Federal retirement is one of the most important benefits of being a federal employee. Yet sometimes, understanding the technicalities around retirement can be tough.
Today, we’ll talk about the federal Thrift Savings Plan (TSP). We’ll begin with a basic rundown of the TSP itself. We’ll then examine its role in providing you with a safe retirement and how you can maximize the benefits.
If you have any more questions, contact one of the attorneys at the Federal Employment Law Firm of Aaron D Wersing, PLLC.
What Is the TSP?
At its core, the TSP is a retirement savings and investment plan with tax advantages. It was designed specifically for federal employees and members of the Armed Forces.
It mirrors the structure and benefits of private sector 401K plans, and it offers both traditional and Roth options for contributions. The traditional option allows you to make pre-tax contributions.
On the other hand, the Roth option taxes you upfront for your contributions but allows for tax-free growth and withdrawals.
As a participant, you can invest your contribution across a variety of funds, including those listed below.
- G Fund. The Government Securities Investment Fund is a low-risk fund that tries to give you returns that are just above the gains you would receive on short-term U.S. Treasury securities.
- C Fund. The Common Stock Index Investment Fund is a mid-risk fund that generates returns equal to the performance of the Standard and Poor’s 500 (S&P 500).
- I Fund. The International Stock Index Investment Fund follows the performance of a collection of stocks in Europe, Australasia, and East Asia.
- F Fund. The Fixed Income Index Investment Fund aims to approximate the returns generated by the Bloomberg U.S. Aggregate Bond Index.
- S Fund. The Small Cap Stock Index Investment Fund matches the returns created by the Dow Jones U.S. Completion Total Stock Market Index.
You can spread your investments throughout these funds or center all of your available assets in one fund. There are also Lifecycle funds with varying levels of risk that shift according to your estimated retirement year.
TSP’s Role in Your Retirement
The TSP is a cornerstone of federal retirement planning, but it doesn’t work alone.
Rather, it works in concert with the Federal Employees Retirement System (FERS) annuity and Social Security benefits to create a comprehensive retirement income.
It fills the gap between what FERS and Social Security provide and the actual income needed to maintain your standard of living in retirement.
In addition, it offers the low administrative costs and diverse investment options we previously mentioned.
Together, the TSP, FERs annuity, and Social Security benefits all but guarantee a high quality of living for federal employees in their retirement years.
Tips for Maximizing Your TSP
Because it plays a key role in your financial security, you must take every step possible to maximize your TSP.
Here are several key tips that will help you accomplish that goal:
- Start early and contribute often. The power of compounding interest means that the earlier you start contributing to your TSP, the larger your retirement nest egg can grow. Try to contribute at least 5% of your salary to receive the full benefits of the government’s matching contributions under FERS.
- Be strategic about your contributions. Evaluate the benefits of traditional versus Roth contributions based on your current tax bracket and expected tax situation in retirement. Roth TSP contributions are advantageous for younger employees or those who expect to be in a higher tax bracket in retirement.
- Diversify your investments. As we discussed earlier, the TSP offers a range of funds to suit different risk tolerances and investment horizons. Rather than concentrating everything in one fund, spread your contributions across these funds to balance risk and potential returns.
Finally, maximize catch-up contributions once you hit 50. There is a cap on how much federal employees can contribute to their TSPs.
However, catch-up contributions allow older federal employees to contribute extra, helping them prepare for retirement.
Have More Questions About the Federal Thrift Savings Plan? We Can Help.
Understanding all aspects of federal retirement, including the Thrift Savings Plan, is essential for any federal employee looking to secure a financially stable future.
We hope this article has answered your most pressing questions about the TSP and how it fits in your retirement future. The Federal Employment Law Firm of Aaron D Wersing, PLLC is here to assist you in charting your course toward retirement.
We’ll apply our extensive legal experience to help you make the most of your retirement package. Whether you’re new to federal service or nearing retirement, we invite you to reach out.
Let’s ensure your TSP is working as hard for you as you have worked for the federal government. Contact us today.
Aaron Wersing, Attorney at Law
Aaron Wersing is the founder of the Law Office of Aaron D. Wersing. Mr. Wersing graduated from the Georgia State University College of Law with a Doctorate in Jurisprudence and was the recipient of the CALI Excellence for the Future Award. Mr. Wersing previously attended the University of Georgia, where he received a Bachelor of Business Administration degree in Accounting. Mr. Wersing is an active member of his local community. Mr. Wersing acts as a volunteer attorney with Houston Volunteer Lawyers, the pro bono legal aid organization of the Houston Bar Association. He is also a member of professional legal organizations such as the National Employment Lawyers Association and the American Inns of Court. To reach Aaron for a consultation, please call him at (833) 833-3529.
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