A thrift savings plan (TSP) is a defined-contribution retirement savings plan for Federal Employees, similar to a 401(k) plan.

The TSP gives federal workers the opportunity to invest in a tax-advantaged account for retirement.

TSP was created by the Federal Employee’s Retirement System Act of 1986. A TSP serves as a defined-contribution plan designed to give federal employees some of the same retirement-savings benefits offered to workers in the private sector. A TSP closely resembles a 401(k) or similar retirement savings plan and can be set up as either a Roth or a Traditional account.

Unlike the pension plan, the employee has the primary responsibility for contributing, but the agency may also contribute for FERS employees only.

  • A TSP is automatically opened for all FERS employees by their agency.
  • Contributions to the TSP are made by automatic payroll deductions.
  • There is an automatic 1% government contribution even if you don’t contribute.
  • Contribution percentage of pay equal 100% government matching for the first 3% and 50% government matching for the next 2%.

TSP offers the choice of five investment accounts and the life cycle funds:

  1. G fund (Government security)
  2. F fund (Fixed income Index)
  3. C Fund (common stock index)
  4. S Fund (Small capped index)
  5. I Fund (International Index)
  6. L Funds (Lifecycle funds)

There are several ways to get money out of the Thrift Saving plan.

While employed, an employee can obtain a:

  • Hardship withdrawal
  • Loan
  • Age base in-service withdrawal (up to 4 withdrawals per year)

After the employee retires, they can request a:

  • Full or partial withdrawal (Part or all of this amount may be transferred to an IRA or other eligible retirement account.)
  • Series of monthly payments
  • Annuity

As you near retirement, here are some things to consider about your TSP:

  • Taxation
  • Limited investment options
  • Risk of losing money (market risk)
  • Limited income options at retirement
  • No guarantees
  • Losses are not a taxable write off
  • Limited beneficiary options
  • Limited withdrawal options

It is important to contribute to your TSP account especially if you are a FERS Employee. However, it is also important to consider alternative investment options near or in retirement. 

There are solutions you can put in place now that can help you save taxes, increase returns, and provide a guaranteed lifetime income for you and your spouse, keeping you in control.

There are two phases to your retirement; accumulation and income. 

It’s never too early to plan how each phase will affect your retirement income.

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To achieve peace of mind and maximize your income, it is important to plan now. Remember, you always want to be in control.

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