How to get started investing in your TSP as a federal employee. Even though this is a beginner video I encourage you to watch this even if you are an experienced investor. This video goes through the the basics of TSP investing including matching contributions and Roth TSP. I then help you to make the most important decision on an asset allocation tailored to your risk that accounts for 80% of your investment returns.

TSP website: www.tsp.gov

Vanguard website: www.vanguard.com

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The Thrift Savings Plan (TSP) is a retirement savings plan for federal employees and members of the uniformed services. It is considered one of the most valuable benefits offered to those in government service. If you are new to TSP, it is crucial to make informed decisions from the beginning to ensure you make the most of this valuable resource. This two-part article will guide you through the most important decisions you need to make as a beginner in the TSP.

1. Decide on Your Contribution Amount:
The first and most important decision you need to make is how much you are going to contribute to your TSP account. The TSP allows you to contribute a percentage of your salary, and it is advisable to contribute as much as you can afford. The more you contribute, the more you will have in retirement. A general guideline is to aim for at least 10-15% of your salary, but even a smaller percentage can make a substantial difference over time.

2. Understand the Matching Contribution:
If you are a Federal Employee covered by the Federal Employees Retirement System (FERS) and contribute at least 5% of your salary to TSP, you are eligible for matching contributions from your agency. The matching contribution rate is 1% for the first 3% of your contributions and 0.5% for the next 2%, totaling a potential maximum match of 5%. This match is essentially free money and can significantly boost your savings, so take advantage of it by contributing at least 5% of your salary.

3. Choose between Traditional or Roth TSP:
The TSP offers two different types of accounts: the Traditional TSP and the Roth TSP. In the Traditional TSP, your contributions are tax-deferred, meaning you don’t pay taxes on them now, but you will pay taxes when you withdraw the money in retirement. On the other hand, the Roth TSP allows you to contribute after-tax dollars, meaning you pay taxes on your contributions now, but your withdrawals in retirement are tax-free. The choice between the two depends on your current and anticipated future tax brackets. If you expect your tax rate to be higher in retirement, the Roth TSP may be the better option, but if you believe your tax rate will be lower later, the Traditional TSP might be more suitable.

4. Determine Your Asset Allocation:
Once you have established your contribution amount and decided between Traditional and Roth TSP, you need to choose how to allocate your funds within the TSP. The TSP offers five different investment funds: the G Fund, F Fund, C Fund, S Fund, and I Fund. Each fund has a different investment objective and risk level. The G Fund, for example, is invested in government securities and is considered the safest option, while the C Fund invests in the stock market and carries higher risk. A general principle is to choose a mix of funds that matches your risk tolerance and investment goals.

Making these initial decisions is crucial to setting yourself on the right path towards a successful retirement with the TSP. In the second part of this article, we will delve into more advanced topics, such as rebalancing your portfolio, taking loans or withdrawals from the TSP, and considering outside investment options. Stay tuned to gain a comprehensive understanding of managing your TSP account effectively as a beginner.