Getting the most out of the Thrift Savings Plan by Todd Carmack

For employees under the FERS system, the TSP is one of the best benefits to take advantage of. The TSP plan allows FERS employees matching contributions:

 

TSP Matching Contributions

1% is automatic from their agency

100% matching on the first 3% of contributions

50% on the next 2% of contributions

 

This gives you a total of 5%. Let’s face it, free money is too hard to come by, so make sure that you are contributing at least 5% to your TSP plan.

 

Contributing to your TSP:

Traditional TSP – where the amount is deducted from your check prior to taxes. You will pay taxes on any distributions.

 

Roth TSP – where the amount is deducted from your check after taxes have been taken out. As long as you keep the money in the account for 5 years and withdraw it after age 59.5, your distributions are TAX FREE !!!! If you are only contributing to the Roth TSP, your matching 5% will be deposited into the Traditional TSP.

 

If you withdraw money from either the Traditional or Roth TSP prior to age 59.5, you will pay a 10% penalty. There are a couple of exceptions to this rule.

 

TSP Contribution Limits

For the year 2015, if you are under the age of 50, both CSRS and FERS employees may contribute up to $18,000 a year (spread that out over the 26 pay periods).  If you are age SO or above, you may contribute the Catch-Up amount of $6000 a year.  These amounts can be contributed to either the Traditional or the Roth. The Roth TSP does not have the same income restrictions as a private Roth account!!! This will allow high-income earners (married or single) to take advantage of accumulating wealth for a tax free retirement   income.

 

Employees can take money out of their TSP account in a few different ways:

 

TSP Loan – employees may that a loan from their TSP in the amount of their contributions, but not the matching contributions.  Loan interest is based on the G-fund. Growth of this loan money is stopped until it is repaid bi-weekly. You can continue making your regular TSP contributions while repaying the loan.

 

TSP Hardship Withdrawal – this would be withdrawing money and NOT paying it back. This will result in a 6-month freeze of making any contributions and receiving the matching contributions. To add insult to injury, you will also pay income taxes and penalties (if under age 59.5) on the withdrawal. Try and avoid this option.

 

TSP Age Based Withdrawal – this gives the employee the opportunity to withdraw money after the age of 59.5 without penalty. The gives you the opportunity to take advantage of investment options outside of the Thrift Savings Plan that may help you achieve your retirement goals.

When money is simply withdrawn, 20% is withheld for taxes.  If you are transferring TSP funds to a self-directed IRA, financial advisor (still classified as IRA account) or a tax deferred annuity (still classified as IRA account), then you pay no taxes or penalties.

Other Todd Carmack Articles

Social Security for FERS Employees by Todd Carmack

Understanding The Thrift Savings Plan, By Todd Carmack

Is The Pension ‘Survivor Benefit’ Best For You? by Todd Carmack

Understanding Your FEGLI Coverage, by Todd Carmack