Helping Federal Employees and Annuitants Understand Their Benefits

 

Thrift Savings Plan (TSP)

TSP Basics, Funds, and Overview



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Updated 5/25/2017

Federal Employee's CSRS & FERS Thrift Savings Plan (TSP) Review

The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees. Congress established the TSP in the Federal Employees' Retirement System Act of 1986. The purpose of the TSP is to provide retirement income.  The TSP offers Federal  employees the same type of savings and tax benefits that many private corporations offer their employees under "401(k)" plans. The National Defense Authorization Act extended participation in the TSP to members of the uniformed services, including the Ready Reserve.

TSP Growth Projections

If you receive a TSP withdrawal payment before you reach age 59½, in addition to the regular income tax, you may have to pay an early withdrawal penalty tax equal to 10% of any portion of the payment not transferred or rolled over. However, if you are age 55 or older in the year you separate or retire, the 10% early withdrawal penalty tax does not apply. See resources for additional tax information.

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Overview

 

The Thrift Savings Plan is an important benefit designed to help FERS, CSRS and CSRS Offset federal employees save for their future. The TSP offers all participants:

  • Tax deferral on contributions
  • A choice of 5 investment funds and additional life cycle funds.
  • A loan program
  • In-service withdrawals for financial hardship or after age 59½
  • A choice of post-separation withdrawal options
  • The ability to transfer money from other eligible retirement savings plans into your TSP account

The TSP is especially important for FERS employees because it is one of three parts of your retirement coverage. Employees can now contribute a significant portion of their basic pay each pay period, up to the IRS annual limit. CSRS employees do not receive Government contributions in their TSP accounts. However, CSRS employees can still take advantage of the TSP to provide a source of retirement income in addition to your CSRS retirement benefit.

The amount you can contribute changes annually. You may elect to contribute any dollar amount or percentage of basic pay. However, your annual dollar total cannot exceed the Internal Revenue Code limit, which is $18,000 for 2016 and $6,000 for catch up contributions over age 55.  

Contributing as much as you can to TSP retirement coverage is simply a smart financial move. Invest money in yourself and your future instead of giving the government an interest free loan in order to get back a large refund check annually after taxes. 

Tax Issues Q&A

 

Question:   I have been planning for retirement for some time.  I want to withdraw partial sums from the Plan after separation and roll each of them over directly into my Roth account. What are the tax consequences?

Answer: The key is in the type of IRA. When you rollover any investment account that hasn’t yet been taxed (TSP, traditional IRA, 401k) to an after-tax investment account, such as a Roth IRA, taxes must be paid to Uncle Sam at the time of the rollover. 

If you want to avoid being taxed on the entire rollover amount, you can leave the funds in TSP (provided the amount is over the minimum) or roll the account over to a Traditional IRA.   

Before electing to rollover the entire amount out of TSP you should consider the administrative expenses of the new investment. If you leave a minimum balance in TSP and keep the funds in a pretax account (traditional IRA), you will be able to roll funds back into TSP if you elect to do so. Also carefully examine the withdrawal reasons and age for withdrawal, as they are different in TSP than other IRA type accounts.  

Maximize Your TSP Contributions

 

Federal employees should consider contributing the maximum amount possible; especially FERS employees that must often rely on TSP withdrawals to maintain their standard of living in retirement. The maximum TSP contribution for 2016 is $18,000 and if you are over age 50 add an additional $6,000 catch up contribution if possible. The $18,000 divided by 26 pay periods equals a $692 contribution per pay period plus an additional $230 if you are over age 50.  Most agency employees will need to make the change effective in pay period 26 to affect the first pay period in January, 2017. 

Resources

 

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