The government version of a 401(k) makes sense
A Thrift Savings Plan or TSP is a retirement plan for civilians who are employed by the United States Government and are members of the Uniformed Services. The TSP falls under the category of what is known more broadly as a type of defined contribution plan and is administrated and regulated by the Federal Thrift Investment Board. TSP plans are similar to 401k plans since the retirement funds in the account depending on how much has been contributed both by the employee and their employer during their working years, as well as the earnings of these contributions.
Which Employees Are Eligible?
If you are covered by FERS, CSRS, or CRS Offset, you are eligible for a TSP Plan. All participants are eligible to receive the following benefits:
• Tax deferral on contributions
• In service withdrawals for financial hardship beginning on or after age 59
• A choice of five investment funds
• The ability to transfer monies from other eligible retirement savings account plans into a TSP account.
• A loan program
• A choice of post-separation withdrawal options
For certain FERS civilian employees, with a TSP plan, the government also makes automatic matching contributions. Employees who are under the CSRS or Civil Service Retirement System are eligible for a TSP plan but do not qualify for matching contributions. Typically, in this case, the matching contributions are one percent independent of employee contributions, and then .05 percent for each one percent contributed by an employee after that. Military members, generally, are not eligible for these matching contributions.
In the case of FERS employees, the TSP is one of three parts of total retirement coverage, and FERS employees have the option of receiving two different types of agency contributions to their TSP accounts, which together, can equal as much as five percent of basic pay. These are known as Agency Automatic and Agency Matching Contributions respectfully.
Agency Automatic Contributions
With an Agency Automatic Contribution, once an employee is eligible, their agency automatically makes deposits into their TSP account, regardless of employee contribution amount, as stated above, up to one percent of basic pay, up to the IRS allowed annual limit.
Agency Matching Contributions
With an Agency Matching Contribution, once an employee becomes eligible, the agency will match the first three percent of basic pay, with the next subsequent two percent of basic pay matched fifty cents on the dollar.
Are TSP Plan Participants Allowed To Select Their Own Stocks?
With a TSP plan, participants are not permitted to pick their stocks; instead, they choose investment allocations from up to five different agency approved plans. These include U.S. Treasury bonds, fixed income assets, international stocks, common stocks, and small capitalization stocks, each of which carries their own risks and rewards.
Fixed Income Index Investments
These types of investments, known as “F” Funds, are invested in high-quality securities which track the LBA bond index, a group of U.S. government, mortgage, and corporate securities. F funds are similar to performance to the Vanguard Total Bond Market Index Fund, or VBMFX. With an F fund, TSP participants with low-risk tolerance can avoid the stock market.
Government Securities Investments
Government Securities Investments, or “G” funds, are invested in short term U.S. Treasury securities or bonds, which are guaranteed by the federal government. These types of investments are unique in the sense that they are government securities backed by the full faith and credit of the U.S. Government, and are equivalent to high yield stable value funds, meaning that there is almost no risk of either loss of principal or investment.
Small Capitalization Stock Investments
“S” funds are invested in a portfolio of stocks that replicate the performance of the Wilshire 4500 Index and are the most significant U.S. stocks, excluding stocks of the Standard and Poor, or S&P Index.
International Stock Investments
International stock investments, or “I” funds, are invested in a portfolio of stocks that are designed to track the performance of an index representing international equity markets, mirroring the Morgan Stanley EAFE Index.
What Are TSP Lifecycle Funds?
Lifecycle Funds were introduced into TSP plans in 2005, and are composed of percentages of the five selected funds based on the employee’s target retirement year. These types of funds are expected to be restructured in 2010 when the then L2010 fund will become similar to the current L Income fund, and a more aggressive L2050 is expected to be established.
TSP Retirement plans vary by employee classification, and by agency, so it is essential to discuss your individual options with your Human Resources director, who can help you ensure that you are enrolled under the right TSP Retirement plan, and work to help you develop an investment, contribution, and retirement strategy. Your financial planner will be able to provide you with valuable retirement planning information and advice as well.
A Thrift Savings Plan or TSP is a retirement plan for civilians who are employed by the United States Government and are members of the Uniformed Services. The TSP falls under the category of what is known more broadly as a type of defined contribution plan, and is administrated and regulated by the Federal Thrift Investment Board. TSP plans are similar to 401k plans, since the retirement funds in the account depends on how much has been contributed both by the employee and their employer during their working years, as well as the earnings of these contributions.
Much more info here: https://www.tsp.gov/index.html