Members of the U.S. military and Federal employees are able to invest for retirement in a low-cost group of funds called the Thrift Savings Plan (aka TSP).
Coach Carl was an employee of the Federal government and would get question after question about how to invest wisely into the TSP. Today he shares his expertise and experiences with us.
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What is a TSP?
Thrift Savings Plan, the Federal Government’s Retirement Plan available to Federal Employees and members of the military.
Are military personnel able to invest in other types if retirement plans or restricted to TSP?
They are able to invest in other retirement plans like IRAs and ROTH IRAs.
What makes a TSP better for an active duty military member of Federal government employee?
The TSP has extremely low fees compared to the corporate world – about .05%.
Also, a TSP functions just like a 401k as it allows you to deposit up to $18,000 in one year.
Are TSP deposits tax-deferred like a 401k?
Yes, you are not taxed on the growth until you take the money out in retirement.
There is also a ROTH option in the TSP as well. This allows you to invest the money after tax and get the benefit of tax-free withdrawals at retirement.
Are TSP contributions automatic – meaning as soon as they join, money is put into the account?
For Federal employees, there is an automatic agency contribution of 1% of your annual salary. Even if you do not choose to participate, the agency will put that money in for you.
The government does offer a match. Listen to Carl’s explanation of how it works.
What are the investing options in a TSP?
There are five different mutual fund options in addition to Life Cycle options:
G Fund = Government Securities
F Fund = Fixed Income
C Fund = Common Stock
S Fund = Small Capitalization Stock
I Fund = International
L Funds = Lifecycle Funds (adjusts automatically into safer investments based on the date you plan to retire)
It seems like a very simple solution, having so few options. Is there a benefit to have more than what is offered?
Yes. A benefit to have more options than what is offered in a TSP is you get to diversify more.
Are these funds predetermined by an index or algorithm or is there someone there pushing the buttons?
They are managed by the Thrift Savings Board. They determine what is included in each fund.
What would a Federal employee or military member need to adjust their contribution amounts?
Federal employees would need to update their elections using the TSP-1 form and uniformed military would use Form TSP-U-1.
Would you like to know more about saving for retirement and planning for the future?
Contact one of our Financial Wellness Coaches
