Tag: TSP

TSP contribution limit for 2022 is 20,500 per person. Additionally, all federal employees over the age of 50 can contribute a catch-up of $6,500 per year.

Retirement Calculator

What is TSP?

Thrift Saving Plan is a Federal retirement plan where both federal employees and agencies can make retirement contributions. Moreover, this retirement plan is one of the easiest and most effective ways for you to save for retirement. As a federal employee, you can make automatic contributions to your TSP directly through your employer’s payroll. You can choose the percentage of your salary that will go towards your retirement savings. TSP provides you with multiple investment options in stocks, fixed income, and lifecycle funds. Additionally, most agencies offer a TSP match up to a certain percentage. In most cases, you need to participate in the plan in order to get the match. For more information about investment options in your TSP account, check my article – “Grow your retirement savings with the Thrift Savings Plan.”

Who is Eligible to Participate in the TSP?

Most employees of the United States Government are eligible to participate in the Thrift Savings Plan. You are eligible if you are:

• Federal Employees’ Retirement System (FERS) employees (started on or after January 1, 1984)
• Civil Service Retirement System (CSRS) employees (started before January 1, 1984, and did not convert to FERS)
• Members of the uniformed services (active duty or Ready Reserve)
• Civilians in certain other categories of Government service

How much can I contribute to my TSP in 2022?

TSP contribution limits for 2022 increased slightly from 2021. IRS typically increases the maximum annual limit with the cost of living adjustment and inflation. These contribution limits apply to all employees who participate in the federal government’s Thrift Savings Plan,  401(k), 403(b), and 457 plans. Additionally, the limits apply to both tax-deferred and Roth contributions combined. 

• Employees can contribute up to $19,500 to their TSP plan for 2022, a $1,000 increase from  2021.
• Employees of age 50 or over are eligible for an additional catch-up contribution of $6,500 in 2022, the same amount as  2021.
• Employee compensation limit for calculating TSP contributions is $305,000, $15,000 more than 2021
• For participants who contribute to both a civilian and a uniformed services TSP account during the year, the elective deferral and catch-up contribution limits apply to the combined amounts of traditional (tax-deferred) and Roth contributions in both accounts.
• Members of the uniformed services, receiving tax-exempt pay (i.e., pay that is subject to the combat zone tax exclusion), your contributions from that pay will also be tax-exempt. Your total contributions from all types of pay must not exceed the combined limit of $61,000 per year.

There are two types of contributions – tax-deferred traditional TSP  and tax-exempt Roth TSP contributions.

Tax-deferred TSP

Most federal employees, typically, choose to make tax-deferred TSP contributions. These contributions are tax-deductible. They will lower your tax bill for the current tax year. Your investments will grow on a tax-deferred basis. Therefore, you will only owe federal and state taxes when you start withdrawing your savings.

Roth TSP

Roth TSP contributions are pretax. It means that you will pay all federal and state taxes before making your contributions. The advantage of Roth TSP is that your retirement savings will grow tax-free. As long as you keep your money until retirement, you will withdraw your gain tax-free. It’s a great alternative for young professionals and workers in a low tax bracket.

TSP Matching

Federal agencies can make a matching contribution up to the combined limit of $61,000 or $67,500 with the catch-up contribution. If you contribute the maximum allowed amount, your agency match cannot exceed $40,500 in 2022.

If you are an eligible FERS or BRS employee, you will receive matching contributions from your agency based on your regular employee contributions. Unlike most private companies, matching contributions are not subject to vesting requirements.

FERS or BRS participants receive matching contributions on the first 5% of your salary that you contribute each pay period. The first 3% of your contribution will receive a dollar-for-dollar match. The next 2% will be matched at 50 cents on the dollar. Contributions above 5% of your salary will not be matched.

Consider contributing at least 5% of your base salary to your TSP account so that you can receive the full amount of matching contributions.

Matching schedule

Opening your TSP account

FERS Employees

If you are a federal employee hired after July 31, 2010, your agency has automatically enrolled you in the TSP.  By default, 3% of your base salary will be deducted from your paycheck each pay period and deposited in the traditional balance of your TSP account.  If you decide, you have to make an election to change or stop your contributions.

If you are a FERS employee who started before August 1, 2010, you already have a TSP account with accruing 1% automatic contributions. In addition, you can make contributions to your account from your pay and receive additional matching contributions.

CSRS Employees

If you are a Federal civilian employee who started before January 1, 1984, your agency will establish your TSP account after you make a contribution election using your agency’s election system.

BRS Members of the Uniformed Services

Members of the uniformed services who began serving on or after January 1, 2018, will automatically enroll in the TSP once you serve 60 days. By default,  3% of your basic pay is deducted from your paycheck each pay period and deposited in the traditional balance of your TSP account. You have can always select to change or stop your contributions.

TSP contribution limits for 2021 is 19,500 per person. Additionally, all federal employees over the age of 50 can contribute a catch-up of $6,500 per year.

Retirement Calculator

What is TSP?

Thrift Saving Plan is a Federal retirement plan where both federal employees and agencies can make retirement contributions. Moreover, this retirement plan is one of the easiest and most effective ways for you to save for retirement. As a federal employee, you can make automatic contributions to your TSP directly through your employer’s payroll. You can choose the percentage of your salary that will go towards your retirement savings. TSP provides you with multiple investment options in stocks, fixed income, and lifecycle funds. Additionally, most agencies offer a TSP match up to a certain percentage. In most cases, you need to participate in the plan in order to get the match. For more information about investment options in your TSP account, check my article – “Grow your retirement savings with the Thrift Savings Plan.”

Who is Eligible to Participate in the TSP?

Most employees of the United States Government are eligible to participate in the Thrift Savings Plan. You are eligible if you are:

• Federal Employees’ Retirement System (FERS) employees (started on or after January 1, 1984)
• Civil Service Retirement System (CSRS) employees (started before January 1, 1984, and did not convert to FERS)
• Members of the uniformed services (active duty or Ready Reserve)
• Civilians in certain other categories of Government service

How much can I contribute to my TSP in 2021?

TSP contribution limits for 2021 stayed the same as change every year. IRS typically increases the maximum annual limit with the cost of living adjustment and inflation. These contribution limits apply to all employees who participate in the federal government’s Thrift Savings Plan,  401(k), 403(b), and 457 plans. Additionally, the limits apply to both tax-deferred and Roth contributions combined. 

• Employees can contribute up to $19,500 to their TSP plan for 2021,  the same amount as  2020.
• Employees of age 50 or over are eligible for an additional catch-up contribution of $6,500 in 2021, the same amount as  2020.
• Employee compensation limit for calculating TSP contributions is $290,000, $5,000 more than 2020
• For participants who contribute to both a civilian and a uniformed services TSP account during the year, the elective deferral and catch-up contribution limits apply to the combined amounts of traditional (tax-deferred) and Roth contributions in both accounts.
• Members of the uniformed services, receiving tax-exempt pay (i.e., pay that is subject to the combat zone tax exclusion), your contributions from that pay will also be tax-exempt. Your total contributions from all types of pay must not exceed the combined limit of $58,000 per year.

There are two types of contributions – tax-deferred traditional TSP  and tax-exempt Roth TSP contributions.

Tax-deferred TSP

Most federal employees, typically, choose to make tax-deferred TSP contributions. These contributions are tax-deductible. They will lower your tax bill for the current tax year. Your investments will grow on a tax-deferred basis. Therefore, you will only owe federal and state taxes when you start withdrawing your savings.

Roth TSP

Roth TSP contributions are pretax. It means that you will pay all federal and state taxes before making your contributions. The advantage of Roth TSP is that your retirement savings will grow tax-free. As long as you keep your money until retirement, you will withdraw your gain tax-free. It’s a great alternative for young professionals and workers in a low tax bracket.

TSP Matching

Federal agencies can make a matching contribution up to the combined limit of $58,000 or $64,500 with the catch-up contribution. If you contribute the maximum allowed amount, your agency match cannot exceed $38,500 in 2021.

If you are an eligible FERS or BRS employee, you will receive matching contributions from your agency based on your regular employee contributions. Unlike most private companies, matching contributions are not subject to vesting requirements.

FERS or BRS participants receive matching contributions on the first 5% of your salary that you contribute each pay period. The first 3% of your contribution will receive a dollar-for-dollar match. The next 2% will be matched at 50 cents on the dollar. Contributions above 5% of your salary will not be matched.

Consider contributing at least 5% of your base salary to your TSP account so that you can receive the full amount of matching contributions.

Matching schedule

Opening your TSP account

FERS Employees

If you are a federal employee hired after July 31, 2010, your agency has automatically enrolled you in the TSP.  By default, 3% of your base salary will be deducted from your paycheck each pay period and deposited in the traditional balance of your TSP account.  If you decide, you have to make an election to change or stop your contributions.

If you are a FERS employee who started before August 1, 2010, you already have a TSP account with accruing 1% automatic contributions. In addition, you can make contributions to your account from your pay and receive additional matching contributions.

CSRS Employees

If you are a Federal civilian employee who started before January 1, 1984, your agency will establish your TSP account after you make a contribution election using your agency’s election system.

BRS Members of the Uniformed Services

Members of the uniformed services who began serving on or after January 1, 2018, will automatically enroll in the TSP once you serve 60 days. By default,  3% of your basic pay is deducted from your paycheck each pay period and deposited in the traditional balance of your TSP account. You have can always select to change or stop your contributions.

The Thrift Savings Plan (TSP) is a retirement savings plan for federal employees. The purpose of the TSP is to provide federal workers with a platform for long-term retirement savings where you can make regular monthly payroll contributions. In many ways, TSP resembles the 401k plans used by private corporations.

Retirement Calculator

TSP Eligibility

Most employees of the United States Government are eligible to participate in the Thrift Savings Plan. You qualify if you are:

• Federal Employees’ Retirement System (FERS) employees (started on or after January 1, 1984)
• Civil Service Retirement System (CSRS) employees (began before January 1, 1984, and did not convert to FERS)
• Members of the uniformed services (active duty or Ready Reserve)
• Civilians in specific other categories of Government service including some congressional positions and judges

Contribution Limits for 2020

Federal employees can contribute up to $19,500 in their Thrift Savings Plan in 2020. Additionally, all federal employees over the age of 50 can make a catch-up contribution of $6,500 per year.
Members of the uniformed services, receiving tax-exempt pay that is subject to the combat zone tax exclusion, can make contributions up to the combined limit of $57,000 per year.

TSP Matching

TSP participants receive matching contributions on the first 5% of your salary that you contribute each pay period. The first 3% of your contribution will get a dollar-for-dollar match. The next 2% will be matched at 50 cents on the dollar. Contributions above 5% of your salary do not receive an additional match.

Federal agencies can make a matching contribution up to the combined limit of $57,000 or $63,500 with the catch-up contribution. If you contribute the maximum allowed amount, your agency match cannot exceed $37,500 in 2020.  Receiving a match on your contributions is free money. You must contribute at least 5% of your base salary to your TSP account to get the full match from your agency.

Matching schedule

The table below illustrates how your agency makes a matching contribution to your TSP account based on your own selection. Even if you choose not to contribute to TSP, you will still receive 1% of your base pay. If you put aside 5% of base pay, you will get the full 5% match from your agency.

Source: opm.gov

TSP Vesting

For vesting purposes, there are two types of agency contributions.

Agency Automatic Contributions (1%)

All eligible TSP participants will automatically receive deposits into your account equal to 1% of your basic pay each pay period, even if you do not contribute your own money. After three years of Federal civilian service (or two years in some cases), you are vested in these contributions and their earnings.

Agency Matching Contributions (0% – 4%)

All eligible federal employees will receive a dollar for dollar matching contribution for the first 3% that you contribute each pay period. Each dollar of the next 2% of basic pay will be matched with 50 cents on the dollar. All matching contributions are vested immediately.

How to grow your retirement savings with TSP

The Thrift Savings Plan allows you to save for retirement and become financially independent. Even small annual contributions paired with the agency match can make a big difference in your financial future.

Here is an example:

Let’s assume that your base pay is $100,000 per year. You want to save for retirement and take advantage of your agency match. Saving 5% or $5,000 per year will guarantee you another (free) $5,000 in your TSP account. That is a total of $10,000 annually. Assuming a modest return of 7% every year, you will have savings worth $1,000,000 in your TSP in 30 years. (For the 30 years between 1990 and 2019, the US stock market has earned a 9.84% average annual return. By setting aside $150,000 in 30 years, you have the potential of making a million dollars in your retirement. Being patient and consistent in combination with the power of compounding can boost your financial freedom in the long run.

Tax Treatment

For tax purposes, there are two types of individual contributions.

Tax-deferred TSP

Most federal employees opt to make tax-deferred contributions to their Thrift Savings Plan account. These contributions are tax-deductible. They will lower your tax bill for the current tax year. Your TSP investments will grow on a tax-deferred basis. You will only owe federal and state taxes when you start withdrawing your retirement savings.
If you are a uniformed services member making tax-exempt contributions, your contributions will be tax-free; only your earnings will be subject to federal and state tax at withdrawal.

Roth TSP

Roth TSP contributions are pretax. You pay all federal and state taxes before making your contributions. The advantage of Roth TSP is that your retirement savings will grow tax-free. As long as you keep your money until retirement, you will withdraw your investment earnings tax-free. Roth TSP is an excellent alternative for young professionals and federal workers in a low tax bracket.

TSP Fund options

As a TSP participant, you can choose between several fund options.

C Fund

The C fund tracks the performance of the S&P 500 Index; a broad market index made up of stocks of the top 500 largest U.S. companies. The C fund owns companies such as Apple, Microsoft, Amazon.com, Facebook, Berkshire Hathaway, JPMorgan Chase, Alphabet, Johnson & Johnson, and Visa. The fund has earned an annualized 13.59% average 10-year rate of return.

S Fund

The S fund matches the performance of the Dow Jones U.S. Completion Total Stock Market Index; a broad market index made up of stocks of small-to-medium size U.S. companies. These are stocks that are not included in the S&P 500 Index. The S fund owns companies like TSLA Tesla Motors, Blackstone Group, Lululemon Athletica, Workday, Splunk, Palo Alto Networks, CoStar Group, Square, Dexcom, and Liberty Broadband Corp. The fund has earned an annualized 13.08% average 10-year rate of return.

I Fund

The I fund invests in foreign stocks and follows the performance of the MSCI EAFE (Europe, Australasia, Far East) Index. The I fund owns companies such as Nestlé, Roche, Novartis, Toyota Motor, HSBC, SAP, Total, AstraZeneca, LVMH, and BP. The fund has earned an annualized 5.85% average 10-year rate of return.

F Fund

The F fund tracks the performance of the Bloomberg Barclays U.S. Aggregate Bond Index. The fund invests in a broad range of US bonds, including US treasuries, investment-grade corporate bonds, and agency mortgage pass-through bonds. Nearly 70% of the fund portfolio is in the highest quality AAA-rated bonds. The fund has earned an annualized 2.23% average 10-year rate of return.

G Fund

The G fund invests in nonmarketable US Treasury bonds specially issued to the TSP. The payment of G Fund principal and interest is guaranteed by the U.S. Government. The G fund is the most stable and safe investment option in the TSP fund list. It has an investment objective to produce a rate of return that is higher than inflation while avoiding market price fluctuations. The fund has earned an annualized 3.99% average 10-year rate of return.

The L Funds

The L funds are lifecycle funds that invest automatically according to a professionally designed mix of stocks, bonds, and government securities. You can select your L Fund based on your age and investment time horizon. Your expected future retirement date will determine which fund assignment. For example, if you plan to retire in 2039, you will be assigned to L 2040 fund.

The L Fund roaster includes L 2065, L 2060, L 2055, L 2050, L 2045, L 2040, L 2035, L 2030, L 2025, and L Income.

All L funds own a mix of the five individual funds. TSP participants with a longer investment horizon will own more stocks and fewer bods. Those approaching retirement will move to a higher allocation to bonds and a smaller allocation to stocks.

Investing your Thrift Savings Plan

The L fund is an easy and convenient investment option. If you choose the lifecycle fund, you do not have to spend too much time guessing the stock market and periodically rebalancing your retirement savings. Your savings will be invested automatically. Your asset allocation will move from more aggressive to more conservative as you get closer to retirement.

Individual fund mix

If you prefer a more active approach, then you can invest directly in any of the five individual funds. I recommend that you allocate your account depending on your age:

You will notice that my recommendations differ considerably from the current L funds allocation. I established the age-based fund mix based on the actual fund performance and current economic conditions. Before investing, you need to consider your investment horizon, individual circumstances, and risk tolerance level. I assume that younger participants would have a long (30-40 years) investment horizon and high-risk tolerance. On the other hand, participants approaching retirement would have a much shorter investment horizon and lower risk tolerance as they will depend on their retirement savings in the near future. Choosing individual funds gives you the flexibility to make any changes at any point in time.

Plan Your Taxes

TSP contribution limits for 2020 is 19,500 per person. Additionally, all federal employees over the age of 50 can contribute a catch-up of $6,500 per year.

Retirement Calculator

What is TSP?

Thrift Saving Plan is a Federal retirement plan where both federal employees and agencies can make retirement contributions. Moreover, this retirement plan is one of the easiest and most effective ways for you to save for retirement. As a federal employee, you can make automatic contributions to your TSP directly through your employer’s payroll. You can choose the percentage of your salary that will go towards your retirement savings. TSP provides you with multiple investment options in stocks, fixed income, and lifecycle funds. Additionally, most agencies offer a TSP match up to a certain percentage. In most cases, you need to participate in the plan in order to get the match. For more information about investment options in your TSP account, check my article – “Grow your retirement savings with the Thrift Savings Plan“.

Who is Eligible to Participate in the TSP?

Most employees of the United States Government are eligible to participate in the Thrift Savings Plan. You are eligible if you are:

• Federal Employees’ Retirement System (FERS) employees (started on or after January 1, 1984)
• Civil Service Retirement System (CSRS) employees (started before January 1, 1984, and did not convert to FERS)
• Members of the uniformed services (active duty or Ready Reserve)
• Civilians in certain other categories of Government service

How much can I contribute to my TSP in 2020?

TSP contribution limits change every year. IRS typically increases the maximum annual limit with the cost of living adjustment and inflation. These contribution limits apply to all employees who participate in the federal government’s Thrift Savings Plan,  401(k), 403(b), and 457 plans. Additionally, the limits apply to both tax-deferred and Roth contributions combined. 

• Employees can contribute up to $19,500 to their TSP plan for 2020,  $500 more than  2019.
• Employees of age 50 or over are eligible for an additional catch-up contribution of $6,500 in 2020,  $500 higher than  2019
• Employee compensation limit for calculating TSP contributions is $285,000, $5,000 more than 2019
• For participants who contribute to both a civilian and a uniformed services TSP account during the year, the elective deferral and catch-up contribution limits apply to the combined amounts of traditional (tax-deferred) and Roth contributions in both accounts.
• Members of the uniformed services, receiving tax-exempt pay (i.e., pay that is subject to the combat zone tax exclusion), your contributions from that pay will also be tax-exempt. Your total contributions from all types of pay must not exceed the combined limit of $57,000 per year.

There are two types of contributions – tax-deferred traditional TSP  and tax-exempt Roth TSP contributions.

Tax-deferred TSP

Most federal employees, typically, choose to make tax-deferred TSP contributions. These contributions are tax-deductible. They will lower your tax bill for the current tax year. Your investments will grow on a tax-deferred basis. Therefore, you will only owe federal and state taxes when you start withdrawing your savings.

Roth TSP

Roth TSP contributions are pretax. It means that you will pay all federal and state taxes before making your contributions. The advantage of Roth TSP is that your retirement savings will grow tax-free. As long as you keep your money until retirement, you will withdraw your gain tax-free. It’s a great alternative for young professionals and workers in a low tax bracket.

TSP Matching

Federal agencies can make a matching contribution up to the combined limit of $57,000 or $63,500 with the catch-up contribution. If you contribute the maximum allowed amount, your agency match cannot exceed $37,500 in 2020.

If you are an eligible FERS or BRS employee, you will receive matching contributions from your agency based on your regular employee contributions. Unlike most private companies, matching contributions are not subject to vesting requirements.

FERS or BRS participants receive matching contributions on the first 5% of your salary that you contribute each pay period. The first 3% of your contribution will receive a dollar-for-dollar match. The next 2% will be matched at 50 cents on the dollar. Contributions above 5% of your salary will not be matched.

Consider contributing at least 5% of your base salary to your TSP account so that you can receive the full amount of matching contributions.

Matching schedule

Opening your TSP account

FERS Employees

If you are a federal employee, hired after July 31, 2010, your agency has automatically enrolled you in the TSP.  By default, 3% of your base salary will be deducted from your paycheck each pay period and deposited in the traditional balance of your TSP account.  If you decide, you have to make an election to change or stop your contributions.

If you are a FERS employee who started before August 1, 2010, you already have a TSP account with accruing 1% automatic contributions. In addition, you can make contributions to your account from your pay and receive additional matching contributions.

 

CSRS Employees

If you are a Federal civilian employee who started before January 1, 1984, your agency will establish your TSP account after you make a contribution election using your agency’s election system.

BRS Members of the Uniformed Services

Members of the uniformed services who began serving on or after January 1, 2018, will automatically enroll in the TSP once you serve 60 days. By default,  3% of your basic pay is deducted from your paycheck each pay period and deposited in the traditional balance of your TSP account. You have can always select to change or stop your contributions.