A thrift savings plan (TSP) is an investment program for retirement that is exclusively available to government employees and uniformed service members, including the Ready Reserve. TSP is a defined-contribution plan that offers many of the same benefits to government employees as are provided to employees in the private sector.

A 401(k) plan offered by private businesses and a TSP are similar.

How does Thrift Savings Plan work?

Only federal employees who desire to save money for retirement can use the Thrift Savings Plan (TSP). These plans' main goal is to provide any annuity benefits you could get through the Civil Service Retirement System (CSRS) or the Federal Employees Retirement System (FERS) with retirement income.

There is no waiting time when you start working for the government; you can begin making payments to a TSP immediately. Even if you aren't contributing anything from your paychecks to the plan, you can start getting the automatic 1% contribution.

The first 3% of your pay that you contribute as a FERS employee has been matched dollar for dollar. The following 2% receives a 50% match.

Both traditional and Roth TSPs are available to help you save for retirement. Traditional TSPs are taxed similarly to conventional individual retirement accounts (IRAs). Contributions are made with pre-tax money. Therefore taxes must be paid when the funds are withdrawn.

With a Roth TSP, contributions are made after-tax, meaning taxes are paid upfront rather than at withdrawal time. Up to the yearly contribution restrictions, you can choose to make both regular and Roth contributions.

Type of TSP Investments

, there are five options for individual funds, each with a distinct investment goal.

Options for individual funds include:

Government Securities Investment Fund (G Fund): This low-risk fund seeks to protect capital and generate returns that keep pace with short-term US Treasury securities. The government backs the use of this fund to pay both principal and interest.

Fixed Income Index Investment Fund (F Fund): This low- to medium-risk fund tracks the performance of the Bloomberg Barclays US Aggregate Bond Index. Bonds make up the entirety of the investments made in this fund. Thus they are exposed to the risks inherent in those instruments, such as defaults on principal and interest payments.

Common Stock Index Funds (C Fund): This moderately risky fund includes mid-and-large-cap stocks. This fund tracks the S&P 500 Index's performance. Your money is invested in securities provided by large and medium-sized businesses through this fund. If you also invest in an F Fund, investing in this type of fund can assist reduce risk.

Small Cap Stock Index Investment Fund (S Fund): This medium- to high-risk fund tracks the Dow Jones US Completion Total Stock Market Index performance. In addition to investments in the C and I Funds, the securities in this fund, which are issued by small- to mid-sized US corporations, provide a chance to diversify stock portfolios.

International Stock Index Investment Fund (I Fund): This high-risk fund tracks the MSCI EAFE Index performance. This fund makes investments in non-US enterprises. The value of the US dollar in relation to the currencies of the index countries determines the gains and losses in this type of fund.

You can choose which funds to invest in depending on your investment time horizon and risk tolerance. Think about the fund's performance, expense ratio, and asset allocation before choosing it.

TSP Vs. 401 (k)

TSP and 401 (k) are formed similarly and have the same contribution restrictions, but not exactly. Instead of a 401(k), which is the type of plan provided by private businesses, the federal government offers a TSP. If you've held positions with the government and the private sector, you can have both. However, the total amount contributed to these retirement plans is limited by the Internal Revenue Code's yearly contribution caps.

How much can I contribute to Thrift Savings Plan (TSP)?

For 2022, you can make an annual contribution of up to $60,000 to a TSP. These contributions include elective deferrals, tax-exempts, after-tax, catch-up contributions, matching, and automatic 1% contributions.

Federal employees aged 50 and older may contribute up to $6,500 as part of their catch-up limits. You can also ask for a refund of those contributions if you find that you have made more TSP deferrals than the IRS permits for whatever reason. To request a refund for excessive deferrals, utilize Form TSP-44. Your request must be submitted to the TSP administration by March 15 after you make the contributions.

Do Thrift Saving Plans Have any penalties?

Similar tax regulations apply to traditional and Roth IRAs and the TSP. If you take funds from the plan before the age of 59 1/2, you may have to pay a 10% early withdrawal fine. Tax obligations related to thrift savings plan withdrawals of earnings may also fall on your shoulders.

Therefore, you are permitted to withdraw money from your TSP while working. Age-based and financial hardship withdrawals are the two permitted types of early TSP withdrawals.

How Can I Contact TSP Administration?

Between 7 a.m. and 9 p.m. ET, Monday through Friday, you can reach the Thrift Savings Plan phone number (877-968-3778). Additionally, there is a non-toll-free international phone number at 404-233-4400.

TSP, PO Box 385021, Birmingham, AL 35238, is the general postal address. You can send messages through the Message Center if you have an online account. It takes two business days to respond.

Finally, individual post office boxes and email addresses are indicated on the TSP website for inquiries related to particular categories (death benefits, loans, federal tax levies, court orders, press requests, and more).