The primary goal of the plan is to give the employee an ability to participate in a long-term savings and investment plan that provides flexibility including:
• A diversified choice of investment options
• Low administrative cost (or load)
• Payroll deduction
• Agency matching contributions (FERS employees only)
• Choice of contribution tax treatments
- Traditional (pre-tax) contributions that are tax-deferred
- Roth (after tax) contributions with tax-free earnings at retirement (certain IRS requirements apply).
Traditional and Roth contributions are dependent upon your federal income tax rate now verses the future.
The TSP is a combined contribution plan in which FERS specifies how much an employee may contribute and how much the agency must contribute to each account. FERS participants (unlike CSRS employees) are entitled to receive agency matching contributions up to 5 percent. Since the government matches the first 5 percent of the employee’s contributions, it only makes sense to take advantage of this rule - it’s free money!
The retirement income you receive depends on these key factors:
1) The amount of money contributed to the plan.
2) The earnings on the contributions.
3) The amount of time the contributions have to grow.
Investment Options - The TSP offers two primary portfolios for investing your money:
• Individual Funds that allow you the flexibility of making your own decisions within these five funds: G, F, C, S and I.
• Lifecycle Funds (L Funds) that use the existing funds G, F, C, S and I for a target retirement date when the participant intends to withdraw the funds. As the target date approaches, the mix of each fund becomes more conservative.
Investment Strategies - A time-tested strategy that can help you tolerate market instability is known as dollar-cost averaging. When market fluctuations occur, we seem to move, buy and sell at the wrong time. Dollar-cost averaging calls for making investments of a fixed amount of money at regular intervals whether the market is going up or down. In doing so, you are able to buy more shares of an investment when the price is low and buy less when the price is high, which can be an effective way to accumulate more shares over time once the asset value increases, enabling you to meet long term goals.
Investment Growth - The value of your TSP plan is calculated each business day based on the daily share price and the number of shares you hold in your investment fund(s). Once the markets close at the end of each day, the total value of the funds holdings is divided by the number of shares to determine the daily share price.
You can learn more about each fund, description of investments, objectives, risk, volatility, types of earnings and administrative cost by visiting https://www.tsp.gov/InvestmentFunds/FundsOverview/ComparisonMatrix.
Death Benefits - One of the most important decisions is to determine how your TSP benefits will be distributed to your loved ones in the event of your death. Neither a Last Will and Testament, divorce decree, property settlement agreement nor court order will dictate how TSP will be distribute your funds. You must submit Form TSP-3 (Designation of Beneficiary) to properly designate your “intended” beneficiary. This is the only form the TSP will honor to distribute death benefits according to your wishes. Failure to properly file Form TSP-3 will cause your money to be distributed by state law which may not be your intended consequence.
In conclusion, many federal employees may find investing in the TSP confusing and do not understand the principles behind their investment options, strategies and growth potential. Everyone’s situation is unique and if you have questions about how or where to invest your money, it is always wise to consult a qualified financial advisor. But, it is crucial to keep contributing to the Thrift Savings Plan for your future!
Thrift Savings Plan: www.tsp.gov || OPM: www.opm.gov || Social Security: www.ssa.gov || IRS: www.irs.gov || NCBC: www.ncbcweb.com