If You Could Have One Close Friend – Choose the TSP

The TSP offers an advantage both to the employees in the Civil Service Retirement System (CSRS) and those in the Federal Employees Retirement System (FERS).  Many CSRS eligible employees tend to ignore the TSP because of no matching contributions.  However, the advantage to CSRS employees is the tax-deferment piece.   Anytime earnings can be protected from taxes, it is a bonus.  The contributions made by CSRS

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employees have an opportunity to grow without being taxed until they are withdrawn, although there is no agency match. CSRS employees must not miss out on the opportunity to invest in the TSP.  Investing in the TSP, acts as a supplement for CSRS employees – just another way of increasing their resources available in retirement.

As for FERS (Federal Employees Retirement System) employees, it would be well-advised to get very well acquainted with the TSP (Thrift Savings Plan) because it represents the largest part of the retirement profile.  The FERS system consists of a basic benefit (.8%) of basic pay, Social Security and the Thrift Savings Plan (TSP).  Fully investing in the TSP is a smart step to take towards protecting your retirement future.  Saving early and consistently just makes good sense.  However, it is never too late to start saving and planning for your future.  Taking advantage of the perks of the TSP is probably one of the wisest investments you will ever make.

Currently every member of the federal workforce participating in the TSP have the opportunity to contribute $17,500 annually into the TSP.  The Thrift Savings Board has expanded offering both a Traditional TSP and a Roth TSP to the federal workforce.  Although the Traditional TSP and Roth TSP are treated separately for tax purposes, it is still one TSP account.  In other words, you don’t get to put $17,500 in the Roth and another $17,500 in the Traditional TSP.  It is one account governed by the same contribution limits.  It would be a sweet treat if such a thing existed, but it does not.

Back to the real world.  Once you decide to participate in the TSP, the best decision of your life, then there is an automatic 1% agency contribution whether you make contributions or not.  The 1% contribution is yours if you stay in the service for 3 years.  However, if you leave prior to the 3 year vesting period, you forfeit everything in the account.  If you pass away prior to meeting the vesting requirements, everything in the account is yours.  Now that we are clear about the 1% automatic contribution, let’s talk about the rest of the good stuff the TSP has to offer.

The government matches up to 5% of what you contribute to the TSP.  Anything over the 5% is not matched.  The allocation is the government matches dollar-for-dollar on the first 3 percent of your contribution and 50 cents on the dollar for the next 2% of contributions.  It is an unparalleled opportunity to invest in your federal wealth management.   Not investing in the TSP is akin to giving away free money.  An analogy – we contribute to Social Security and the Disability Trust Fund during our work careers, by having 1.45% withheld from our check for Medicare and 6.25% for Social Security so we earn enough credits (quarters) or Medicare equivalents to qualify for the future benefits offered from either one or both programs.  Suppose we had a choice of not making those contributions, then upon reaching retirement age (65) we could not benefit from Medicare Part A or what we call Free Medicare.

We wouldn’t feel very happy about paying for something that should be free because of the investment we made prior.  Therefore, investing in the TSP now reaps similar rewards when planning your retirement future.  Where else are you going to find such a sweet deal that even 1% would be invested in your future where you virtually had nothing to do except breathe.  The Federal Government offers a number of benefits to the federal workforce, but if you don’t take advantage of those benefits, you stand to lose much more than you will ever gain.  Educate yourself.  Invest in your future and give yourself and your family a real opportunity at retiring well.  I will let you in on a secret – the TSP is one of the best friends you will ever meet on your road to retiring with comfort and security.

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