The Thrift Savings Plan (TSP) is a retirement investment account option for Federal government employees similar to the 401(k) account of the private sector.
|2013 Thrift Savings Plan (TSP) Contribution Limits|
|Name||Limit||What it means|
|Elective Deferral Limit||$17,500||This is how much you can contribute of your taxable pay.
|Annual Additional Limit||$51,000||This is the total amount that can be contributed to your account in a year. It includes your contributions and any matching contributions (FERS employees only). Uniformed service employees can contribute more than the $17,500 elective deferral limit as long as the additional contributions are from their tax-expempt pay earned in a combat zone and the total contributions do not exceed $51,000.
|Catch-up Contribution Limit||$5,500||If you are age 50 or older, you may contribute an additional $5,500 in 2013.|
Almost all federal government employees can participate in the TSP. The specific qualifications are:
- Employee Classification – You must be classified as a Federal Employees’ Retirement System (FERS) Employee, a Civil Service Retirement System (CSRS) Employee, a member of the uniformed services (active duty or Ready Reserve), and select civilians in other categories. Almost all federal employees hired after 1983 are FERS or CSRS employees. If you do not know your status, check with your personnel or benefits office.
- Active Employment – You must be currently actively employed by the Federal Government to participate in the TSP.
- Pay Status – You must be currently receiving regular pay to participate in the TSP.
- Work Status – You must be considered a full or part-time employee.
In other words, if you are working for the Federal government, have been there for less than 40 years, and are getting paid for it, then you are eligible to contribute to the TSP.
Roth vs. Traditional
The TSP offers participants the option of making Roth or Traditional Contributions. Unlike with a Roth IRA, there are no income limits for Roth TSP contributions so anyone can choose either option.
Which Fund Should I choose?
Investing is all about risk and return. With more risk there is more potential for loss, but also greater potential for gain. You should choose a level of risk and return that are conservative enough that you don’t lie awake at night worrying about your savings, but aggressive enough that you can meet your retirement goals. Below are your choices from most conservative to most aggressive:
|Fund||Risk & Return Profile||Holdings|
|G||Very Conservative||Government Securities|
|F||Conservative||Fixed Income (Bonds)|
|C||Moderate||Common Stock (Equities)|
|S||Aggressive||Small Cap Stock (Equity of Small, Riskier Companies)|
|I||Very Aggressive||International Stocks|
Generally people choose riskier portfolios when they are younger and gradually adjust their portfolios to be more conservative as they age. This is because a longer investment horizon allows investors to ride out temporary fluctuations that a short term investor, like someone on the verge of retirement, cannot. Younger investors also have the opportunity to adjust their lifestyle or work habits more significantly in response to a loss so they can afford to take on greater risk than an older investor.
You can modify your asset allocation on your own by changing your mix of funds as you age or you can let the government do it for you. The TSP offers “Lifecycle Funds” or “L Funds” that are essentially the same as Target Date Retirement Plans offered by many 401(k) plans. Current retirees should choose the “L Income” fund to receive current income while attempting to keep pace with inflation. A 28-year-old government employee who intends to retire at 65, in the year 2050, would choose the “L 2050” fund. If your target retirement date falls between funds, you can choose to be aggressive (later) or conservative (earlier) or split your savings between two funds.
|L Fund||% in stocks||% in bonds|
|*Allocation data as of January 2013; Will change over time|
Photo Credit: Government employee by Shutterstock