Thrift Savings Plan: Good Way to Increase Wealth, Executive Director Says

And now is a good time for service members to start paying themselves. The current TSP open season started April 15 and runs until June 30. This is the time service members can start or change their contributions to their TSP account.

Service members can contribute up to 9 percent of their basic pay each month, and up to 100 percent of incentive pay and special pay, including bonus and combat pay. But their total contributions from taxable pay may not exceed the Internal Revenue Service limit of $13,000 for 2004.

"You're never too young or too old to start a savings account in TSP," said Gary A. Amelio, executive director of the Federal Retirement Thrift Investment Board and chief executive and managing fiduciary of TSP for federal employees. "The tax deferral benefits are excellent and compounded earnings are simply a phenomenal way to increase your wealth."

TSP assets total more than $110 billion. The plan maintains retirement savings accounts for more than 3 million participants. This includes federal civilian employees in all branches of government, U.S. Postal Service employees and members of the seven uniformed services.

Created by the Federal Employees' Retirement System Act of 1986, TSP is a tax- deferred savings option and lowers the taxable income for participants in the 2004 tax year. The savings plan is similar to 401k plans offered by many private employers. It's separate from and in addition to the military retirement system, which is based on years of service and rank.

Administered by the Federal Retirement Thrift Investment Board, TSP was available only to civilian employees until October 2001, when the program was extended to active and reserve component service members s, including the Coast Guard. The program also was extended to members of the Public Health Service and the National Oceanic and Atmospheric Administration.

Members of the National Guard and Reserve who are also federal civilians are allowed to have both a military and civilian TSP. "If you're part of both work forces, you can have two different accounts," Amelio noted. "And you can combine the accounts after you separate from either service."

But Amelio said if TSP participants with military and civilian accounts exceed the IRS limit of $13,000 before the end of the calendar year, the plan will return the excess contributions. "It's called an excess deferral," Amelio noted.

The government gives matching funds to Federal Employees' Retirement System TSP participants. Uniformed services and Civil Service Retirement System participants normally don't receive matching funds, but the service secretaries can authorize matching funds for service members in critical military occupational specialties.

"FERS employees have a less lucrative defined benefit plan than does CSRS and the uniformed services," Amelio explained. "So the TSP is intended to make up the difference for FERS participants."

He also pointed out that CSRS and military participants are limited to contributing up to 9 percent of their base pay, while FERS members are allowed to contribute up to 14 percent of their base pay.

When service members leave active duty, they have several options. They can leave their money in TSP, allowing it to continue to grow, take a partial or full withdrawal, roll the money into another plan or an Individual Retirement Account, or purchase an annuity. They also could choose to make periodic distributions to themselves, Amelia said.

More than 220,000 uniformed service members signed up for TSP in 2002, the first year they were eligible. By December 2003, more than 390,000 people were investing in TSP.

"Participation numbers have been rising steadily since the plan was made available," Amelio noted. "Today, we have about 410,000 members of the armed services participating. We've been putting a special focus with DoD on getting more and more armed service members to participate. So we're very pleased that the numbers continue to go up, and DoD is helping us get the word out to the members."

Amelio attributes the increase in participation to knowledge, familiarity and comfort.

"As members of the armed services become more familiar with TSP, the more they like it," he said. "They find that it's a wonderful saving program, easy to participate in, and doesn't cost them anything. The more they talk to their colleagues in the armed forces about it, they become more comfortable about the plan, and they like it more and more. That's why the participation is going up."

TSP has investment funds, which vary in risk and investment mixture: government securities investment (G fund); fixed-income investment (F fund); common stock index investment (C fund); small capitalization stock index investment (S fund); and international stock index investment (I fund).

TSP enrollment can be done online through the MyPay Web site, or by completing a TSP enrollment form (TSP-U-1) and turning it in at the local pay or personnel office. Enrollment forms are available online at the TSP Web site.