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Thrift Savings Plan (TSP)

Thrift Savings Plan (TSP)
Personal FinanceRetirement PlanningRetirement Savings Accounts

What Is a Thrift Savings Plan (TSP)?

A thrift savings plan (TSP) is a type of retirement investment program open just to federal employees and individuals from the formally dressed services, including the Ready Reserve. It is a defined-contribution (DC) plan that offers federal employees a significant number of the very benefits that are accessible to workers in the private sector.

A TSP closely looks like a 401(k) plan offered by private employers.

How a Thrift Savings Plan (TSP) Works

TSP benefits can incorporate programmed payroll contributions and agency matching contributions. Participants can decide to make tax-deferred contributions into a traditional TSP, and that means the money that flows into the account won't be taxed until it is removed. They may also decide to invest in a Roth TSP. This option allows employees to make after-tax contributions to their plans so that they'll not owe anything in taxes when they pull out the money after resigning. Regardless, the contribution limit to a TSP is $20,500 for 2002 (equivalent to for 401(k) plans).

Employees new to federal employment can roll over 401(k) and individual retirement account (IRA) assets into a TSP — and vice versa in the event that they move to the private sector.

A thrift savings plan (TSP) is a characterized contribution retirement plan that has a considerable lot of the advantages of private-sector plans.

The TSP Investment Options

The TSP offers a decision of six funds in which to invest:

  • The Government Securities Investment (G) Fund
  • The Fixed-Income Index Investment (F) Fund
  • The Common-Stock Index Investment (C) Fund
  • The Small-Capitalization Stock Index Investment (S) Fund
  • The International-Stock Index Investment (I) Fund
  • Specific life-cycle (L) funds, intended to incorporate a mix of securities held in every one of the other five individual funds

The F, S, C, and I funds in the TSP are index funds as of now managed by the BlackRock Institutional Trust Company under contract by the Federal Retirement Thrift Investment Board (FRTIB). This independent government agency controls the TSP and acts as a fiduciary that is legally responsible to manage the TSP wisely and to the greatest advantage of participants and their beneficiaries.

Index funds in the TSP are intended to emulate the return attributes of the relating benchmark index. For instance, the C Fund is invested in a stock index fund duplicating the S&P 500 Index, which is comprised of the stocks of 500 enormous to medium-sized U.S. companies. L funds are invested in the five individual TSP funds, and their asset allocations depend on the individual investor's time horizon.

$20,500

The maximum annual contribution to a Thrift Savings Plan in 2022. Assuming that you are 50 or more established, you can add an extra $6,500.

TSPs versus IRAs

This isn't an either/or proposition since you can have both a TSP and an IRA simultaneously. One chief difference between them is their individual contribution limits. For 2022, the annual limit is $20,500 for a TSP ($27,000 for those more than 50); for an IRA it is significantly less — $6,000 ($7,000 assuming you are north of 50) — and that is a combined total on the off chance that you have numerous IRAs. Subsequently, a TSP allows you to build your retirement funds at a quicker pace than an IRA does.

Another big difference is in the employer match. The federal government gives a sliding percentage scale of matching contributions for your TSP. Even assuming you don't contribute anything, it will contribute 1% of your annual salary to your TSP. The scale tops out at a 5% government match in the event that you contribute 5% of your salary to your TSP, in this way doubling the amount of money invested. Since an IRA is something you set up for yourself, with no employer required, there are no matching contributions.

The investment fees also vary. TSP fees are very low, usually around 0.05%, and transparent. In the private sector, IRA investment fees can go from 0.5% to 2.5%, contingent upon the sort of fund, and it can in some cases be hard to know precisely the amount they are in aggregate. Notwithstanding, IRAs offer a greater assortment of investment opportunities than TSPs do, limited as they are to the six funds examined previously. This allows the IRA holder to be more aggressive in their investment strategies than the TSP holder.

A few final differences have to do with withdrawals. Traditional IRAs and TSPs, as well as Roth TSPs, have required least distributions (RMDs) that beginning at age 72. (Just Roth IRAs are not subject to RMDs.) With an IRA, you are allowed to take anything withdrawals you like, without a penalty, starting at age 59\u00bd. TSPs just allow you to pull out month to month, quarterly, or annually, and you can request that the payment be a specific dollar amount or an amount in view of your life expectancy and account balance that is recomputed annually.

IRAs have an early withdrawal penalty of 10% for any money taken out when you are more youthful than 59\u00bd. Be that as it may, assuming you retire at age 55 or more seasoned, TSPs will postpone the 10% penalty. Even better, assuming you qualify under Federal Employees Retirement System (FERS) special provisions, this age drops to 50.

Revision — June 16, 2022. This article has been altered to feature that it is feasible to have both a 401(k) and a TSP in certain conditions.

Features

  • Participants in a TSP can get an immediate tax break for their savings.
  • Plan participants can put their money into any of six investing options.
  • You can roll over a 401(k) and IRAs into a TSP on the off chance that you leave the private sector to work in a public one. On the off chance that you leave a public service job with a TSP, you can also roll it over to a 401(k) or IRA, too.
  • A thrift savings plan is like a 401(k) plan for federal employees and formally dressed services staff.
  • They can also decide to invest in a Roth for freedom from taxes after retirement.

FAQ

What Befalls My Thrift Savings Plan If I Quit My Job?

On the off chance that you quit your place of employment, your Thrift Savings Plan will stay with no guarantees assuming the balance is $200 or more, and it will acquire. You have some control over the account and make changes in accordance with your investments however you can't make additional contributions.

Is a TSP the Same Thing As a 401(k)?

Not precisely, however they are structured in much the same way and have a similar contribution limits. A TSP is what the federal government offers rather than a 401(k), which is the type of plan offered by private employers. It is feasible to have both in the event that you have worked for both a government and a private employer. Be that as it may, the total contribution to these retirement plans can't surpass the annual contribution limits set by the Internal Revenue Code.

How Do I Contact TSP Administrators?

You can call their complementary Thriftline at 877-968-3778, Monday through Friday, from 7 a.m. to 9 p.m. ET. There is also an international telephone line at 404-233-4400 that is definitely not a complementary line. The TDD (Telecommunications Device for the Deaf) line for the conference impaired is 877-847-4385.The general postage information is Thrift Savings Plan, P.O. Box 385021, Birmingham, AL 35238. Assuming you have an online account, there is a Message Center that allows you to send and receive messages. Response time is two business days.Finally, for specific inquiry categories (loans, death benefits, court orders, federal tax demands, press requests, and that's just the beginning) there are individual post office boxes and additionally email addresses listed on the TSP website.

Is a TSP Better Than an IRA?

TSPs and IRAs both have benefits. With a TSP, you can contribute impressively more money every year, anticipate matching contributions from the federal government, and pay lower investment fees. You have greater control over your investments with an IRA, and there are no restrictions on withdrawals from it upon retirement. You can borrow from your TSP (up to $50,000), yet you can't typically borrow from an IRA account. Dissimilar to with an IRA, you can request a complete withdrawal of your TSP account in regularly scheduled payments, an annuity lifetime payment, or a lump sum amount on the off chance that you leave your job in federal service. What's more, you can join these options.