Thrift Savings Plan
The Thrift Savings Plan (TSP) is a retirement plan for U.S. government employees, similar to a 401(k) plan. Its purpose is to provide retirement income to Federal employees. Almost 5.8 million government employees from all walks of life participate in the plan.
The Thrift Savings Plan was established in 1986, and the first TSP fund was introduced in early 1987. The TSP is offered to employees covered by the Federal Employees Retirement System (FERS), Civil Service Retirement System (CSRS) and members of the uniformed services. The TSP is managed by the Federal Retirement Thrift Investment Board, with administrative and day-to-day assistance from various private sector companies.
The TSP is a defined contribution plan: you determine how much of your salary you want to contribute, and it's deposited to your personal TSP account. Consequently, your retirement benefits are the result of your own investment choices: when and how much you contribute and which TSP funds you invest in (how much your investments gain in value) during your service years. This contrasts with a defined benefit plan, where your employer stipulates a monthly benefit or pension at your retirement.
There are several major benefits of participating in the TSP. You can contribute a significant part of your pre-tax earnings by making regular contributions to the plan. For 2011, the annual limit is $16,500. For 2012, it's $17,000. This amount is the same as in 401(k) plans in the private sector. Because you're postponing income tax payments, your TSP savings accumulate tax-free until you start making withdrawals when you retire. And if you're part of FERS, your government agency will also make matching contributions.
There's a lot more to learn about the Thrift Savings Plan but this is a good start. Next, lets take a look at your TSP investment options.
The Thrift Savings Plan was established in 1986, and the first TSP fund was introduced in early 1987. The TSP is offered to employees covered by the Federal Employees Retirement System (FERS), Civil Service Retirement System (CSRS) and members of the uniformed services. The TSP is managed by the Federal Retirement Thrift Investment Board, with administrative and day-to-day assistance from various private sector companies.
The TSP is a defined contribution plan: you determine how much of your salary you want to contribute, and it's deposited to your personal TSP account. Consequently, your retirement benefits are the result of your own investment choices: when and how much you contribute and which TSP funds you invest in (how much your investments gain in value) during your service years. This contrasts with a defined benefit plan, where your employer stipulates a monthly benefit or pension at your retirement.
There are several major benefits of participating in the TSP. You can contribute a significant part of your pre-tax earnings by making regular contributions to the plan. For 2011, the annual limit is $16,500. For 2012, it's $17,000. This amount is the same as in 401(k) plans in the private sector. Because you're postponing income tax payments, your TSP savings accumulate tax-free until you start making withdrawals when you retire. And if you're part of FERS, your government agency will also make matching contributions.
There's a lot more to learn about the Thrift Savings Plan but this is a good start. Next, lets take a look at your TSP investment options.