Investing basics on the Thrift Savings Plan (TSP)

  • Published
  • By Airman and Family Readiness staff
HILL AIR FORCE BASE, Utah --  The Thrift Savings Plan (TSP) is a retirement savings and investment plan for federal employees and members of the uniformed services.

It offers the same types of savings and tax benefits that many private corporations offer their employees under 401(k) plans. The TSP is a defined contribution plan, which means that the retirement income you receive from your TSP account will depend on how much you put into it during your working years and the earnings it accumulates.

Contributions to the TSP can be put into five different funds: Government Securities Investment Fund (G), Fixed Income Index Investment Fund (F), Common Stock Index Investment Fund (C), Small Capitalization Stock Index Investment Fund (S) or International Stock Index Investment Fund (I). Contributions can also be made to one of the Lifecycle Funds (L) which are based on time horizons and diversify participant accounts among the G, F, C, S and I funds. Each of the funds is associated with a different amount of risk and return.

In general, the greater the risk you're willing to take with your investments, the higher the potential return.

The G fund is the "safest" fund, which means that it has the least amount of risk and consequently the lowest return. The F, C, S and I funds have the potential for higher returns, but also greater risk for loss.

Whether investing through the TSP or another avenue, diversifying is the best way to decrease your overall risk. Through the TSP you can diversify by deciding how much you want to allocate to each of the funds yourself or through the L funds.

Allocations made to the L funds become more conservative as the fund's time horizon shortens. That means that the closer you get to the date when you'll retire, stop contributing to the TSP and begin receiving payments the less risk you'll take, which will decrease the chance of losing your contributions and earnings. You cannot withdraw money from the TSP until you are 59 ¬½ years of age, however under certain circumstances you may be able to withdraw money or receive a loan from your account early.

As with any investment plans there are both advantages and disadvantages associated with the TSP.

One advantage is that contributions to the TSP come out of your pay before taxes and all earnings are tax deferred. Another is that the TSP also has very low administrative and investment expenses and federal employees can receive automatic agency contributions and matching contributions.

A disadvantage is that there are no matching contributions for military personnel. Additionally, once you leave federal service, or separate or retire from the military you can no longer contribute to TSP.

However, you can rollover the money you've accumulated into a traditional IRA or a 401(k).

Another disadvantage is that there are limited investment choices. The simplicity of the TSP can be a benefit for some, but for others who have a better understanding of investing it can be a drawback.

Enrolling in the TSP is simple; military personnel can do so through MyPay and federal employees covered by the Civil Service Retirement System (CSRS) can enroll through Employee Benefits Information System (EBIS).

Federal employees covered by the Federal Employees Retirement System (FERS) are automatically enrolled, but can change their contribution limits through EBIS. Contributions to the TSP can be based on a dollar amount or on a percentage of basic pay.

Whether you envision spending your retirement in a home in the suburbs that's paid off or traveling around the country in an recreational vehicle, contributing to the TSP is an inexpensive, easy way to begin planning for retirement. For more information about the TSP, help understanding the different funds or assistance getting started contact the Airman and Family Readiness Center at 801-777-4681 or visit the TSP website, www.tsp.gov.