Posted by Abundant Wealth Planning LLC

Essential Things to Know About the Thrift Savings Plan

Essential Things to Know About the Thrift Savings Plan

Every military member, federal employee, or anyone with access to the FG's Thrift Savings Plan could be lucky. If appropriately managed, it is a terrific investment portfolio and works just like a 401(k) plan.

These are some excellent points you should know about the thrift savings plan:


  1. Even if you get a Match, Your Pension Might change

The FG will automatically send 1% of your base pay into your account whether you invest or not. Vesting, however, does not work the same way for all employees, which makes it essential to be conversant with the modus operandi for your specific situation. Many workers will require three years of working on the job before keeping the 1% contribution should they leave the job. However, this requirement for vesting is shorter for some employees. 

Another benefit of the Thrift Saving Plan is that some workers can get an employer match from the FG to contribute 5% of their base pay. Three percent of whatever you contribute first to your plan will be matched dollar-for-dollar, and the following 2% will be matched 50 cents for every dollar you donate. This is free money you shouldn’t miss. 

However, do not forget that it might bring down your pension when you claim the TSP match. 

  1. There is an Option of Choosing between Traditional and Roth options.

Like various other retirement plans, your investment might be before or after tax. Choosing a Roth-style TSP, for instance, will involve investing after-tax dollars so that there will not be tax on withdrawals later. Investing in traditional TSP will need pre-tax dollars that will warrant later payment of taxes. Whatever way you choose, the payment of your taxes will be tax-free provided you follow the rules. 

One can also have both Roth and traditional TSP if one wishes. A Roth account is often a better investment option in the long run since one might not pay taxes on withdrawal when you retire. The FG’s match will only be deposited in the traditional TSP option. 

With this, if you are contributing your after-tax dollar to your Roth TSP, the matching contribution will be automatically transformed to a traditional TSP account that will diversify your portfolio. 

  1. Same Contribution Limits like a 401(k) plan

TSP has the same contribution limit as 401(k) plans. You will have a higher limit on getting to age 50, which qualifies you to make extra catch-up contributions. There is also a corresponding increase in the limits to account for inflation every year. 

For 2022, your regular contribution can be up to $20,500. People aged 50 and above can contribute as much as $27,000. However, a deployed service member might be able to contribute as much as $58,000 in a particular year. 

  1. Low Fees 

The Thrift Savings Plan stands out for its low fees. The FG employs fortified contributions from employers from departees of the plan to take care of some of the plan’s expenses. This translates to a reduced investing cost that can translate into some cash in the long run. 

With such low costs, members can build wealth fast. Compound interest is the most potent tool in retirement savings, but investment fees can affect the compound interest. 

  1. Varieties of Investment options

With a Thrift saving Plan, you have a series of affordable investment options. There is an option of splitting the investment between the funds in any way that pleases you. It is possible to access the past performance from such funds alongside the key features.

The investment in a TSP isn't so much different from civilian 401(k)., with a couple of advantages. Ensure you take advantage of this savings option for retirement if you have access to it. Try and do your research so that TSP investment will work for you. 



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