The Thrift Savings Plan - or TSP for short - is a retirement
plan designed for members of the uniformed services and Federal civilian employees. If you're eligible for the TSP, don't overlook it just because you have a pension! TSP contributions should be an integral part of your retirement planning.
How Your Money Is Invested
The TSP has five funds that invest in different types of stocks and
bonds, as well as several "Lifecycle Funds" that invest in different
combinations of the five individual funds based on various investment
time horizons. Participants have complete control over the mix of funds they select for their accounts.
Available TSP Funds
C Fund - Large- and Mid-Sized US Stocks
S Fund - Small- and Mid-Sized US Stocks
I Fund - International Stocks
F Fund - US Government, Corporate, and Mortgage-Backed Bonds
G Fund - US Government Securities
L Funds - Mix of C, S, I, F, and G Funds Based on Various Time Horizons
Available TSP Funds
C Fund - Large- and Mid-Sized US Stocks
S Fund - Small- and Mid-Sized US Stocks
I Fund - International Stocks
F Fund - US Government, Corporate, and Mortgage-Backed Bonds
G Fund - US Government Securities
L Funds - Mix of C, S, I, F, and G Funds Based on Various Time Horizons
Contribution Limits and Taxation
Just like 401(k) and 403(b) plans, Servicemembers and Federal employees make contributions to individual TSP accounts. Some Federal employees receive matching contributions in addition to the amount they contribute. You can contribute up to $17,000 to your TSP in 2012, or $22,500 if
you’re 50 or older. These amounts are separate from any matching contributions you receive. Servicemembers in combat zones are eligible to
contribute up to $50,000.
Currently TSP contributions are
tax-deductible when made and withdrawals are taxed in retirement. Beginning sometime in the next few months participants will have the option to make Roth-type TSP contributions that
won’t be tax-deductible now but will provide tax-free withdrawals in retirement. Withdrawals of Roth-type TSP contributions can be a great way to balance out taxable pension benefits in retirement.
Fees and Expenses (Or: My Favorite Part of the TSP)
Mutual funds sold by brokers often charge up-front commissions of 5.75% or higher. In addition to sales charges, they often have very high ongoing expenses. According to Morningstar, the average expense ratio of funds that invest in large US stocks is 1.45%. The expense ratios for small US stock funds and international stock funds are much higher, averaging 1.61% and 1.68% respectively.
There aren't any sales charges or commissions on TSP funds. In addition to avoiding those charges, you'll also pay some of the lowest expense ratios I've ever seen. According to the TSP website, the 2010 expenses of all of the funds were 0.025% or less! These low costs are one of the best reasons to invest in the TSP. The less you pay in investment costs, the more you keep for yourself!
Mutual funds sold by brokers often charge up-front commissions of 5.75% or higher. In addition to sales charges, they often have very high ongoing expenses. According to Morningstar, the average expense ratio of funds that invest in large US stocks is 1.45%. The expense ratios for small US stock funds and international stock funds are much higher, averaging 1.61% and 1.68% respectively.
There aren't any sales charges or commissions on TSP funds. In addition to avoiding those charges, you'll also pay some of the lowest expense ratios I've ever seen. According to the TSP website, the 2010 expenses of all of the funds were 0.025% or less! These low costs are one of the best reasons to invest in the TSP. The less you pay in investment costs, the more you keep for yourself!
What Happens When You Leave
Any money you contribute to the TSP is yours to keep. When a
Servicemember separates from service, or a Federal worker leaves his or her
job, they have the option to roll their money to an IRA or leave it in the TSP.
There’s also the option of cashing it out, but that can lead to taxes and early
withdrawal penalties if you’re under 59 ½.
My suggestion is to consider leaving your funds in the TSP when you separate from service or retire. It has all of the basic asset classes you need to build a diversified portfolio and some of the lowest costs around.
You can go to www.tsp.gov to learn more about the TSP and available investment options
My suggestion is to consider leaving your funds in the TSP when you separate from service or retire. It has all of the basic asset classes you need to build a diversified portfolio and some of the lowest costs around.
You can go to www.tsp.gov to learn more about the TSP and available investment options
To learn more about our company - and find out how we are different from other financial advisors - call (210) 587-6433 or visit www.VannoyAdvisoryGroup.com.
