50 Facts About Thrift Savings Plan

What is the Thrift Savings Plan?

The Thrift Savings Plan (TSP) is a retirement investment program designed for federal employees and members of the uniformed services. It offers a tax-advantaged way to save for retirement, similar to a 401(k) plan. Here are some key facts about the TSP:

1. Establishment: Created by the Federal Employees Retirement Security Act of 1986, the TSP provides a retirement savings option for federal workers and service members.

2. Eligibility: Only federal employees and uniformed service members, including the Ready Reserve, can participate in the TSP.

3. Similarity to 401(k): The TSP functions like a 401(k), with pretax contributions and potential government matching.

Contribution Limits and Matching

Understanding how much you can contribute and the benefits of government matching is crucial for maximizing your TSP.

4. Contribution Limits: In 2024, participants can contribute up to $23,000 annually. Those aged 50 or older can add an extra $7,500.

5. Government Matching Contributions: Federal employees receive a full match of up to 5% of their salary after two years, essentially free money for retirement.

Investment Options

The TSP offers various investment options to cater to different risk appetites and retirement goals.

6. G Fund: Invests in U.S. Treasury securities, offering low risk with returns tied to Treasury rates.

7. F Fund: A mix of corporate and government bonds, providing a stable income stream.

8. C Fund: Tracks the S&P 500 Index, including stocks of large- to medium-sized U.S. companies.

9. S Fund: Tracks a small-cap stock market completion index, including stocks from companies of all sizes.

10. I Fund: Invests in international stocks, tracking an index that includes investments from other countries.

11. L Funds: Lifecycle funds preset allocations of the core funds based on retirement targets.

Tax Benefits and Contribution Types

The TSP offers both traditional and Roth options, each with unique tax advantages.

12. Roth TSP: Contributions are made with after-tax dollars, and earnings are tax-free in retirement.

13. Tax-Deferred Contributions: Traditional TSP contributions are tax-deferred, meaning withdrawals are taxed in retirement.

14. Automatic Payroll Contributions: Contributions are made through automatic payroll deductions, simplifying the saving process.

Account Management and Flexibility

Managing your TSP account is straightforward, with various tools and options to suit your needs.

15. Account Management: Participants can log in to their secure TSP account to check balances, perform transactions, and adjust investments.

16. Investment Flexibility: Contributions can be allocated among different funds based on personal preferences, with the option to change allocations as needed.

Mutual Fund Window

For those looking for more investment options, the TSP offers a mutual fund window.

17. Mutual Fund Window: Participants with at least $40,000 in their account can invest a portion through the mutual fund window, offering over 5,000 mutual funds.

18. Restrictions on Mutual Fund Window: Participants must have at least $40,000 in their TSP account and can invest no more than 25% of their balance in mutual funds.

Administration and Management

The TSP is managed by the Federal Retirement Thrift Investment Board (FRTIB), ensuring prudent management.

19. FRTIB Administration: The FRTIB administers the TSP, ensuring it is managed in the best interests of participants and their beneficiaries.

20. Index Funds: The F, S, C, and I funds are index funds managed by BlackRock Institutional Trust Company under contract with the FRTIB.

Lifecycle Funds and Historical Returns

Lifecycle funds and historical performance data help participants make informed decisions.

21. L Funds: Lifecycle funds preset allocations of the core funds based on retirement targets.

22. Historical Returns: The TSP offers detailed historical returns for each fund, aiding in investment decisions.

SECURE Act 2.0 and Automatic Enrollment

Recent legislative changes and automatic enrollment policies impact TSP participants.

23. SECURE Act 2.0 Impact: The SECURE Act 2.0 increased the start age for required minimum distributions from 72 to 73 in 2023 and further to 75 in 2033.

24. Automatic Enrollment: As of October 1, 2020, the automatic enrollment percentage increased from 3% to 5% of pay for all FERS, CSRS, and BRS participants.

Contributions and Reenrollment

Understanding the rules for starting, changing, and stopping contributions is essential for maximizing benefits.

25. Reenrollment: BRS participants automatically re-enrolled in the TSP on or after January 1, 2021, were affected by the automatic enrollment change.

26. FERS and CSRS Participants: Contribution rates for FERS and CSRS participants automatically enrolled before October 1, 2020, were not affected by the change.

Uniformed Services Contributions

Members of the uniformed services have specific rules for their TSP contributions.

27. Blended Retirement System (BRS): BRS members have different rules for starting, changing, and stopping contributions.

28. Non-BRS Members: Non-BRS members must complete Form TSP-U-1 to elect their contribution options.

29. Reentering Members: Reentering members can start, change, or stop contributions according to specific rules.

Pay Contributions and Tax Benefits

Contributions from various types of pay and the tax benefits of the TSP make it a valuable retirement tool.

30. Basic Pay Contributions: Contributions from basic pay can include incentive or special pay, up to the limits established by the Internal Revenue Code.

31. Bonus Pay Contributions: Bonus pay contributions are also eligible for the TSP, up to established limits.

32. Tax Benefits: The TSP offers tax benefits similar to private sector 401(k) plans, providing immediate tax breaks for savings and potentially tax-free earnings in retirement.

Rollover Options and Retirement Income Strategy

The TSP offers flexibility for those leaving federal service and forms part of a comprehensive retirement strategy.

33. Rollover Options: TSP accounts can be rolled over into a new employer's plan or a traditional IRA if the participant leaves federal service or the uniformed services.

34. FERS Pension: The FERS pension, Social Security, and the TSP form the “three-legged stool,” providing a comprehensive retirement income strategy for federal employees.

Evolution and Core Funds

The TSP has evolved over time, adding new funds to meet participants' needs.

35. Core Funds Evolution: The TSP began with three core funds (G, F, and C) in 1987 and added the I and S funds in 2001.

36. Government Securities Investment (G) Fund: The G Fund invests in U.S. Treasury securities, offering low risk with returns tied to Treasury rates.

37. Fixed-Income Index Investment (F) Fund: The F Fund invests in a mix of corporate and government bonds, providing a stable income stream.

38. Common-Stock Index Investment (C) Fund: The C Fund tracks the S&P 500 Index, including stocks of large- to medium-sized U.S. companies.

39. Small-Capitalization Stock Index Investment (S) Fund: The S Fund tracks a small-cap stock market completion index, including stocks from companies of all sizes.

40. International-Stock Index Investment (I) Fund: The I Fund invests in international stocks, tracking an index that includes investments from other countries.

Mutual Fund Window and Fiduciary Responsibility

The mutual fund window and the FRTIB's fiduciary responsibility ensure participants have diverse investment options and prudent management.

41. Mutual Fund Window: The mutual fund window allows participants to invest a portion of their savings through over 5,000 mutual funds available.

42. FRTIB Fiduciary Responsibility: The FRTIB is legally liable to manage the TSP prudently and in the best interests of participants and their beneficiaries.

Index Fund Management and Lifecycle Funds

Index funds and lifecycle funds offer consistent performance and balanced investment strategies.

43. Index Fund Management: Index funds in the TSP mimic the return characteristics of the corresponding benchmark index, ensuring consistent performance.

44. L Funds Design: Lifecycle funds preset allocations of the core funds based on retirement targets to provide a balanced investment strategy.

Historical Performance Data and Investment Flexibility

Access to historical performance data and investment flexibility helps participants make informed decisions.

45. Historical Performance Data: The TSP provides detailed historical performance data for each fund, aiding in investment decisions.

46. Investment Flexibility: Participants can allocate their contributions among different funds based on personal preferences, with the option to change allocations as needed.

SECURE Act 2.0 and Automatic Enrollment Increase

Recent legislative changes and automatic enrollment policies impact TSP participants.

47. SECURE Act 2.0 Impact on RMDs: The SECURE Act 2.0 increased the start age for required minimum distributions (RMDs) from 72 to 73 in 2023 and further to 75 in 2033.

48. Automatic Enrollment Increase: The automatic enrollment percentage was increased from 3% to 5% of pay for all FERS, CSRS, and BRS participants automatically enrolled in the TSP on or after October 1, 2020.

Participant Control and Contributions

Participants have control over their TSP accounts and contributions, even if they leave federal service.

49. Participant Control: Participants can control their principal in the account and adjust their investments but cannot make any new contributions if they are no longer employed by the federal government or uniformed services.

50. Voluntary Contributions: Contributions to the TSP are voluntary, but new employees are automatically enrolled at 1% of their paycheck, which can be refunded if desired.

Key Takeaways on the Thrift Savings Plan

The Thrift Savings Plan (TSP) offers federal employees and uniformed service members a solid path to retirement savings. With tax-advantaged contributions, government matching, and a variety of investment options, it’s a robust tool for building a secure future. The six core funds and Lifecycle (L) Funds provide flexibility to match different risk tolerances and retirement timelines. The Roth TSP option adds another layer of tax planning. Automatic payroll deductions make saving effortless, while the mutual fund window offers additional investment choices for those with larger balances. The Federal Retirement Thrift Investment Board (FRTIB) ensures prudent management. Understanding these features helps participants maximize their savings. Whether you’re just starting or nearing retirement, the TSP is designed to help you achieve your financial goals. Don’t miss out on the benefits it offers.