Breaking Down the TSP By Jeff Spencer

Breaking Down the TSP
By Jeff Spencer

Jeff Spencer developed his passion in helping others with financial planning at a very young age while enlisted in the Air Force, stationed in England working on aircraft as a crew chief. Over the years, Jeff has continued with his passion and recognizes how money can become a powerful tool that should be used to deliver safety and protection in our lives.

Federal employees can receive a lot of perks such as job security, healthcare, a structured work schedule, federal holidays, etc. One of the least known benefits of a federal government job is the Thrift Savings Plan (or TSP).

Workings of the Thrift Savings Plan

The TSP is similar to the 401(k) that is available for civilians. Employees may or may not allocate a part of their salaries into this plan and then invest it into a mix of any of the 6 available funds (discussed below).

Even when workers do not select the kinds of funds for investment, TSP invests the money collected in a target-dated, age-suitable fund referred to as the Lifecycle Fund or ‘L’ (The fund was previously called ‘G’ but has recently been changed to L).

Workers can select between a Traditional or Roth TSP. Similar to a 401(k), contributions to the Roth TSP get taxed as income. However, they are typically not taxed during withdrawal. Contributions to Traditional TSPs are taken from taxable income, but tax needs to be paid during a withdrawal. It is possible for employees to make contributions to both Roth and traditional. However, the annual limit currently applicable would stay the same as it gets considered as one type.

People who begin working for the federal government or join the military after a civilian career have the option to roll over varied individual 401 (k) and other retirement accounts into the Thrift Savings Plan. Also, workers can roll over the contributions to the TSP into the IRA or 401(k) after they leave a federal government job.

Like the civilian retirement plan, people can take out their money when they are 59.5 years old without paying any penalties. Similarly, the minimum required distributions begin when you become 70.5 years old. Each person tends to have dissimilar RMDs and hence it is advisable to seek professional, financial help.

Many different options are available for workers if they want to withdraw the TSP money before they become 59.5 years old. You may take a loan on the amount in balance, you can apply for a financial hardship, or you may go for complete liquidation. There are many other situations offered by TSP where you can access the money before the time limit is over and you need to find if any of those options are applicable to you.

What is the method of contribution to TSP?

Military and federal workers can set up their TSP contributions through the Thrift Savings Plan website. Many employees are often given the option to go for TSP contributions during the basic training or on-boarding process.

Even in case of employees who opt out of making any contributions from their wages into the TSP, the government allocates 1 percent of their pay to the TSP for free. This does not have any impact on your overall salary.  This contribution begins the moment you become a federal employee, or after you have served for 60 days in the military.

This one percent contribution by the government to the TSP comes with a vesting period before the employee can have access to it. Employees in the federal government need to wait for 3 years before that 1 percent is theirs. In some cases, the vesting period may be 2 years as per the type of federal employment. Thus, people who do not remain a federal employee or a military personnel for a minimum of two years can lose their 1 percent, which goes back to the government.

In case of employees who do opt for contribution to the Thrift Savings Plan, then the government will contribute a part of your allocation. Due to the automatic contribution of 1 percent, workers typically get matched contribution of up to 5 percent.

For the initial 3 percent contributed by employees, the government also puts in 3 percent; for the next 2 percentage points paid in, the government pays 0.5 percent each. Workers have to allocate 5 percent of their wages to get a full match by the government. The government does not match contributions beyond 5 percent, but employees are welcome to make allocations of more than 5 percent of their pay to the TSP.

People who have served in the military may be familiar with phrases like ‘hardship pay’, ‘hazard pay’, ‘separations pay,’ etc. You can also choose to have a part of such ‘pays’ to be allocated to your Thrift Savings Plan. This contribution will not be matched by the government, but it is a great way to pump up your contributions to the TSP when you are away for training or get deployed.

Jeff Spencer Discusses the different funds in Thrift Savings Plan

  • (G-Fund) The Government Securities Investment Fund only invests in US Treasury securities. It comes with almost no risk, but low returns.
  • (F-Fund) The Fixed Income Investment Fund invests in different government and corporate bonds. The returns of the fund are dependent on interest rates. It is comparatively low-risk, but returns may not be that great.
  • (C-Fund) The Common Stock Index Investment Fund tracks the S&P 500 index. The fund is exposed to market risk and there is no guarantee of returns. But the S&P 500 index has typically done well.
  • (S-Fund) The Small Cap Stock Index Investment Fund tracks the Dow Jones US Completion Total Index. It is exposed to market risks but offers increased returns as compared to bond funds.
  • (I-Fund) The International Stock Index Investment Fund follows the MSCI EAFE Index. Since this fund deals with international investments, market risk is much broader.
  • (L-Fund) The Lifecycle Fund is made up of Income, 2020, 2030, 2040, and 2050 funds, each of which come with varied risk and portfolio structure.


If you need assistance with your TSP, or you have additional questions, please reach out to a local financial expert for advice and assistance:

Contact Jeff Spencer

Heartland Retirement Group

Phone: 513-903-7551

Email: [email protected]

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