Thrift Savings Plan: A Comprehensive Guide

The Thrift Savings Plan (TSP) is a great way for federal employees and members of the uniformed services to save for retirement. It's a defined contribution plan, meaning your contributions and earnings are invested in a variety of funds.

The TSP offers a range of investment options, including the G Fund, which invests in short-term U.S. Treasury securities, and the F Fund, which invests in long-term U.S. Treasury securities.

You can start contributing to the TSP as soon as you're eligible, and you can choose from a variety of contribution rates. The maximum annual contribution limit is $19,500 in 2022, with an additional $6,500 catch-up contribution allowed for those 50 or older.

The Thrift Savings Plan is a retirement investment program that is open only to federal employees and uniformed service members, including the Ready Reserve. It's a special plan that was established by Congress in 1986.

A TSP is a defined-contribution plan, meaning that your retirement income will depend on how much you put into your account and the earnings accumulated over time. This means you have control over how much you save and invest.

The TSP offers the same types of savings and tax benefits that many private corporations offer their employees under 401(k) plans. This is a big advantage for federal employees who may not have access to these types of plans in the private sector.

It closely resembles a 401(k) plan offered by private employers, which is a popular type of retirement savings plan.

Eligibility and enrollment in the Thrift Savings Plan (TSP) depend on your job and service status. If you're a Civil Service Retirement System (CSRS) employee, you can join at any time, but aren't automatically enrolled.

Federal Employees Retirement System (FERS) employees hired on or after October 1, 2020 are automatically enrolled upon hire, with 5% of their base pay withheld. Members of the uniformed services in the Blended Retirement System (BRS) are also automatically enrolled in the TSP at 5% of their base pay.

Those who are eligible to participate in the TSP include FERS employees (hired on or after January 1, 1984), CSRS employees (hired before January 1, 1984), members of the uniformed services (active duty or Ready Reserve), and civilians in specific other categories of Government service.

Here are the main categories of TSP eligibility:

Eligibility is a crucial aspect of participating in the Thrift Savings Plan. You can join the TSP if you're a Federal Employees Retirement System (FERS) employee hired on or after October 1, 2020, as you'll be automatically enrolled upon hire.

Service members in the Blended Retirement System (BRS) are automatically enrolled in the TSP at 5% of their base pay. Members of the military in the Legacy Retirement System, on the other hand, have to opt-in to participate in the TSP.

FERS employees hired between August 1, 2010 and September 30, 2020 were automatically enrolled with 3% of base pay withheld. If you're a FERS employee hired before July 31, 2010, you weren't automatically enrolled and had to opt-in.

CSRS employees can join the TSP at any time, but aren't automatically enrolled. If you're a CSRS employee, you have to take the initiative to join the TSP.

You qualify for the TSP if you're a FERS employee (started on or after January 1, 1984), a CSRS employee (began before January 1, 1984, and didn't convert to FERS), a member of the uniformed services (active duty or Ready Reserve), or a civilian in specific other categories of Government service.

Here's a breakdown of the automatic enrollment rules for FERS employees:

Agency Auto (1%) is a great perk for FERS employees. Your Agency will contribute an amount equal to one percent of your basic pay each pay date to your TSP account.

This contribution is called Agency Automatic (1 percent) Contributions and it's automatic - no need to opt-in or make a choice. There is no waiting period and you don't need to be making employee contributions to receive them.

Your Agency Automatic (1 percent) Contributions will be automatically invested in the Government Securities Investment (G) Fund until you make a different choice. This means you'll earn interest on your contributions without having to lift a finger.

Agency Automatic (1 percent) Contributions are not taken out of your pay and they don't decrease the dollar amount of your pay for income tax purposes. This is a nice bonus, as it won't affect your take-home pay.

After three years of Federal civilian service (or two years in some cases), you are vested in these contributions and their earnings. This means they're yours to keep, even if you leave your job.

Agency matching contributions can be a significant boost to your Thrift Savings Plan (TSP) account. All eligible federal employees will receive a dollar for dollar matching contribution for the first 3% that you contribute each pay period.

Your agency will match 50 cents on the dollar for each additional dollar you contribute up to 5% of your basic pay. This means that if you contribute 3% to your TSP, your agency will match it dollar for dollar, and if you contribute 5%, your agency will match 3% dollar for dollar and 2% at 50 cents on the dollar.

Here's a breakdown of the agency matching contributions:

Keep in mind that your agency can only make a matching contribution up to the combined limit of $57,000 or $63,500 with the catch-up contribution. If you contribute the maximum allowed amount, your agency match cannot exceed $37,500 in 2020.

You can contribute to your Thrift Savings Plan (TSP) at any time, with just a few exceptions. Contributions are payroll deductions from your basic pay, and you can start making them right away.

You can contribute up to the annual IRS contribution limit, which is $23,000 for 2024 and $23,500 for 2025. Employees aged 50 or older can also make catch-up contributions of $7,500 in both years. Starting in 2025, a higher catch-up contribution limit is available to workers aged 60, 61, 62, and 63, which is $11,250.

Regular contributions are automatically deducted from your pay, but you can change or stop them at any time. You can also make a new election to change the amount, but be aware that contributions will continue until you reach the IRS contribution limit, take a financial hardship withdrawal, or make a new election to stop contributing.

Here's a breakdown of the contribution limits:

Contributing and vesting in a Thrift Savings Plan (TSP) is a straightforward process. You can contribute up to $23,000 in 2024 and $23,500 in 2025, with an additional $7,500 catch-up contribution available to employees aged 50 or older.

There are several ways to contribute to a TSP, including automatic payroll contributions and agency matching contributions. Agency matching contributions are a great perk, matching your contributions dollar for dollar for the first 3% you contribute each pay period.

Here's how the agency matching contributions work:

Rollovers are also an option, allowing you to transfer 401(k) and IRA assets into a TSP, or vice versa if you leave federal employment.

You can begin making regular employee contributions to your Thrift Savings Plan at any time, and your agency or service will deduct your contribution from your pay in the amount or percentage that you indicated when you submitted your contribution election information.

The contribution limit is $23,000 for 2024 and $23,500 for 2025, and employees aged 50 or older can also make catch-up contributions of $7,500 in both years.

You can change, stop, or restart contributions at any time, with very few exceptions.

Here are the vesting requirements:

Employees are fully vested from day one for any employee and agency matching contributions, and earnings thereon.

FERS employees must generally complete three years of Federal civilian service to be fully vested in agency automatic contributions and earnings thereon, otherwise the separated employee loses the unvested amount (except in cases of death, in which case the amounts will deem to be vested).

The Thrift Savings Plan (TSP) offers a range of investment options to suit your needs. You can choose from six funds and a mutual fund option.

The TSP has six funds to choose from: 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, and Specific Lifecycle (L) funds.

The F, S, C, and I funds are index funds managed by BlackRock Institutional Trust Company under contract by the Federal Retirement Thrift Investment Board (FRTIB). These funds are designed to match the return characteristics of the corresponding benchmark index.

The G Fund is the only fund with no risk of loss of principal, as it's invested in unique government securities specifically issued to the TSP. The F Fund tracks the performance of the Bloomberg Barclays U.S. Aggregate Bond Index.

You can also choose to invest in the C Fund, which replicates the total return version of the S&P 500 index. Alternatively, you can opt for the S Fund, which tracks the Dow Jones U.S. Completion TSM index.

The I Fund replicates the net version of the MSCI EAFE index. If you prefer a more active approach, you can invest directly in any of the five individual funds.

Here are the individual funds to consider:

The maximum annual contribution to a Thrift Savings Plan in 2024 is $23,000, with an additional $7,500 for those 50 or older.

Withdrawals and RMDs can be a bit tricky, but understanding the basics can help you make informed decisions. Traditional IRAs and TSPs require minimum distributions (RMDs) starting at age 73.

You can withdraw money from your TSP at any time, but the payment frequency is limited to monthly, quarterly, or annually. You can choose to receive a specific dollar amount or an amount based on your life expectancy and account balance.

If you retire at age 55 or older, TSPs will waive the 10% penalty for early withdrawals, but this age drops to 50 if you qualify under Federal Employees Retirement System (FERS) special provisions.

RMD stands for "required minimum distribution", and it's a problem for many federal employees. If you have money in a traditional Thrift Savings Plan or traditional IRA, you must begin withdrawing money when you reach age 73 or 75, depending on your birth year.

These withdrawals are taxable, which can be a concern. The "minimum" you have to withdraw depends on your life expectancy and the amount in the account.

Not needing to take these distributions for living expenses is a common scenario. Many people don't want to take them, as the extra taxable "income" can push them into a higher tax bracket.

The L Funds are lifecycle funds that invest automatically according to a professionally designed mix of stocks, bonds, and government securities.

You can select your L Fund based on your age and investment time horizon, with your expected future retirement date determining which fund you'll be assigned to.

For example, if you plan to retire in 2039, you'll be assigned to the L 2040 fund.

The L Fund roster includes L 2065, L 2060, L 2055, L 2050, L 2045, L 2040, L 2035, L 2030, L 2025, and L Income.

All L funds own a mix of the five individual funds, with participants having a longer investment horizon owning more stocks and fewer bonds, and those approaching retirement moving to a higher allocation to bonds and a smaller allocation to stocks.

Withdrawals can be a complex topic, but let's break it down simply. You can make withdrawals from your TSP account, but there are rules to follow.

You can withdraw funds from your TSP account if you're experiencing a financial hardship, but this type of withdrawal is limited to specific needs, such as negative monthly cash flow or medical expenses. You can only make a financial hardship withdrawal once every six months.

If you're a married FERS employee or uniformed service member, your spouse must consent to the withdrawal, while a married CSRS employee only needs to be notified. Any funds withdrawn cannot be repaid to the TSP and are subject to taxes and penalties.

There are two types of withdrawals you can make: age-based and financial hardship. For age-based withdrawals, you must be over 59 1/2 and can make up to four withdrawals per calendar year. A financial hardship withdrawal, on the other hand, is limited to one of five specific needs and can only be made once every six months.

Here are the five specific needs that qualify for a financial hardship withdrawal:

TSPs also have required minimum distributions (RMDs) that start at age 73, but you can request that the payment be a specific dollar amount or an amount based on your life expectancy and account balance that is recomputed annually.