What is the Thrift Saving Plan By Joe “Flavio” Carreno
What is the Thrift Saving Plan By Joe Flavio Carreno
As per described by Joe Flavio Carreno : A salaried person, whether they are a government employee or private servant, remains concerned about the life that they have to spend after their retirement. Therefore, keeping in view this need for the employees, different saving plans are on the cards. But, Joe Flavio Carreno’s Thrift Saving Plan is something different and has been specifically designed for federal employees. A lot of attributes of this Thrift Saving Plan (TSP) are similar to the 401(K) plan. The difference only is that this policy can only be opted by the federal servants and uniformed employees. This policy also includes the ready reserves and keeps a defined contribution plan. In the end, there is no tax on the money that has been accumulated under this policy’s plan.
Key features of the Thrift Saving Plan
Each policy possesses unique characteristics. As per Joe “Flavio” Carreno some of the important features of the Thrift Saving Plan have been given below.
Similarity with the 401(K) plan:
If you see the working and proceeding mechanism of the Thrift Saving Plan, you will see that all its characteristics are similar to the 401(K) investment plan. As per Joe Flavio Carreno the employer matches the contribution from the employees up to a certain limit, the same work is done in this policy by the government for uniformed and federal employees.
Tax exemption:
As most of the other insurance policies and annuities offer tax exempted money, the same in the case of the Thrift Saving Plan described by Joe Flavio Carreno. The investment that you make gets accumulated with the addition of interest. So, this addition in your investment remains tax exempted and you remain in ultimate profit. So, this appears to be one of the best saving plans for federal and uniformed employees.
Investing options:
The policyholder has diverse options in this saving plan. They can invest their money in more than one place, as they possess six options to invest their money. So, this is something extra that is given to the holders of this policy, and of course, these policyholders will be under the jurisdiction of government as they are their employees.
Working of the TSP
Like all the other saving options, the main intention behind this option is also to save people from the threat of outliving income in their future life. While being in the service of the government, the policyholder contributes a fixed amount from their salary, and this fixed amount is defined by the status that the servant is serving in their department. A person with a better position will deposit the larger amounts, and a person with a lower rank will deposit amounts with respect to their own pay scale. So, the money that is invested in the accounts remains tax-deferred until it is withdrawn.
Moreover, it has already been told that there are six investing options in which money can be invested. On the other hand, there is also an option available for investors who invest in this policy. In this option, the policyholder pays the tax on the spot when they deposit the money to avoid the tax at the time of withdrawing. Now, it depends upon the policyholder whether they pay taxes at the time of withdrawing or pays taxes with every installment.
Furthermore, there is an amazing facility of switching the policy in case the policyholder quits the government job and moves into the private sector. In the line of switching options, there are 401(K) plans and an individual retirement account (IRA).
Meanwhile, a Thrift Saving Plan is a defined-contribution plan, and this plan keeps more benefits than the private sector’s retirement policies. But, the working procedure remains the same.
Investment options offered by the TSP
Here we have all the six investment options that can be taken by choosing the Thrift Saving Plan:
- Government Securities Investment (G) Fund
- Fixed-Income Index Investment (F) Fund
- Common-Stock Index Investment (C) Fund
- Small-Capitalization Stock Index Investment (S) Fund
- International-Stock Index Investment (I) Fund
- Specific lifecycle (L) funds
Specific lifecycle funds have been concluded from the combination of any securities.
If we talk about the administration of these different saving options, we will come to know that Fixed-Income Index Investment (F) Fund, Common-Stock Index Investment (C) Fund, International-Stock Index Investment (I) Fund and Small-Capitalization Stock Index Investment (S) Fund are indexed funds. All these indexed funds are being looked after by the BlackRock Institutional Trust Company. The Federal Retirement Thrift Investment Board (FRTIB) is under the agreement with this company that all arrangements regarding these funds will be seen by this specific company. The company is fully responsible for taking all the actions which are in the interest of the employees.
Advantages of the Thrift Saving Plan
This plan is popular among the government employees, and of course, this plan possesses a lot of advantages that have been given below.
Low fees:
This fee belongs to the money that you pay at the time of investment. In most of the cases, this fee is considerably high and remains anguish for policyholders. But, in the case of a Thrift Saving Plan, this problem has been readily solved by the company that looks after all the matters related to TSP. The investment fee is amazingly low, as you have to pay only 29 cents if you invest $1,000. This means the addition of $1,000 dollars will have to pay 29 cents more. If we compare this fee with the other investment plans’ fee, we have the number of $1.70, which is necessary to pay at every $1,000 investment in vanguard index funds. The cost in other index funds is also quite low, but they do not stay in competition with the TSP.
Diversification in available options:
This is the best part of the Thrift Saving Plan: huge diversification is found in the available investment options. In a Thrift Saving Plan, there are five index funds options, and the sixth one belongs to the lifecycle funds, which is a combination of a lot of security funds. The policyholder decides what they want to go with.
Roth Option:
The Roth option is an incredible opportunity that allows you to take the maximum benefit of the policy in any circumstance. A Thrift Saving Plan can only be adopted by the people who are federal servants or uniformed servants. However, if the policyholder quits the job of government and reaches out to another private organization for the job, a Thrift Saving Plan can be replaced with the 401(k) plan or individual retirement account. The money that you had invested while being in the job of government will be transferred to your account, which you will open under the rules and regulations of these policies.
Availability of the loan option:
You might come across a need for money during your investment tenure. Some of the plans do not offer the withdraw unless your plan is expired. However, this is not the case with the Thrift Saving Plan. In a Thrift Saving Plan, you can withdraw the money early as a loan. Later, you have to give that loan back with some expanded amount as a loan fee. This loan ranges from $1,000 to $50,000. Although you pay the interest on the loan, you can meet your timely need with the help of this loan.
Disadvantages of the Thrift Saving Plan
It is not necessary that certain circumstances will be ideal circumstances for everyone. What is good for one might be disturbing for another. While most people support the policies of the Thrift Saving Plan, some do not find these policies convenient enough. So, here we have some disadvantages associated with the Thrift Saving Plan;
Loan deduction fee:
You can take a loan from your own accumulated investment, but this loan costs you $50 dollars extra as a loan fee. This fee will be deducted every time you take the loan. This loan fee is deducted from the money that they give you as a loan.
Forfeiting earning of money:
A number of people consider the availability of loan options a facility. But, some of the people claim that this is the biggest drawback of a Thrift Saving Plan. They argue that you take a loan from your own money that you have to use in your future, and this thing harms your interest. Moreover, the loan fee and loan interest further tease people. So, this option might be a drawback for some of the policyholders.
90 days grace period:
In case a federal civil servant retires and has some dues to pay under the Thrift Saving Plan, they will be responsible for paying dues within 90 days. If they do not do so, they might face a lot of difficulties.
Short-time period for returning loans:
Loans are readily available for the policyholders. However, the repaying time for these loans is low. Most of the time, the policyholder is given five years to repay their loan, and in case of residential loans, this time may be extended to 15 years.
Links
https://www.investopedia.com/terms/t/thrift_savings_plan.asp
https://www.nerdwallet.com/blog/investing/three-things-to-consider-about-the-thrift-savings-plan/
