The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees. Congress established the TSP in the Federal Employees' Retirement System Act of 1986. The purpose of the TSP is to provide retirement income. It offers Federal civilian employees the same type of savings and tax benefits that many private corporations offer their employees under so-called "401(k)" plans. The Internal Revenue Code, in 26 U.S.C. § 7701( j), states that the TSP is to be treated as a trust qualified under 26 U.S.C. § 401(a) which is exempt from taxation under 26 U.S.C. § 501(a).
Employees covered by the Federal Employees' Retirement System (FERS) and the Civil Service Retirement System (CSRS) can contribute to the TSP. The participation rules are different for FERS and CSRS employees. Regardless of your retirement system, contributing early gives the money in your account more time to increase in value through the compounding of earnings
The TSP is a defined contribution plan. The retirement income that you receive from your TSP account will depend on how much you (and your agency, if you are a FERS employee) have contributed to your account during your working years and the earnings on these contributions. The contributions that you make to your TSP account are voluntary and are separate from your contributions to your FERS Basic Annuity or CSRS annuity.
In contrast to the TSP, the FERS Basic Annuity and the CSRS annuity are defined benefit programs. This means that the benefits you receive from your FERS or CSRS annuity are based on your years of service and your salary, rather than on the amount of your contributions and earnings. Most contributions to these annuity programs are made by your agency on your behalf. Your contributions are mandatory and the amount you contribute is defined by law. Your contributions are made by payroll deductions that your agency takes automatically from your paycheck. The FERS Basic Annuity and the CSRS annuity are administered by the Office of Personnel Management.
Your TSP benefits are in addition to your FERS or CSRS annuity. If you are a FERS employee, the TSP is an integral part of your retirement package, along with your FERS Basic Annuity and Social Security. If you are a CSRS employee, the TSP is a supplement to your CSRS annuity.
The Federal Retirement Thrift Investment Board administers the TSP and contracts with a separate organization to serve as the TSP record keeper. Your employing agency also plays an important role.
The Board. The Federal Retirement Thrift Investment Board is an independent Government agency. The five members of the Board and the Executive Director are required by law to manage the TSP prudently and solely in the interest of participants and their beneficiaries. Investments in the TSP and earnings on those investments cannot be used for any purpose other than providing benefits to participants and their beneficiaries and paying TSP administrative expenses. TSP regulations are published in title 5 of the Code of Federal Regulations, Parts 1600 - 1699, and are periodically supplemented and amended in the Federal Register.
The Record Keeper. The Board has an agreement with the U.S. Department of Agriculture's National Finance Center (NFC) in New Orleans, Louisiana to provide record keeping services for the TSP. NFC maintains the accounts of TSP participants. The TSP Service Office at NFC processes withdrawals, loans, and interfund transfers, as well as participants' designations of beneficiaries. The TSP Service Office is also your primary contact for information about your account after you separate from Federal service.
Your Agency. Your agency is responsible for determining your retirement coverage and reporting to the record keeper each pay period the contributions made to your account. Your agency also distributes TSP materials and answers your questions about the TSP. You should review the earnings and leave statements that you receive from your agency and your TSP Participant Statements to ensure that your agency provides NFC with correct and up-to-date information about you and your contributions. As long as you are employed by the Federal Government, your agency must also provide the record keeper with the personal information that is necessary to maintain your account (for example, your address). If you have questions about your TSP account or your address is incorrect, contact your human resources office. Your agency is responsible for correcting errors in your personal information and contribution amounts.
You may start, stop or chage your contributions at any time up the the IRS Elective Deferral limit ($15,500 for 2007). Your contributions will stop automatically when you meet the IRS limit. You must make a new election for each calendar year (beginning pay period 25).
The TSP is one of the three components of your retirement package, along with your FERS Basic Annuity and Social Security. Participating in the TSP does not affect the amount of your Social Security benefit or your FERS Basic Annuity.
The money that you save and earn through your TSP account will provide an important source of retirement income. The TSP is especially important to FERS employees because the formula used to compute your FERS Basic Annuity is less generous than the formula used to compute the CSRS annuity.
As a FERS employee, you receive Agency Automatic (1%) Contributions whether or not you contribute to your account.
Agency Automatic 1% contributions are subject to "vesting." You become vested in (that is entitled to keep) these contributions and any earnings they accrue only after you have completed a time-in-service requirement, which is 3 years for most FERS employees and 2 years for FERS employees in Congressional and certain noncareer positions. All Federal civilian service counts toward vesting - not just service while you are a TSP participant. NOTE: You are immediately vested in your own contributions and any earnings they accrue. If you are receiving matching contributions, you are also immediately vested in those contributions and any earnings they accrue.
The date your vesting period begins is determined by your TSP Service Computation Date (TSP-SCD), which your human resources office reports to the TSP record keeper. If you are a FERS participant, you can check your TSP-SCD on your quarterly TSP participant statements. The date will never be earlier than January 1, 1984. If you leave Government service before satisfying the vesting requirement, the Agency Automatic 1% contributions and their earnings will be forfeited to the TSP. If you die before separating from service, you automatically become vested in all the money in your TSP account.
Federal income taxes on all contributions to your account are deferred. To learn more about this important feature, see TSP publication, "Tax Advantages of the TSP."
Your TSP benefits can significantly increase your retirement income, but starting early is important. If you start to contribute to your TSP account early in your career, you will not miss out on Agency Matching Contributions, which you only receive when you contribute your own money. In addition, your earnings on all amounts in your account will compound over a longer period of time. To learn how your account could grow, see TSP publication, "Projecting Your Account Balance." You can also use the TSP Calculator.
To find out more about your FERS Basic Annuity and how the TSP fits into your total retirement plan, contact your human resources office. For more information about your Social Security benefits, contact your human resources office or the Social Security Administration.
If you are a CSRS employee, you can take advantage of the TSP to provide a source of retirement income in addition to your CSRS annuity. Although you do not receive any agency contributions, you do have the benefit of deferring taxes on your contributions and on the earnings in your TSP account.
To learn more about how you benefit from tax deferral, see TSP publication, "Tax Advantages of the TSP." To see how your account could grow, see TSP publication, "Projecting Your Account Balance." You can also use the TSP Calculator. To find out more about your CSRS annuity, contact your human resources office.
You can contribute as little as one dollar per pay period. Even small savings add up over time. If you are a FERS employee and put in only $10 each biweekly pay period, here's what you could add to your TSP account in 25 years. This is in addition to your Agency Automatic (1%) Contributions, which you get whether you contribute or not.
| Your $10 biweekly contributions | $6,500 |
| Your agency's matching contributions* | $6,500 |
| Earnings (assuming 7% a year) | $22,100 |
| ======= | |
| Your total | $35,100 |
| * | This example assumes that $10 is no more than 3 percent of your basic pay each pay period, so it is matched dollar for dollar. See TSP publication, "What are the basic rules for contributing to the TSP?" |
Generally, you cannot withdraw any portion of your TSP account until you have separated from Federal service. The purpose of the TSP is to provide you with a source of income for your retirement. It is not a savings account that can be withdrawn at any time. If you think you may need your money in the near future, or if you do not have other funds saved for emergencies, you will want to consider your other needs carefully when deciding how much to contribute to the TSP.
However, while you are still employed by the Federal Government, the TSP loan program can give you access to money that you have contributed to your account. In addition, participants who are age 59½ or older can make a one-time age-based withdrawal from their TSP accounts while they are in Federal service. In-service withdrawals for reasons of financial hardship is also available. You must provide financial information supporting a hardship withdrawal. These in-service withdrawals are restricted by law and the funds withdrawn are taxable. Financial hardship withdrawals may be subject to early withdrawal penalties. If you receive a financial hardship withdrawal, you cannot contribute to your TSP account for 6 months. (If you are a FERS employee, your Agency Automatic (1%) Contributions will continue.)
To find the publications mentioned in this overview or use of the TSP calculator, please click here for the TSP Web site.