Roth TSP
Getting the most out of the Thrift Savings Plan by Todd Carmack
/by Todd CarmackFor 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
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Create A Spending Log
/by Dianna TafazoliUse the spending log example to see how you are spending your money. You just might be surprised. As you begin to prepare for Federal retirement, it is important to make certain you are eliminating as much waste as possible. Your spending log might show you where you can cut back and perhaps add a bit more to savings.
Without a lot of thinking, use the table below and quickly jot down how much money you think you spend daily in any given week. You may also itemize the things you spend your money on. Then revisit your personal spending log and examine in detail how you are spending your money.
Personal Spending Log
Weekly |
Income + $ (A) |
Spending – $ (B) |
Sunday | ||
Monday | ||
Tuesday | ||
Wednesday | ||
Thursday | ||
Friday | ||
Saturday |
A minus B gives you a guestimation of how you are spending your money on a weekly basis. Part of your retirement readiness checklist requires you to look at how much money you spend daily and if you can redirect some of the spending to create greater money management efficiency.
Try logging your income and purchases on a daily basis for a month. Analyze the results and decide what you can do differently with your spending.
P. S. Always Remember to Share What You Know.
RELATED TSP ARTICLES
Thrift Savings Plan (TSP) Withdrawal Options
For Postal Employees – LiteBlue and the TSP
Federal and Postal Employees – Choosing a Financial Professional
Is All ‘Your’ TSP Money Actually Yours?
TSP: Completing the TSP 17
/by Dianna TafazoliTSP Beneficiaries
You are required to complete the TSP 17 form so that the TSP can determine potential beneficiaries. The TSP 17 has several parts and must be completed with care. Always check with the TSP to make certain that all forms you are requested to complete have been updated and are current. When new TSP forms are rolled out all previous editions of the form become obsolete and cannot be used. So make sure you are completing the right form.
TSP – 17
The information relating to TSP 17 Form (also referred to as the Deceased Participant Form) has a number of sections that require your careful attention. Section 1 is information about the deceased participant. Section 2 is information about the person submitting the form. Section 3 is information about potential beneficiaries. This is the part that can be very challenging. You may not have all of the information and you may not know the information. When you don’t know the information simply check the – Don’t Know- box and follow the instructions. Section 4 of the TSP 17 form asks about detailed information about potential beneficiaries. Remember, provide as much information on the TSP 17 form as you can and if you don’t know write on the line -Don’t Know. Section 5 asks that you provide referral information so that they can contact someone else who might be able to provide the information you don’t know. This section needs you to provide any information possible even if a telephone number or address is not known. Section 6 of the TSP 17 form is the additional information area where you provide any additional information you think might help with the distribution of the deceased participant’s account. Section 7 is the certification area where you affix your signature to affirm the information given.
Don’t forget to attach a copy of the deceased participant’s death certificate. The more thorough and accurate you are, the quicker the agency can execute the process.
P. S. Always Remember to Share What You Know.
RELATED TSP ARTICLES
For Postal Employees – LiteBlue
Federal and Postal Employees – Choosing a Financial Professional
Is All ‘Your’ TSP Money Actually Yours?
Thrift Savings Plan: Why The TSP?
/by Dianna TafazoliWhy choose the Thrift Savings Plan?
The Thrift Savings Plan (TSP) is a retirement savings vehicle designed to help federal and postal employees increase their resources when planning for retirement. But why not take your earnings from the federal government and take your chances in the open market? Maybe you could do better and your money could grow faster or maybe not.
The TSP is an easy way to save with little or no strain and stress on the employee. TSP contributions are payroll deductible once you sign up to participate in the TSP. The TSP offers extremely low administrative fees which external investment firms cannot match. Vanguard which has probably the lowest expense ratios available to investors are still higher than the expense ratio for the Thrift Savings Plan.
Your TSP Account also provides a fund where you will never lose money, the TSP G Fund. The G Fund, Government secured allows participants to earn interest without any risk or loss of principal. There is also very low earnings in the G Fund with only very modest inflationary protection (speak to a TSP expert or licensed and trained financial professional).
So why the TSP, because it offers participants the best way to safely plan for their retirement future while still employed. If you know what the rule of 72 is and how it related to compounding interest; interest built on top of interest that helps your money grow faster. That is yet another advantage offered by the TSP is the fact that while your money is within it or rolled over into an IRA your TSP interest and earnings are tax-deferred.
With the TSP you get to choose the level of contribution you wish to make. Although, employees currently joining the federal service are automatically enrolled in the TSP at a contribution level of 3%, you have the option of disenrollment. But why would you want to? The TSP is hands down the best way for federal employees to start early managing their retirement future.
To access your TSP Account click here
Click here for TSP Roth information.
Have a TSP L Fund – want to know more
P. S. Always Remember to Share What You Know
(TSP) Thrift Savings Plan
/by Dianna TafazoliThrift Savings Plan (TSP)
The Thrift Savings Plan (TSP) is a program created to help federal employees save for retirement with an investment arm through payroll deduction. The Thrift Savings Plan is a defined contribution plan, a key part of the Federal Employees Retirement System (FERS). As of 2010, employees are automatically enrolled in the Thrift Savings Plan with 3% of their basic pay going into the Traditional Thrift Savings Plan. The agency contributes an automatic 1% with a 3% matching contribution. Employees who are automatically enrolled in the Thrift Savings Plan can choose to withdraw from participation.
When the automatic inclusion into the Thrift Savings Plan was implemented, those funds were deposited into the G Fund. The TSP G Fund represents government securities in the diversified portfolio of the Thrift Savings Plan. The G Fund is the only fund that is internally managed by the Thrift Savings Board. The G Fund never loses money. After being automatically enrolled in their TSP.gov account, participants may contact their agency representatives to choose to allocate their funds at their discretion among the TSP L Fund (age-based combinations of other TSP Funds), the C, S, F and I Funds. These funds are contracted out and managed by Black Rock Institutional Trust Company.
The Thrift Savings Plan is, of course, operated through payroll deductions meaning you can no longer make contributions when are not an active employee either full or part-time and in a pay status. As a retiree, with an established TSP.gov account, you can participate in the Thrift Savings Plan interfund transfer feature.
The Thrift Savings Plan also accepts funds from other eligible plans. The Traditional Thrift Savings Plan accepts transfer and rollovers from Traditional IRAs and Simple IRAs. The Roth TSP accepts transfers from the Roth 401(k), 403(b), and the 457(b). The Thrift Savings Plan does not accept transfers and rollovers from Roth IRAs.
The Thrift Savings Plan is managed by the Federal Retirement Thrift Investment Board (FRTIB) made up of 5 board members appointed by the President of the United States and an Executive Director. The FRTIB also has an Advisory Council, the Employee Thrift Advisors Council (ETAC) made up of employee organizations, unions and the uniformed services.
The Thrift Savings Plan, although a part of the FERS retirement plan, it also is a vehicle that can be used by CSRS employees to plan for retirement. There are no matching contributions made to the Thrift Savings Plan for CSRS employees.
To access your TSP.gov Account click here
Postal employees can access their Thrift Savings Plan through LiteBlue
P. S. Always Remember to Share What You Know.
RELATED TSP ARTICLES
Thrift Savings Plan (TSP) Withdrawal Options
For Postal Employees – LiteBlue and the TSP
Federal and Postal Employees – Choosing a Financial Professional
Is All ‘Your’ TSP Money Actually Yours?
Tax – Deferred Advantages
/by Dianna TafazoliWhat do tax-deferred instruments like the Thrift Savings Plan do for federal and postal employees? Most importantly, the instrument can give the employee a larger amount of money to take home. Taxes are calculated against your earnings on a pre-tax basis. For example, if you earned $1,000 and placed $200 in your Thrift Savings Plan (TSP) account, instead of paying taxes on $1,000, you would only pay taxes on $800 and the $200 would be deposited into your account for later use. This scenario would give you more because less money is being deducted from your earnings today and your $200 would be invested for later use.
Is a tax deferment election the best choice for every federal employee? This is a situation that requires evaluation of one’s individual circumstances. Prior to the expansion of the TSP’s structure, a tax deferred program was the only option available. Now participants in the Thrift Savings Plan can decide to defer their taxes via the Traditional TSP or pay taxes up front via the Roth TSP.
The Traditional Thrift Savings Plan allows you to defer taxes and only pay the taxes when the funds are withdrawn. The Roth TSP requires paying the taxes up front which eliminates having to pay taxes when the funds are withdrawn. The Roth TSP also allows for tax-free earnings when certain conditions are met.
Employees can now see if the Traditional TSP or the Roth TSP or both fit into their plans to retire well and meet their individual needs. Visit your TSP.gov Account to review the information on the TSP and how it helps in planning your retirement future.
P. S. Always Remember to Share What You Know.
It is also important to review your TSP fund selections and make sure that your reaching your retirement goals
Learning About Your Thrift Savings Plan
/by AdminThrift Savings Plan
The Thrift Savings Plan (TSP) is a retirement account and Federal Retirement benefit and Postal Benefit similar to 401(k) plans offered to employees of private corporations. Your TSP.gov account can be a great savings vehicle, which offers a contribution ‘matching’ by the government, which, along with the employee’s savings can create a significant retirement nest egg for Federal and Postal employees as well as other eligible participants.
The Thrift Savings Plan is a defined contribution plan. Which means that the amount of benefit that you derive from the plan depends on how much you put into the account during your working years. The Thrift Savings Plan is one part of a three-part retirement package for those employees covered under the Federal Employee Retirement System (FERS). In addition to your TSP.gov account, this includes your social security and FERS basic annuity.
For CSRS eligible retirees, the Thrift Savings Plan is a supplement to the Civil Service Retirement System (CSRS) annuity.
Features
The federal retirement plan: thrift savings plan provides the following benefits:
• Five basic investment options
• Professionally designed life cycle funds is one feature of the diversified investment options it provides
• It gives a choice of tax treatment options (Roth TSP, and Traditional)
• Tax-deferred investment earnings
Traditional versus Roth Thrift Savings Plan
Employees are eligible to contribute to either plan given total contributions to both do not exceed the deferral limit set by IRS. This limit changes from year to year.
Contributions are deducted from an employee’s gross salary in a traditional Thrift Savings Plan and this deduction results in current-year tax savings. Federal and income taxes are paid when funds are withdrawn at retirement, and the earnings grow on a tax-deferred basis until those withdrawals are made.
Contributions are deducted from an employee’s after tax income in the Roth TSP but there are no taxes to be paid upon withdrawal and earnings grow tax-free as long as the funds remain in the Roth TSP.
When is a Roth Thrift Savings Plan Suitable?
As a general rule, the lower your current tax bracket is today, the more suitable the Roth TSP is for you. This is because of the growth on your Roth TSP will be tax free assuming you take it out after 59 1/2 and if you don’t need to current tax-deduction then the tax-free compounding of your growth can be a real advantage.
Establishing an Account
The earlier you start contributing to your Thrift Savings Plan in your career the greater you will benefit through compounding. This could increase your retirement income substantially.
Your first contribution to the account will establish it, whether it is individually or through your agency (more information can be found at TSP.gov). You are automatically enrolled in this account if you a FERS employee who was hired after July 31, 2010. Every pay period, 3% from your basic pay is deducted and deposited in the account. You can also elect to stop or change the deductions by visiting www.TSP.gov. You will need your TSP.gov login to access the information available to you through the site.
Click HERE for information on Thrift Savings Plan
Click HERE for information on FERS
Click HERE for login information on TSP.gov
Click HERE for access to LiteBlue