The Thrift Savings Plan or TSP is a distinct contribution plan for U.S civil service employees, retirees and members of uniformed services. In 2015, there were roughly 4.8 million participants, and almost $458 billion in assets being managed.
The TSP is a component of the current Federal Employees Retirement System; the others are the FERS Social Security and annuity) and is made to closely look like the dynamics of the private sector 401(k) plan and Roth 401k (recent Roth TSP) plan. It’s also open the workers covered under the previous Civil Service Retirement System.
FERS employees are all eligible to join TSP straightaway after starting work and can join at any time afterward. Before June 22, 2009, newly employed people had to wait for one year before getting matching contributions. After this, employees were automatically eligible for contributions from first day of employment. CSRS employees and members of the uniformed services may join at any time.
Both CSRS and FERS employees as well as members of the uniformed services can contribute. The contribution for both may be a specific dollar amount each paycheck or an income percentage, uniformed service members select a percentage of pay. When the contribution is picked, it renews automatically each year at that same amount until the contributor elects otherwise.
Workers under CSRS aren’t eligible for matching contributions. The FERS employees get a 1% “Agency Automatic Contribution” of base pay from the day one of employment, even if though the employee doesn’t contribute to the TSP.
Added matching contributions are made per-dollar for 3% of base pay. Thus, if an employee paying 3% of base pay will receive an extra 3% matching contribution plus an another 1% agency automatic contribution. Full agency contribution is 4%.
The TSP offers its investors ten fun to invest. Five of them are individual funds while the remaining five are “Lifecycle Funds” made to professionally convert the allocation mix of savings among the individual funds throughout various stages of the worker’s federal service.
– G Fund – Government Securities Fund.
– F Fund – Fixed Income Index fund.
– C Fund – Common Stock Index fund.
– S Fund – Also called Small Capitalization Stock Index Investment.
– I Fund – International Stock Index fund.
– L2050 – Retirement date of 2045 and afterward
– L2040 – Retirement date between the year 2035 and 2044.
– L2030 – Retirement date between the year 2025 and 2034.
– L2020 – Retirement date between the year 2015 and 2024.
– L Income – Individuals currently receiving monthly payments
1. Loan program
There are two categories of loans available; an employee can have just two loans active at a time.
The lowest loan amount is $1,000 while the maximum is $50,000. However, the employee must have adequate assets in that account to request for a loan. There is a $50 fee for processing per loan. Where the employee is married, their partner (even if separated) must give consent to the loan.
The loans must be repaid through payroll deduction and after repayment, the employee must wait at least 60 days before trying to apply for another loan.
– In-service withdrawals
The least withdrawal is $1,000 and married FERS employees spouse have to consent to the withdrawal. However, for the married CSRS employees, their spouse requires a notification.
A worker over age 59½ can request for an “age-based” withdrawal. This withdrawal isn’t subject to any penalties. However, the worker may not ask for a post-employment withdrawal.
Also, employees may request for “financial hardship” withdrawal, and this is limited to any of these specific needs;
– Negative monthly cash flow,
– Medical expenses
– Personal casualty losses
– Legal expenses for divorce or separation.
The financial hardship withdrawals come with a steep price. As well as the permanent withdrawal of funds, there is a permanent loss of prospective future earnings on that investment.
The employee cannot also contribute to the TSP for the six months and loses all matching contributions within this time. Thus, the employee loses the tax deferral advantages as well as the potential future earnings. A financial hardship withdrawal may only be made once every six months.
Federal workers who go to a non-Federal employer can “rollover” their TSP accounts and convert it into an IRA or retirement account with their new employer.
However, retired and separated participants aren’t eligible for TSP loans.
A participant can request a partial withdrawal as long as the balance is $1,000 or more and the participant didn’t make any in-service age-based withdrawal.
A participant who is getting monthly payments may ask for a change in dollar amount gotten each year, or shift from receiving payments which are based on the TSP life expectancy computation. The residual TSP account carries on to accrue earnings and contributors may make an inter fund transfer or changes to its contribution allocation balance.
A participant may also leave their monies in the TSP, but have to withdraw the whole balance (or take monthly payments) by 1st April of a year after the year the member becomes age 70½.
If a withdrawal isn’t made by that time, the participant will then be paid an endowment as required by law.
Where the participant doesn’t provide information for the TSP to acquire the annuity for themselves or their partner, the account will then be declared as abandoned. The participant can reclaim the account by picking a withdrawal option. During abandonment, the contributor won’t receive wages on the balance.
Visit the Thrift Savings Plan site for more information.