Thrift Savings Plan
Eligibility
Contributions
Agency Automatic (1%) Contributions
Employee Contributions
Agency Matching Contributions
Vesting Requirement
Investment Options
Government Securities Investment (G) Fund
Common Stock Index Investment (C) Fund
Fixed Income Index Investment (F) Fund
Contributing to TSP
Tax Advantages
Loan Program
Withdrawing Your Funds
Withdrawal Options
Leaving Your Money in the TSP
Automatic Cashout
Additional Information
The third part of your Federal Employees Retirement System (FERS) benefit is the Thrift Savings Plan (TSP). The TSP is a tax-deferred retirement savings and investment plan that offers you the same type of savings and tax benefits that many private corporations offer their employees under 401(k) plans. By participating in the TSP, you have the opportunity to save part of your income for retirement, receive matching agency contributions, and reduce your current taxes.
Your thrift account is the part of your retirement that you control you decide how much of your pay to put in your thrift account, how to invest it, and, when you retire, you decide how you want your money paid out.
The best way to assure that your retirement income meets your needs is to start investing in the Thrift Savings Plan at the beginning of your Federal service, and to continue to do so throughout your career. This is your way to invest in your own future - to invest in yourself. It is particularly important for higher-paid employees to save enough through the TSP since Social Security replaces less income of higher-paid workers than it does for lower-paid workers.
Additional information about the benefits and features of the TSP has been issued by the Federal Retirement Thrift Investment Board and is available from your agency employing office or the TSP web site at http://www.tsp.gov/. In addition to the Summary of the Thrift Savings Plan for Federal Employees' (stock number TSPB08), separate booklets on the loan program, withdrawal options, and annuities are available.
All Federal employees covered by FERS are eligible to participate in the Thrift Savings Plan (TSP). However, if you are a newly hired FERS employee, you must wait a certain period of timegenerally, 6 to 12 months before you can begin to participate in the TSP. If you are a rehired FERS employee, when you can begin to participate in the TSP depends upon your previous TSP eligibility.
See the Summary of the Thrift Savings Plan for Federal Employeess' for the specific rules on TSP eligibility, or ask your personnel office when you will become eligible to participate in the plan.
Once you become eligible to participate in the Thrift Savings Plan, there are three types of contributions that may be made to your account:
Your agency will set up a Thrift account for you and will automatically contribute an amount equal to 1% of your basic pay each pay period. These Agency Automatic (1%) Contributions are not taken out of your salary, and your agency makes these contributions whether or not you contribute your own money.
You may make your own contributions by payroll deductions. The money you contribute is taken out of your pay before Federal and, in almost all cases, State income taxes are calculated. You may contribute up to 10% of the basic pay you earn each pay period up to the Internal Revenue Service (IRS) limit, which is $10,000 in 1998. (This limit may be adjusted each calendar year according to the Internal Revenue Code.)
| When you make employee contributions, your agency will make matching contributions to your TSP account according to the following schedule: | |
|---|---|
| Your Agency | Contribution Match |
| First 3% of Basic Pay | $1.00 for each $1.00 you contribute |
| Next 2% of Basic Pay | $0.50 for each $1.00 you contribute |
| Next 5% of Basic Pay | 0 |
The agency contributions are not taken out of your salary; they are an extra benefit to you. While your agency will only provide matching contributions on your contributions up to 5% of your basic pay each pay period, you still benefit from before-tax savings and tax-deferred earnings on amounts you contribute in excess of 5% of your basic pay each pay period.
The examples at the end of this booklet illustrate the importance of Thrift Plan participation in your total benefits package. The examples also show the effect on a FERS retirement package of contributing 3% of pay and 5% of pay.
When you separate from Federal service, you must meet the Thrift Plan vesting requirement to be entitled to, or vested in, your Agency Automatic (1%) Contributions and attributable earnings. For most employees, this vesting requirement is 3 years of Federal, generally civilian, service.
Congressional employees and certain other non-career employees must complete 2 years of Federal, generally civilian, service. Employees who die in service are automatically vested in their Agency Automatic (1%) Contributions.
You are immediately vested in your own contributions and your Agency Matching Contributions and in the earnings attributable to these contributions.
There are three Thrift Savings Plan investment Funds. The Funds differ in the rate of return and amount of risk involved. You may invest any percentage of future contributions to your account in any of the three investment Funds. You can also transfer any portion of your existing account balance among the three Funds.
The three Funds are described briefly below. For more detailed information about these Funds, see the "Summary of the Thrift Savings Plan for Federal Employees" or the "Guide to TSP Investments."
Government Securities Investment (G) Fund
The G Fund consists of investments in short-term non-marketable U.S. Treasury securities specially issued to the Thrift Savings Plan. All investments in the G Fund earn interest at a rate that, by law, is equal to the average of market rates of return on U.S. Treasury marketable securities outstanding with 4 or more years to maturity. There is no credit risk for G Fund securities because they are guaranteed by the U.S. Government.
Common Stock Index Investment (C) Fund
The C Fund is invested in a Standard & Poor's 500 (S&P 500) stock index fund, that is made up of the common stocks of all of the companies represented in the S&P 500 index. The C Fund gives participants the opportunity to diversify their investments by investing broadly in the U.S. stock markets and to earn the relatively high investment returns stocks sometimes provide. The risk of investing in the C Fund is that the value of stocks can decline sharply, resulting in losses.
Fixed Income Index Investment (F) Fund
The F Fund is invested in a bond index fund that tracks the performance of the Lehman Brothers Aggregate (LBA) bond index. The bond index consists primarily of high quality fixed-income securities representing the U.S. Government, corporate, and mortgage-backed securities sectors of the U.S. bond market. The F Fund offers the opportunity for increased rates of return in periods of generally declining interest rates. The F Fund carries credit risk and market risk and, thus, has potential for negative returns that can result in losses.
To begin contributing to the Thrift Savings Plan, you must complete an Election Form (TSP- l ) and submit it to your agency employing office during a TSP open season. There are two open seasons each year -- May 15 to July 31 and November 15 to January 31.
There are two major tax advantages to the Thrift Savings Plan (TSP). First, you pay current Federal income taxes on your salary after your TSP contributions have been deducted. Second, you do not pay current Federal income taxes on the earnings you receive on your TSP account balance. Most states allow the same pre-tax and tax deferred savings on their income taxes. These tax advantages continue until you withdraw your account balance usually at retirement when your tax bracket may be lower. If you leave Federal service before you are eligible to retire, you may transfer your account balance to an Individual Retirement Arrangement Account or other eligible retirement plan and continue to defer taxes.
If you have at least $1,000 of your own contributions (including attributable earnings) in your account you may borrow from it.
There are two types of loans: general purpose, which does not require you to document or specify the purpose of your loan, and residential, which is only for the purchase of a primary residence and requires documentation. You pay interest on the loan at the G Fund rate in effect at the time your application is received. Both the principal and the interest you pay go back into your own TSP account. See the booklet "Thrift Savings Plan Loan Program" for more information about the TSP loan program.
The Thrift Savings Plan is a long-term plan for retirement savings with special tax advantages. Generally you cannot withdraw your TSP account until you separate from Federal service.
After you separate from Federal service, there are three basic ways to withdraw your account:
If you do not want to withdraw your account when you leave Federal service, you can leave your entire account balance in the Thrift Savings Plan. However, you must withdraw your TSP account or begin receiving monthly or annuity payments by April 1 of the year following the year you reach 70 1/2.
After you separate from Federal service, if your vested account balance is $3,500 or less, your entire account will be paid to you automatically in a single payment unless you elect another withdrawal option or to leave your money in the Thrift Savings Plan. The TSP will notify you before automatically cashing out your account and allow you the opportunity to elect as specified above.
See the booklet, "Summary of the Thrift Savings Plan for Federal Employees," or the booklet, "Withdrawing Your TSP Account After Leaving Federal Service" (stock number TSPBK02), both issued by the Federal Retirement Thrift Investment Board, for more information about withdrawal options.
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Back to FERS: An Overview of Your Benefits Table of Contents
Updated 14 May 1998