Count On The Thrift Savings Plan For Your Future
by Don Fletcher
Don Fletcher, discusses TSP benefits, eligibility, and more.
The Federal Employee retirement system designed a retirement savings plan known as Thrift Savings Plan (or the TSP). The TSP is available to all current and retired federal employees who were engaged in the federal civil service. The TSP is a defined contribution plan that has been designed to give same retirement savings to federal employees as are offered to private sector workers who enjoy the benefits of a 401(k). Federal Employees are eligible to make contributions through paycheck deductions, employer matching, and rollovers from an existing defined contribution plan or eligible IRA.
The Thrift Savings Plan involves the participation of the federal civilian employees and members of the uniformed services. To become eligible to receive matching contributions, uniformed service federal employees need to agree to serve on active duty for at least six years.
Benefits of the TSP
One of the primary benefits of the TSP is how contributions to the TSP are taxed. Contributions to the Traditional TSP (Roth TSP contributions are handled differently) are made “before tax.” This helps in reducing your reportable income by the amount of the contribution that you make. An additional benefit of the tax deferral is that earnings are also not taxed in the year they were created, but rather postponed until the employee begins to withdraw the money. They are meant for allowing compound interest on the earnings.
According to the Thrift savings plan distribution rules, the tax bite is deferred until you start withdrawing funds from the plan. As per the TSP considerations, the federal employees are seen to transfer an approximate amount of $ 9 billion from the retirement accounts each year. These are regarded as defined contribution plans that offer access to the similar kinds of retirement benefits to the federal employees as the private sector employees receive along 401 (k) plans.
How TSP works with FERS
Among the civilian participants, the Federal Employee Retirement System (FERS), employees are entitled to receive employer contributions to their TSP and FERS Annuity. As a FERS employee, the agency employer makes two different kinds of contributions to the account as a part of the FERS benefits. Just like other defined contribution plans, the employees need to bear investment risks for his account balance as well as the account determining the performance and contributions of the investments with various TSP considerations. To participate in a TSP plan, you will select investments that you believe are best for your situation and that suit your financial profile.
However, the TSP modernization act is altered to change the current rules that have been restricting employees from the federal workforce to avail post-separation withdrawals.
If you want to set yourself up for a retirement that matches your income needs, it all starts with a great plan. The Thrift Savings Plan can be incredibly beneficial, but if you’re unsure of how to make the most out of your plan, then it’s best to contact a professional investment advisor.