The TSP is a defined contribution plan similar to a 401(k).
When can I access my TSP without penalty?
Participants can access their TSP without penalty before 59.5. In order to qualify for this the federal employee must have retired during or after the calendar year they turned 55 and have the money go directly from their TSP to their bank account.
How does the matching program work with in the Thrift Savings Plan (TSP)?
Like many 401k programs, the TSP has a matching program by which employers, (In this case the federal government) contributes alongside employees for their retirement. The current TSP matching program is structured as follows:
1% Agency Contribution: 1% of the employee’s salary is contributed to the TSP by their employing agency, regardless of their participation in the TSP.
3% Employee Contribution- 100% Match: The first 3% that an employee contributes out of their salary is matched dollar-for-dollar by the federal government.
2% Employee Contribution - 50% Match: The next 2% that an employee contributes toward the TSP is matched at fifty cents on the dollar by the federal government.
For example Tom, a DOT employee making $100,000 a year, elects to contribute 7% of his salary to the TSP. He receives the 1% Agency Contribution from DOT ($1,000), is matched on the first 3% of his contributions ($3,000) and is matched on 50% of his next 2% of contributions ($1,000). The remaining 2% he contibuties is saved but receives no additional supplement from the federal government. In total Tom contributes $7,000 to his TSP and the Federal Government contributes $5,000, for a total annual TSP contribution of $12,000.
What funds should my TSP be in?
The funds that a participant chooses should be based on two things: their risk tolerance and their target average rate of return. That is something that is completely different for everyone but is also something that is extremely important to know and understand.
Should I be nervous about the government’s ability to borrow out of the G Fund?
The simple answer is no. We are asked this question a lot on our Facebook page. The government is able to borrow out of the G-Fund as a source of funds when the debt ceiling is breached. However they are forced to repay everything borrowed with interest to the participants. This is a highly unusual arrangement as the TSP is managed by a private company (Blackrock), not the government. Regardless, the United States Government is among the highest rated credits in the world, and has never defaulted.
What are the Lifecycle funds?
The lifecycle funds or “L-Funds” (sometimes called target date funds) allocate your TSP based on a planned retirement date (2020, 2030, 2040, 2050). Based on these dates, Blackrock (the manager of the TSP) allocates your investment balance throughout the 5 fund options (G, F, C, S & I) getting safer as the selected date approaches. For example, the L2050 fund has a higher allocation toward growth equity funds (like the C and S funds) while the L2020 fund is weighted more toward bonds and safety (G and F funds). The actual target date of your retirement does not have to correspond to your choice of funds.
What are the TSP funds?
The TSP gives federal employees 5 funds to choose from G, F, C, S and I.
G-Fund: The G Fund is invested in short-term U.S. Treasury securities. It gives you the opportunity to earn rates of interest similar to those of long-term Government securities with no risk of loss of principal. Payment of principal and interest is guaranteed by the U.S. Government. The interest rate paid by the G Fund securities is calculated monthly, based on the market yields of all U.S. Treasury securities with 4 or more years to maturity.
F-Fund: The F Fund is invested in a bond index fund that tracks the Bloomberg Barclays U.S. Aggregate Bond Index. This is a broad index representing the U.S. Government, mortgage-backed, corporate, and foreign government sectors of the U.S. bond market. This fund offers you the opportunity to earn rates of return that exceed money market fund rates over the long term (particularly during periods of declining interest rates).
C-Fund: The C Fund is invested in a stock index fund that tracks the Standard & Poor's 500 (S&P 500) Index. This is a broad market index made up of the stocks of 500 large to medium-sized U.S. companies. It offers you the potential to earn the higher investment returns associated with equity investments.
S-Fund: The S Fund is invested in a stock index fund that tracks the Dow Jones U.S. Completion Total Stock Market (TSM) Index. This is a market index of small and medium-sized U.S. companies that are not included in the S&P 500 Index. It offers you the opportunity to earn potentially higher investment returns that are associated with "small cap" investments. The S Fund has greater volatility than the C Fund.
I-Fund: The I Fund is invested in a stock index fund that tracks the MCSI EAFE (Europe, Australasia, Far East) Index. This is a broad international market index, made up of primarily large companies in 22 developed countries. It gives you the opportunity to invest in international stock markets and to gain a global equity exposure in your portfolio.
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