Thrift Savings Plan

A Thrift Savings Plan or simply TSP is designed to support your retirement plans and is quite important aspect for saving for your future retirement. In essence, it resembles the dynamic tax-deferred 401(k) plan of the private-sector.

More specifically, the TSP is a retirement savings plan exclusive for civilians who are employed or were employees of the United States Government and for members of the uniformed services. The investment program was established by the US Congress in 1986 as part of the Federal Employees’ Retirement System Act. The law also assigned the management and administration of the TSP to the The Federal Retirement Thrift Investment Board.

Catering to civilian and uniformed personnel of the US government, it is normal that the TSP has lots of investors. Consequently, lots of investors means a stable and substantial asset. According to reports, the TSP had around US$158,000,000,000 and 3.5 million investors as of summer 2006.

In reality, the TSP is a defined contribution plan where contributions from taxable income are invested on a tax-deferred basis and contributions from tax-free income remain tax-free status. The good thing in this investment plan is that when you contribute part of your taxable income in the TSP, your contribution will not be taxed until the time you actually used it when you retire. You are, therefore, able to save money on taxes outright.

Also, another bit of good news came in 2006, when the it was made effective the no limit on the percentage of base pay a civilian employee can contribute to the TSP.

Contributions to TSP is voluntary. More so, any contributions made to TSP is considered independent of the contributions you have made in your Federal Employees’ Retirement System (FERS) annuity or your Civil Service Retirement System (CSRS) annuity.

The TSP offers its members or participants tax deferral on contributions, choice of 5 investment funds, a loan program, in-service withdrawals for financial hardship or after age of 59, choice of post-separation withdrawal options, and the ability to transfer money from other eligible retirement savings plans into your TSP account.

Also note that the retirement assets gained from your TSP account is dependent on the amount of contribution made by both the employee, and if circumstances permit the agency he or she belongs to. Speaking of the contributions, TSP contributions are automatically deducted from the employee’s paycheck.

The thrift savings plan offers six different funds, namely: government security fund, fixed-income fund, common stock fund, small cap stock fund, international stock fund and a life cycle fund. Employees can choose from the six investment opportunities to put their money as added benefits when they retire in the future.

Likewise, when you plan ahead and contribute to the TSP, you can have a wide range of benefits. Among these benefits include agency matching contributions, agency automatic contributions, catch up contributions and low expense ratios.

 

Posted by Ardent Editor on Aug 2 2007 in Retirement 101

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