A thrift savings plan is a retirement plan available to federal employees and members of the uniformed services.
Real quick…Uniformed services are bodies of people in the employment of a state who wear a distinct uniform that differentiates them from the general public. Their purpose is to maintain the peace, security, safety, and health of the public they serve.
Back to it. A thrift savings plan is a defined contribution plan, like a 401k, that offers federal employees the same benefits as people who work in the private sector.
In this article, we learn about what a thrift savings plan is, as well as the rules and regulations.
What is it?
As mentioned in the introduction, a thrift savings plan (TSP) is a defined contribution retirement plan for federal employees.
A TSP includes deferred contributions from employees and can include matching contributions from the federal agencies. The employee also has the option of contributing pre-tax to a Traditional TSP, or post-tax to a Roth TSP.
If applicable, you can rollover a previous 401k or IRA into a TSP, and vice versa if you retire or move back into the private sector.
Investing
Currently, Blackrock is providing the investment products used in the Federal TSP. The investment options include:
- The Government Securities Investment (G) Fund
- The Fixed-Income Index Investment (F) Fund
- The Common-Stock Index Investment (C) Fund
- The Small-Capitalization Stock Index Investment (S) Fund
- The International-Stock Index Investment (I) Fund
- Specific lifecycle (L) funds designed to include a mix of securities held in each of the other five individual funds
Rules and Regulations
Not only is it a retirement plan, but it’s also a government-sponsored retirement plan. Obviously, there are going to be some regulations that accompany it.
The TSP contribution limit for 2022 is $20,500. The government has a sliding scale match, starting at 1% and topping out at 5%. The match is available even if you don’t contribute, though it is at the 1% base amount. It’s a percentage for a percentage match. If you contribute 2%, the match is 2%. If you contribute 5%, the match is 5%.
Fees are considerably lower with TSPs, usually .05%. Like IRAs, TSPs also have required minimum distributions that must start at 72. IRAs have an early withdrawal penalty of 10% if you pull money before 59 ½ years of age. TSPs will waive that 10% penalty if you retire at 55 or older.
Related reading:
Business Retirement Plan Guide
Disclaimer:
**Securities offered through Securities America, Inc., Member FINRA/SIPC. Advisory services offered through Securities America Advisors, Inc. Securities America and its representatives do not provide tax or legal advice; therefore, it is important to coordinate with your tax or legal advisor regarding your specific situation. Please see the website for full disclosures: www.crgfinancialservices.com
Jacob Sensible is a financial advisor with decades of experience in the financial planning industry. His journey into finance began out of necessity, stepping up to support his grandfather during a health crisis. This period not only grounded him in the essentials of stock analysis, investment strategies, and the critical roles of insurance and trusts in asset preservation but also instilled a comprehensive understanding of financial markets and wealth management. Jacob can be reached at: jake.sensiba@mygfpartner.com.
