agency contribution is only to traditional TSP accounts, as they work on a pre-tax basis.
You don’t have to make employee contributions to receive this 1% agency contribution. However, if you do, you may receive matching contributions from the government on the first 5% of your base pay that you contribute each pay period. If you cease regular contributions, your matching contributions will stop as well.
TSP Benefits for CSRS and Military Employees
If you are under CSRS, things work differently. Here, the Thrift Savings Plan is a supplemental benefit to your CSRS annuity. Members of the uniformed services also have the TSP as a supplemental benefit to their military retired pay.
In CSRS, you may elect to contribute some of your pay to the TSP or a voluntary contribution account. You won’t receive a government match, but if you are funding a traditional TSP, your contributions will be tax-deferred.
Contribution Amounts for Retirement Saving
The IRS is one of your partners in your retirement. It allows you to make contributions up to certain limits, which generally change each year. Your Benefits Counselor can help you identify any contribution limits for this tax year.
If you are over age 50, the IRS permits “catch-up” contributions. Those are increased maximum allowable limits to help mid-career Federal Employees reach their retirement savings goals under favorable tax circumstances.
Thinking about Your Goals with Your TSP Account
As you consider your goals with your TSP and Roth TSP accounts, it’s prudent to consider how different variables may affect you in the future.
Do you expect tax rates to be higher in the future? What are your goals for retirement? What income will you need in retirement? What steps are you taking to maximize your TSP account values, not to mention your other Federal Benefits?
As you consider these questions and others, you may consider guidance from a knowledgeable Federal Benefits counselor. At Federal Benefits Information Center, we will be glad to assist you and see if there are other steps you can take to make the most of your benefits for your future.
Contact us or request your Personal Benefits Analysis to see how your TSP and other benefits can help you achieve your goals.