What Are The Advantages Of TSP?

Employees of the Federal Government and members of the Armed Forces, including the Ready Reserve, are eligible to participate in the Thrift Savings Plan (TSP), which is a retirement savings and investment plan. The TSP is a retirement savings plan for federal employees and is similar to the 401(k) plans offered by many private companies. It was established by the Congress with the Federal Employees Retirement System Act of 1986.

The TSP is a defined contribution plan, so the retirement income you receive from your TSP account will be based on the amount you contribute during your working years and the earnings accumulated over time, and, if applicable, the amount your agency or service contributes and the earning on those contributions. Federal workers who are also TSP participants run the program at the Federal Retirement Thrift Investment Board (FRTIB).

When compared to 401(k)s and other retirement plans, the TSP’s benefits are often superior. Check out the following advantages of the TSP!

Low fees

The Thrift Savings Plan is a paragon of efficiency in a world where management fees of 1 percent are all too frequent. In 2013, plan choices cost between 0.026 and 0.039 percent, which equates to between $26 and $39 a year for every $100,000 in the plan. To savers on a tight budget, the TSP is a fantastic deal when compared to the hundreds, or even thousands, of dollars paid by some 401(k) members.

Simple and comprehensive investment options

There are two different classes of pooled funds available under the Thrift Savings Plan, each of which is given a letter designation. Within one grouping, five funds are each associated with a different type of asset. Like a money market or short-term bond fund, the G Fund invests in short-term government securities. The F Fund, on the other hand, invests in fixed-income instruments with a longer time horizon by mirroring an index that includes not just government bonds but also corporate bonds, mortgage-backed bonds, and bonds issued by governments in other countries.

The C Fund follows the S&P 500 Index (GSPC 0.20%) in the stock market, while the S Fund invests in small and mid-cap firms to provide investors with a broader view of the market. Meanwhile, the I Fund puts its money into companies across roughly two dozen different nations in the developed markets of Europe, Asia, and the Far East.

The other group of funds is called the L Fund, and it functions similarly to target-retirement mutual funds by letting you select from five distinct time horizons and having the fund management progressively alter your investment mix to reflect less risk as your time horizon goes shorter. There are now four L Fund alternatives available to retirees: 2020, 2030, 2040, and 2050, in addition to a current-income fund for people who have already begun taking withdrawals. To maximize efficiency, each L Fund maintains a fixed percentage of its assets in each of the other TSP Funds.

TSP participants have the same saving options as those in 401(k) plans

Several aspects of 401(k) programs are included in the Thrift Savings Plan. Depending on your preferences, you can make tax-deductible or tax-deferred contributions to your TSP, depending on whether you’re currently working or planning to work in the future.

Furthermore, TSPs provide versatility by permitting in-service loans at the same interest rate the G Fund pays. Borrowers can get up to $500,000 with terms of 5-15 years, depending on whether the money is being used to buy a home or for some other reason. In addition, you can choose from a few withdrawal methods, such as a single lump amount or a stream of monthly annuity payments for the rest of your life.

Matching contributions for some federal workers

Matching contributions from the federal government are available to FERS participants who contribute to their TSPs. Whether you join the plan or not, your employer will still pay 1% of your salary. In addition, the government will match the first 3% of your salary at a rate of $1 for $1 and then the following 2% of your salary at a rate of $0.50 for $1. Overall, the government can contribute up to 5% of your wage if you save at least 5% of your own.

Although employees in the Civil Service Retirement System don’t get matching payments, they do receive retirement pension benefits that FERS employees do not. In addition, members of the armed forces and other uniformed services do not qualify for the TSP match unless they have a particularly important position.

Conclusion

Combining these factors – low fees, a wide range of investment alternatives, a structure comparable to 401(k) plans, and the opportunity to get matching contributions – creates an ideal instrument for putting the wealth-building strategy of dollar-cost averaging into practice. With dollar-cost averaging, investors commit to purchasing a predetermined quantity of a certain investment regularly, regardless of the share price. One of the most successful long-term investing methods, this takes advantage of occasional drops in the market, when your contribution buys the investment at a discount. With the TSP plan, your retirement will be secure!