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Thrift Savings Plan
General Information You Should Know
(More Info can be found at www.tsp.gov)
As an employee, you can specify how much you choose to save via payroll deduction. If you are under the age of 50, you cannot save more than $18,000 per year as of 2015. However, if you are over the age of 50, you may save as much as $23,000 per year. You can save up to 100% of your earned income up to the maximum limit for your age group.
All of your contributions are made before taxes and grow tax-deferred until you withdraw your funds to supplement your income in retirement. You will be taxed when you withdraw the money, in the tax bracket that you fall under from your ordinary income at that time.
The Thrift Savings Plan (TSP) is a supplement for employees covered by the Federal Employee Retirement System (FERS), along with a basic annuity benefit and Social Security). FERS and The Civil Service Retirement System (CSRS) are defined benefit plans, meaning you are paid a pension based on your employment record and wage. TSP is a defined contribution plan, meaning it is to supplement your retirement income with tax-deferred savings that you accumulate over your career.
Investments Available within the TSP
Five funds are available:
– The US Government Securities/Bonds (G Fund)
– The Fixed Income Index, or corporate bond index (F Fund)
– The Common Stock Index, or S&P 500 (C Fund)
– The Small Cap Stock Index, or Russell 3000 (S Fund)
– The International Stock Index or EFEA index (I Fund)
Plus the TSP Lifecycle Fund (L Fund). The L Fund is comprised of a combination of the five funds listed above, which are allocated according to your expected time horizon up to the time of your retirement. It is intended to take more risk the further you are from your retirement date and less risk as you approach your retirement. It is adjusted over time toward a more conservative portfolio or asset allocation. This method can be used if you do not desire to select and adjust your fund choices over time on your own. This fund will adjust your choices as the government’s contracted firm, BlackRock, sees fit for you.
My TSP Guide is an alternative to this. You can use our guidance that will proactively monitor and recommend adjustments based on current market conditions, avoiding risk and taking advantage of opportunity.
What does this mean for you? All the money you save within the TSP, its growth, and any matching contributions made by the government are yours. You do not have to wait a period of time to have access to these funds when you retire.
Your Own Account within the TSP
Your account will note a specific number of shares of the funds you own, their share prices and the total value of each share you own, plus a total of all. This separate account management is maintained for your information and records.
You may apply for loans from your retirement account. You may take a loan out for any reason and pay it back over one to five years or you can take a loan to buy a primary home that can be paid back over one to 15 years. The loans can only be taken from money you have contributed plus any of its growth (not matching funds). The minimum amount is $1,000.00 and the maximum is $50,000. The interest cost will be whatever the G Fund note is at the time the loan is taken out. The interest cost is added back into your own TSP account.
G Fund is a guaranteed investment using U.S. Treasury. This fund produces an average income from the bonds that are within the portfolio. Bonds generally under-perform stocks, and U.S. Treasury bonds pay less than corporate bonds. However, this fund does not participate in interest rate risk.
F Fund is an aggregate bond fund. This means it invests in all kinds of bonds– U.S. government, corporate, high-quality, low-quality– and you will receive the average income these bonds pay. Unlike the G Fund, this fund participates with interest rate risk. If rates go up, the value of the fund shares go down. If rates go down, the value of the fund goes up. (Please note that rates are very low at this time.)
C Fund is a stock fund that invests in the top 500 largest companies within the United States.
S Fund is a stock fund that invests in stocks that are within the United States, and includes the next 4500 companies that are smaller than those of the C Funds.
I Fund invests in companies’ stocks that are domiciled in Europe, Australia, or Far East countries.
L Funds use the same 5 funds, but the investments are decided for you based on the time horizon of your planned retirement date. Or you can use the L Funds and own all 5 of the funds listed above in different percentages/degrees.
Each one of these choices can be invested in at any percentage you desire.