How the Thrift Savings Plan Can Boost Your Retirement

How the Thrift Savings Plan Can Boost Your Retirement

May 01, 2024

Working for the federal government can offer many benefits on top of your salary; for many, a federal career can be the key to early retirement. If you are a federal employee who is covered by either the Federal Employees' Retirement System (FERS) or the Civil Service Retirement System (CSRS), you have access to a Thrift Savings Plan (TSP) as part of your retirement package.[1]

Below, we'll discuss what makes the TSP different from other retirement accounts and what you can do to make sure you're optimizing this unique retirement benefit.

Benefits of a TSP

A TSP is much like a 401(k) plan, but is available only to uniformed service personnel (like the military) and federal employees.[2] TSP participants can opt to invest in a traditional (pre-tax) TSP or a Roth (post-tax) plan, depending on their tax situation. And federal employees who have already accrued assets in a 401(k) or IRA before working for the government can roll over these other accounts into their TSP and invest them in TSP funds.

Unlike most 401(k)s, which offer a range of investment options, the TSP is structured to offer ten Lifecycle (L) Funds based on retirement date, and which come in five different types:[3]

  • The G Fund (Government Securities Investment)
  • The F Fund (Fixed-Income Index Investment)
  • The C Fund (Common-Stock Index Investment)
  • The S Fund (Small-Capitalization Index Investment)
  • The I Fund (International-Stock Index Investment)

The right fund or mix of funds will depend on factors like the employee's projected retirement age, risk tolerance, income, and other assets. Your financial professional can work with you to decide which funds are likely to meet your investing goals.

Who is Eligible for a TSP?

The retirement options for FERS-covered and CSRS-covered employees can differ, though a TSP is available to all.

For FERS-covered employees, the TSP is offered as an addition to the FERS basic annuity and Social Security retirement benefits.[4] For CSRS-covered employees and uniformed services employees, the TSP is intended to supplement the CSRS annuity or military retirement.[5]

To contribute to the TSP, the employee must either be actively employed by the federal government (as a civilian) or a uniformed service member, working either full- or part-time. Employees who are not in an active pay status (such as those taking unpaid leave under the Family and Medical Leave Act) can't contribute to the TSP until they return to pay status.[6]

Optimizing Your TSP

Because the TSP offers a limited set of investment options, employees are not as likely to face the "analysis paralysis" that can confront those who are presented with dozens of different (often overlapping) funds. And unlike many 401(k)s that do not offer a Roth option, a TSP allows you to split contributions between pre-tax and post-tax to provide you with a tax-free source of retirement income.[7]

By working with a financial professional to determine the appropriate tax status, the suitable fund or mix of funds, and the best times to revisit your asset allocation to help ensure it still works for you, you will be better able to manage your TSP contributions and pursue a greater nest egg for retirement.

Important Disclosures

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.












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