TSP basics
What is TSP?
The Thrift Savings Plan (TSP) is a Federal Government-sponsored retirement savings and investment plan. Congress established the TSP in the Federal Employees' Retirement System Act of 1986. The purpose of the TSP is to provide retirement income.
On October 30, 2000, the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001 (Public Law 106-398) was signed into law. One provision of the law extended participation in the TSP, which was originally only for Federal civilian employees, to members of the uniformed services.
The TSP is a defined contribution plan. The retirement income that you receive from your TSP account will depend on how much you have contributed to your account during your working years and the earnings on those contributions.
The TSP offers the same type of savings and tax benefits that many private corporations offer their employees under "401(k)" plans. TSP regulations are published in title 5 of the Code of Federal Regulations, Parts 1600 — 1690, and are periodically supplemented and amended in the Federal Register.
How does the TSP differ from the uniformed services retirement system?
In contrast to the TSP, the uniformed services retirement system is a defined benefit program. This means that the benefit you receive from the uniformed services retirement system (i.e., your retired pay) is based on your years of service and the rank you hold at the time of your retirement, rather than on the amount of your contributions and earnings, as is the case with the TSP.
In addition, unlike participation in the uniformed services retirement system, participation in the TSP is optional. To participate in the TSP, you must sign up with your service. You contribute to the TSP from your own pay; the amount you contribute and the earnings attributable to your contributions belong to you. They are yours to keep even if you do not serve the 20 or more years ordinarily necessary to receive uniformed services retired pay.
What are the major features of the TSP?
You may elect to contribute any percentage (1 to 100) of your basic pay. However, your annual dollar total cannot exceed the Internal Revenue Code limit, which is $17,000 for 2012. If you contribute to the TSP from your basic pay, you may also contribute from one to 100 percent of any incentive pay or special pay (including bonus pay) you receive, up to the limits established by the Internal Revenue Code.
The TSP offers the following:
- Immediate member contributions
- Before-tax savings and tax-deferred investment earnings
- Daily valuation of accounts
- Low administrative and investment expenses
- Transfers into the TSP from other eligible retirement plans or traditional IRAs and eligible employer plans
- A choice of investment funds
- Ability to make contribution allocations daily
- Ability to make interfund transfers daily
- Loans from your own contributions and attributable earnings while you are in service
- Catch-up contributions for participants age 50 or older
- In-service withdrawals for financial hardship or after you reach age 59½
- Portable benefits and a choice of withdrawal options after you separate from service
- Ability to designate beneficiaries for your account balance
- Spouses' rights protection for loans and withdrawals and recognition of qualifying court orders
- A website with general account information, capability for requesting contribution allocations and interfund transfers, the option of initiating (and possibly completing) loan and withdrawal requests on-line, up-to-date TSP materials and information, on-line participant statements, and calculators to estimate account growth, loan payments, and annuity amounts, as well as an elective deferral calculator. (Separated employees can also update their address information on the Web.)
- An automated telephone service (the ThriftLine) for account information and certain transactions
— Defense Finance and Accounting Service (DFAS)
