Why should I care about the TSP?
Similar to a 401(k), the Thrift Savings Plan (TSP) places the investment decision in your hands. Overall, it was designed to complement the retirement income you will receive from your basic pension annuity and Social Security.
It can be a potentially generous third income stream after you retire. You decide how much of your paycheck you want to divert into the fund. You won’t be disappointed for putting away what could have been a short-term gain — a higher paycheck — for long-term security.
If you don’t utilize the TSP, you may regret it. In most cases, your basic pension annuity and Social Security will not provide you with enough income to attain the standard of living you want. You could even fall short on making ends meet.
That’s why we suggest you contact one of our benefits specialists. We’ll walk you through the numbers to see where you stand today. We’ll predict what your retirement future may look like depending on how you utilize your federal benefits, like the TSP, as well as the use of other financial products we may suggest to help you achieve security and peace of mind.
How much can I contribute?
Like a 401(k), this truism generally holds: Invest more now, reap a greater reward later. There are limits, of course.
In 2014, a federal employee can contribute up to $17,500 to their TSP. If you are at least 50 years old, you can contribute an additional $5,500. This money can be on a pre-tax basis, in which the contributions or investment earnings are not subject to taxes unless the money is withdrawn. There are exceptions, but this is a general rule of thumb, according to the Congressional Research Service.
The limits are also subject to change and often increase, in fact on a near annual basis. Announcements regarding contribution limit changes are posted on the TSP website and through other channels.
The TSP website provides additional information about contributions and limits. The plan’s administrators have also developed a calculator to help you determine how much can be deducted from your paycheck while also taking into account employer contributions.
Will my agency match my contribution?
Yes, but only if you are enrolled in the Federal Employees Retirement System. Federal workers participating in the Civil Service Retirement System are not eligible.
FERS participants automatically receive a contribution equal to 1 percent of their base pay from their agency. If you do not invest in your TSP, you still earn this free money. This contribution is, however, subject to vesting rules.
Agencies will also “match” — not always “dollar for dollar” — on the first 5 percent of the pay you contribute to your TSP. The first 3 percent will be matched “dollar for dollar.” That means if you invest 3 percent of your pay, your agency will match that. You will also receive the automatic 1 percent contribution. Under this scenario, overall, the total contribution to your TSP, including from your own pocket, will be 7 percent.
The agency contribution rate decreases if you decide to invest more than the first 3 percent of your pay into your TSP. Their site provides a very clear chart that explains the contribution rates. You must make regular contributions in order to qualify for the agency match. If you stop, they stop. However, agency match is not subject to vesting requirements.
- IRS: Explanation of TSP rules and regulations
- Congressional Research Service: TSP 101
- TSP: Guide for Retirees
- TSP: Contribution Rate Chart