A Beginner’s Guide to the Thrift Savings Plan (TSP)

Talk of retirement investing generally seems to revolve around 401k plans and IRA accounts. This is understandable, given the high number of American workers clocking into private sector jobs on a daily basis. However, while private companies employ a large portion of the population and may dominate the 401k world, the Federal Government is actually one of the country’s largest employers. Anyone working as a government employee or member of the military has likely heard of the Thrift Savings Plan (TSP), which is essentially a 401k in disguise.

There are only a few differences between 401k plans and the TSP, the main one being eligibility. Determining your eligibility is as simple as this: If you are a civilian or military employee of the Federal Government, you can contribute to a TSP account. (If you work for anyone else, you likely can contribute to a different type of plan. such as a 401k, 403b, or 457.

Like a 401k, the TSP allows workers to contribute an amount of their choosing from each paycheck. Depending on the specific government employer, a Federal employee may also receive a company match. called an Agency Matching Contribution, up to a specified amount. As with a handful of 401ks, the TSP also offers eligible employees an automatic employer contribution even if the employee doesn’t contribute to the account at all. This Agency Automatic Contribution is equal to 1% of basic pay.

The tax advantages of the TSP also are very similar to those of 401k plans. Employees can contribute on a pre-tax basis, allowing them to defer paying taxes until withdrawal. Also, like more and more 401k plans, the TSP recently added a Roth contribution feature that gives Federal employees the option to pay taxes on their contributions now to avoid taxation down the road.

TSP investment options are intentionally very limited. The idea behind this is to provide Federal employees with a simple, low-cost bundle of funds representing all the main asset classes. This means that investment fees tend to be much lower when compared to fees in 401k plans. Here are the investment options offered by the TSP:

• G Fund – government securities
• F Fund – fixed income investments
• C Fund – common stock Index
• S Fund – small cap stock fund
• I Fund – international stock fund
• Lifecycle Funds (2020 – 2050 and L Income Fund) – target date funds designed to automatically reallocate funds based on an employee’s time horizon

Whether you’re a TSP-eligible employee or not, understanding the retirement plan options available to you is an essential part of developing an appropriate retirement strategy. “Smart401k” has a nice ring to it, but don’t let our name fool you. Our investment advisors specialize in providing advice for all types of employer-sponsored retirement plans and are here to discuss any questions you may have.

by Andrew Thomas

Investment Advisor

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