Have you ever wondered what the Thrift Savings Plan is and how it works? I’ve got you covered. #tsp #retirement #investing

When it comes to retirement planning, you probably hear a lot about 401(k)s. But if you’re a federal employee or in the military, you don’t have a 401(k). That doesn’t mean you can’t build wealth for the future. You can contribute to the federal Thrift Savings Plan—and that’s exciting news!

Turns out, the Thrift Savings Plan is a pretty big deal. As far as defined contribution plans go, the TSP is the largest in the world, with over $558 billion in assets.

Over 5 million people have a Thrift Savings Plan account, and—even better—89% of participants are satisfied or extremely satisfied with the Thrift Savings Plan.

Now, the key to investing in the Thrift Savings Plan is to invest consistently and choose the right funds to help you build wealth for the long term. And that can be scary, especially if you’re new to investing. The good news is that with a little information about the Thrift Savings Plan and the funds it offers, you can make it work for you.

In this video, I will be covering what the Thrift Savings Plan is, what funds it consists of, and which funds are the most popular.

What Are the TSP Contribution Limits?
For 2021, the contribution limit for your Thrift Savings Plan account is $19,500. If you’re 50 or older, you can take advantage of the catch-up contribution limit and contribute an additional $6,500 a year.5

Do You Get a Match on Your Contributions?
Another great part of the Thrift Savings Plan is the match you get from your agency or service on your contributions if you’re part of the Federal Employees Retirement System (FERS) or Blended Retirement System (BRS).

If you are part of FERS or BRS, your agency or service starts contributing 1% of your pay. Depending on which system you’re in, you could start receiving that contribution immediately or after 60 days in service. You get that 1% even without contributing anything on your own.

On top of that 1% contribution, you’re eligible for a match up to an additional 4% after two years of employment. The government offers a dollar-for-dollar match on the first 3% you contribute. Then they match the next 2% at 50 cents on the dollar. So, if you contribute 5% of your pay, you can get the full match. That’s an additional 5%!

Getting a match on your contributions is free money! That’s why it’s important to invest at least enough to get the match. Most TSP participants are on top of it: Around 80% of those contributing to a TSP account are putting in at least 5% of their pay to get the full match.6

Keep in mind that the match your agency or service puts in your account will be taxed in retirement, even if you make Roth contributions.Create an account through these links and receive free stock.

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DISCLAIMERS & DISCLOSURES

This content is for education and entertainment purposes only. Tray does not provide tax or investment advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. All investing involves risk, including the possible loss of principal….(read more)

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The Thrift Savings Plan (TSP) is a defined contribution retirement plan for federal employees and members of the uniformed services. It was created in 1986 as part of the Federal Employees’ Retirement System (FERS) and is designed to provide federal employees with an opportunity to save for retirement in a tax-advantaged way. In this article, we will provide the best detailed explanation of the TSP in 2021.

How does the TSP Work?

The TSP is similar to a 401(k) plan offered by private employers. It allows federal employees to contribute a portion of their pre-tax and after-tax income into the plan. The contributions are then invested in different investment options chosen by the employee. The TSP offers five core investment options- 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 investment options are diversified across different asset classes and investment styles to provide a balance between risk and return.

The TSP also offers lifecycle (L) funds that invest in a mix of the core investment options based on the employee’s target retirement date. The L Funds gradually shift the asset allocation from higher-risk investments to lower-risk investments as the employee approaches retirement age.

The contributions made to the TSP are tax-deductible, which means that the employee does not pay taxes on the contributed amount until withdrawn from the plan. The withdrawals are taxable as ordinary income. The TSP also offers a Roth option, where the contributions are made after-tax and the qualified withdrawals are tax-free. The employee can choose to contribute to traditional TSP, Roth TSP or a combination of both.

What are the Contribution Limits?

The TSP contribution limits for 2021 are $19,500 for employees under 50 years of age and $26,000 for employees over 50 years of age. The limit includes the employee’s contributions to the traditional TSP and the Roth TSP. The limit also includes any contributions made to a uniformed services TSP account, if applicable.

The TSP also offers catch-up contributions for employees over 50 years of age. The catch-up limit for 2021 is $6,500.

What are the Fees and Expenses?

The TSP has low fees and expenses compared to other retirement plans, making it an attractive option for federal employees. The administrative expenses are divided among the participants, and the management fees for the investment options are generally lower than other mutual funds with similar investment strategies.

The expense ratios for the core investment options range from 0.04% – 0.6%, depending on the option. The L funds have a slightly higher expense ratio of 0.11% – 0.26% depending on the target retirement date. The expenses are deducted proportionately from the account balances.

When can I Withdraw from the TSP?

Withdrawals from the TSP are subject to certain rules and regulations. The employee can withdraw from the TSP after they leave federal service or reach age 59 ½ penalty-free. If the employee withdraws before age 59 ½, they are subject to a 10% early withdrawal penalty, in addition to any taxes due on the withdrawal.

The TSP also offers several withdrawal options, including single payments, installment payments, and annuity payments. The annuity payments can provide a steady stream of income for the employee throughout retirement.

Conclusion

The Thrift Savings Plan (TSP) is a valuable retirement savings plan for federal employees and members of the uniformed services. With low fees and expenses, a variety of investment options, and tax advantages, the TSP is an attractive option for individuals looking to save for retirement. It is important to understand the rules, regulations, and contribution limits of the TSP to make the most out of this retirement savings plan.