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In the first part of this series, we took a look at the basics of Thrift Savings Plan or TSP. Now, we will delve deeper into the different types of TSP accounts, contribution options, and investment choices.

TYPES OF TSP ACCOUNTS

There are two types of TSP accounts: traditional and Roth.

Traditional TSP account is funded by pre-tax contributions. This means that when you contribute to this account, the money is taken out of your paycheck before taxes are withheld. This lowers your taxable income and can help you save money on taxes in the short-term. However, when you withdraw the money during retirement or after leaving federal service, you will be taxed on both the contributions and any growth in the account.

On the other hand, Roth TSP is funded by after-tax contributions. This means that you pay taxes on the money upfront but the money and the gains can be withdrawn completely tax-free in retirement.

CONTRIBUTION OPTIONS

TSP offers two types of contributions: employee contributions and agency contributions.

Employee contributions are the amount you personally contribute to your TSP account. The current maximum contribution for 2021 is $19,500. If you are 50 or older, you can make additional catch-up contributions of up to $6,500 per year.

Agency contributions are the contributions made by your employer, which is usually the federal government. The current maximum agency contribution for 2021 is 5% of your salary or basic pay, whichever is lower.

INVESTMENT CHOICES

TSP offers five investment options or funds. These are:

1. Government Securities Investment (G) Fund – This fund invests in short-term US Treasury securities and is the most stable fund with low risk.

2. Fixed Income Index Investment (F) Fund – This fund invests in a broad-based index of US government, corporate, and mortgage-backed bonds.

3. Common Stock Index Investment (C) Fund – This fund invests in a broad-based index of US common stocks and aims for high returns.

4. Small Capitalization Stock Index Investment (S) Fund – This fund invests in stocks of smaller US companies and aims for high returns over the long-term.

5. International Stock Index Investment (I) Fund – This fund invests in stocks of companies outside the US and aims for high returns over the long-term.

You can invest your TSP contributions among these funds according to your risk tolerance and investment objectives. You can also choose to invest in a Lifecycle fund, which automatically adjusts your investments based on your expected retirement date.

CONCLUSION

The Thrift Savings Plan is a valuable retirement savings benefit for federal employees and members of the uniformed services. Understanding the types of accounts, contribution options, and investment choices can help you make informed decisions to maximize your retirement savings. Speak with a financial advisor to explore your options and create a retirement plan that suits your needs.