Hello everyone, please welcome Marvin from www.brickbybrickinvesting.com and www.tspinvesting.com who will talk about the Thrift Savings Plan. You can connect with him on social media: Twitter | Facebook | Google + | LinkedIn.
Most people that work for the federal government have a basic idea of what a Thrift Savings Plan is. However, investing for retirement can be difficult regardless of the particular type of plan that is used. As a result, it is important to understand the basics of a Thrift Savings Plan, more commonly referred to as the TSP. Things like TSP allocations and TSP investing are important to understand. It is also important to understand how this type of plan is related to a traditional 401(k) retirement plan.
The basics of a Thrift Savings Plan are fairly straightforward. People that are eligible for this type of plan must work for the government and they can join immediately upon being hired. Individuals are currently able to contribute as much as $17,500 a year to their TSP account. This is limited by the maximum amount of money that the Internal Revenue Service will allow to be contributed to any retirement account. The Thrift Savings Plan does allow individuals to contribute the maximum amount allowed by the IRS. As a result, this amount can fluctuate depending on current IRS regulations. The best part about it is that the money that is contributed to the TSP account is not taxed, allowing individuals to contribute slightly more than $17,000 a year free of taxes. Furthermore, the government will match the amount of money that is contributed by the employee. Typically, the amount that is matched dollar for dollar is approximately 2% but in some cases, more money can be contributed by the government as long as a greater percentage is contributed by the individual employee. For individuals that qualify and that contribute an amount that corresponds accordingly, the government may contribute as much as 5% to the account on an annual basis. In addition, individuals can sometimes have more than one TSP account. For example, a person that has previously worked as a uniformed officer and now works in another capacity for the federal government can actually have two separate ESP accounts that work independently from each other.
TSP Allocations During Employment
One of the most unique things about a Thrift Savings Plan is that TSP Allocations can be accessed during employment, through loans and withdrawals. Employees have the opportunity to withdraw certain funds from their TSP account while they are employed in order to cover additional expenses that they may have for things such as major home renovations, auto repairs or anything else that incurs an unexpected expense on their part. By the same token, they may also qualify for loans that are based on the money that is in the TSP account. While they still have to pay the money back, this can be far more convenient than having to get a loan through some other resource in order to get the amount of money that is needed to pay for something unexpected.
TSP investing is rather flexible, providing a wide range of opportunities for individuals to find a method of investing that works well for them. When it comes to personal investing, there are five different individual funds that can be accessed.
- The I Fund, as it is known, is used to invest in the International Stock Index
- The S Fund is used for Small Capitalization Stock
- The G Fund is utilized to invest in Government Securities
- The C Fund is for the Common Stock Index
- The F Fund is the Fixed Income Index
Individuals also have the opportunity to invest with Lifecycle Funds. These funds are tailored towards individuals planning on beginning their retirement on a set date. Once the individual choses the fund, they are suppose to set it and forget it. The portfolio is allocated among the 5 individuals in order to provide the optimal portfolio.
When a person that has a TSP account makes the decision to retire, there are several options available. The money can be rolled over into a traditional IRA account. In this respect, a TSP account is much like a traditional 401(k). Furthermore, an individual has the option of receiving a single lump sum payment from their TSP account or they can receive monthly payments for a predetermined amount of time. It is up to the individual to determine the best method to receive payments from their account during their retirement. In addition, the amount of money that is available will depend largely on the type of investing that a person has done throughout their career and how much money has been made from those investments.