Former Stealth Fighter Pilot and Certified Financial Planner (Owner – After Burner Financial), Steve Ankerstar – @cruiserf15, gives a generic overview of the Thrift Savings Plan (TSP) and details some things to you might want to consider when setting up/managing your TSP.

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Thrift Savings Plan Basics: Investing for Your Future

As you embark upon your journey towards financial security, it is crucial to explore various investment opportunities that can help you build a substantial nest egg for the future. One such opportunity is the Thrift Savings Plan (TSP), a retirement savings plan available to federal employees and members of the uniformed services. Understanding the basics of TSP can empower you to make informed investment decisions and lay a solid foundation for your financial future.

What is the Thrift Savings Plan?
The TSP was established by the Federal Employees’ Retirement System Act of 1986 and serves as a retirement savings and investment vehicle for federal employees and uniformed service members. It is similar to a 401(k) plan available in the private sector and offers an array of investment options to suit different risk profiles and long-term goals.

Contributions and Matching
Eligible employees can contribute a portion of their salary to their TSP account, which receives favorable tax treatment. These contributions are deducted from their pre-tax income, reducing their taxable income and offering them immediate tax benefits. Additionally, some agency employers may offer TSP matching contributions, allowing employees to receive additional funds based on their contribution amount. It is important to note any agency matches to maximize your TSP benefits.

Investment Options
One of the significant advantages of the TSP is its wide range of investment options. As of September 2021, the TSP offers five core investment funds: the G Fund (Government Securities Investment Fund), F Fund (Fixed Income Index Investment Fund), C Fund (Common Stock Index Investment Fund), S Fund (Small Cap Stock Index Investment Fund), and I Fund (International Stock Index Investment Fund).

The G Fund is considered the safest option as it invests exclusively in short-term U.S. Treasury securities. The other funds offer varying risk and return profiles, with the I Fund having exposure to international companies. TSP participants can allocate their contributions among these funds based on their investment goals and risk tolerance.

Lifecycle (L) Funds
For those who prefer a hands-off approach or are unsure about investment strategies, the TSP also offers Lifecycle (L) Funds. These funds are designed to provide a diversified investment portfolio based on a participant’s target retirement date. The L Funds automatically rebalance and shift investments from riskier to more conservative options as the participant nears retirement. The L Funds range from L Income (for participants nearing retirement) to L 2065 (for participants with a longer investment horizon).

Flexibility and Portability
The TSP also offers flexibility and portability for its participants. Employees can change their contribution amounts, funds allocation, or opt for catch-up contributions if they are over age 50. Moreover, once you leave federal employment, you can keep your TSP account, roll it over to another employer-sponsored retirement plan, or an Individual retirement account (IRA).

Maximizing TSP Benefits
To maximize the benefits of your TSP, it is advisable to contribute the maximum allowed amount. As of 2021, the annual elective deferral limit is $19,500, with an additional $6,500 catch-up contribution allowed for those aged 50 and older. By contributing the maximum amount and taking advantage of any agency matches, you can significantly bolster your savings for retirement.

In conclusion, the Thrift Savings Plan is an excellent retirement savings vehicle for federal employees and uniformed service members. By understanding the basics of TSP, such as contributions, investment options, and the flexibility it offers, you can make informed decisions to secure your financial future. Take advantage of this valuable opportunity and start building a robust retirement fund today.