The Thrift Savings Plan (TSP) is a retirement savings plan for Federal employees, both CSRS and FERS. It is similar to a 401(k) plan, but has some TSP specific rules that differentiate it from a 401(k) plans.
The importance of the TSP in one’s overall retirement and financial plan will vary for each person. The TSP should be viewed in light of all one’s financial resources, including other investment or savings accounts, as well as pensions and other sources of income. Understanding how all one’s resources relate to each other will help you strategize and maximize your TSP.
The TSP offers a handful of investment funds and it’s up to you whether you contribute to any of those funds. The performance of your TSP will be determined by the amount you contribute and the performance of the fund(s) you have chosen to invest in.
The pages below should help you get a sense of the “do’s” and “don’ts” of the TSP, as well as the best ways to integrate the TSP into your total financial picture.
TSP Funds and TSP Allocation Strategy
The TSP offers a handful of investment funds. Most of the funds invest in domestic securities such as Federal Government Bonds and U.S. stocks. One fund invests internationally. Each of the funds comes with opportunities as well as risks. It’s up to you to navigate your TSP account, to position it to grow as you desire, and to assume the degree of risk that matches your risk tolerance and investment objectives.
TSP Contribution Rules
The growth of your TSP account is driven by two factors: the amount you contribute and the timing of your contributions. Those two factors will affect the dollar amount of the agency match, as well as the purchase price of the TSP fund shares. Some people also have the ability to “super-fund” their TSP. But there are rules and limits.
Click here to learn more about the TSP contribution rules.
TSP Withdrawal Rules
The rules of accessing your TSP money vary before and after retirement. Before retirement you can either take a loan or a type of lump sum distribution. After retirement you can no longer take a loan, but you have a few more distribution options, such as monthly installments and the TSP annuity. Starting from the age of 70 ½ you may be obligated to take money out of your TSP because of the Required Minimum Distributions (RMDs) which are dictated by the IRS.
Click here to learn more about the TSP Withdrawal rules.
When deciding whether you participate in the Traditional TSP or the Roth TSP, you are not just making a decision that will impact your taxes this year; you are also making a decision that will impact your taxes in future years, and on future generations. Also, you may have money in accounts outside your TSP, such as an IRA or non-qualified accounts. You will want to coordinate all your resources to minimize your income tax as well as the estate tax and income tax you leave to your heirs.
Click here to learn more about the taxation of your TSP.