Higher Contributions to Thrift Savings Plan Can Save You More

Federal government workers and military personnel will be able to save more than ever in 2019 for retirement, now that limits to contribute to the Thrift Savings Plan has been raised.

In 2018, $18,500 was the most that could be deposited into a Thrift Savings Plan. This year, the max has been raised to $19,000. To those that are over the age of 50, it may be possible to pitch in an extra amount, which can be up to $25,000 as the maximum contribution. Military personnel that are on active-duty in battle zones can contribute up to $56,000 towards their Thrift Savings Plan.

The Benefits

Some benefits to setting aside money to a Thrifts Savings Plan is that it can bring down the rate you are taxed, while the amount in your TSP account grows throughout the years. When withdrawn at retirement, the amount will be taxed just as you normally would with your income. If you withdraw the account before the 59 years and a half, you will have to pay a 10% fee as a penalty as well.

 

There is another option that can be done with your TSP account, which is: you can do after-tax Roth contributions. That way, your money can be pulled out without being taxed during your retirement, but to qualify you must contribute for at least five years to the Roth and must be at 59 and a half years old or older.

 

Another benefit of the TSP is that it has meager fees for this government retirement plan. Just last year, only 40 cents was charged for every $1000 contributed towards the Thrift Savings plan.

The Types

There are six types of investments you can make in the Thrift Savings Plan. The S fund has you invest in small company stocks, while the C fund allows you to contribute towards large company stocks. The F fund is bonds, while the G fund allows you to invest in government securities. There is also the I fund, which are international investments. Lastly, the L funds (Lifecycle funds) is an option that allows you to invest in the previous five funds. However, as employees reach closer to retirement, the investment in the L funds become conservative.

If you are the type to take a risk for a higher return on your investments, the C fund might be what you are looking for. It tracks the S&P’s 500 stock index. For those that wish to not take many risks, the L fund that has the year closest to your retirement in the name might be the option you wish to make.

Federal Government Employees

Also, another tip for non-military federal workers is: Do the TSP match. The TSP match will have the government automatically match 1% of their pay towards the plan. The first 3% of their contribution will be matched for each penny by the government. The next 2% will be matched by 50% for every dollar.

Military Service Members

Military service members that joined in 2018 and on are on a new retirement system: After 20 years of service, they will receive 40% of their base salary, and the government will match up to 5% into their Thrift Savings Plan. This is very helpful to those that will not be in the military for 20 years or more. Personnel who joined the military from 2006 to 2017 had to make a choice last year in 2018 on whether they would remain on their current retirement system, which would give them 50% of their base salary, or if they would move to the new retirement system.

All in all, the Thrift Savings Plan is a helpful source of income for retirement along with Social Security, especially if you contribute more to it now, the more helpful it will be.