The TSP stands for Thrift Savings Plan, and is a defined contribution plan for United States civil service employees and military personnel. It is designed to resemble the 401k that many private sector employees partake in.
How The Plan Operates
The plan operates very similar to the 401k. Employees that are eligible can contribute an amount per paycheck, or a percentage of their pay per year, into the account.
The account has a maximum employee contribution limit of $16,500 per year currently, with employees over 50 years old allowed to contribute an additional $5,500 “catch-up” contribution per year.
All contributions to the plan are tax deferred, meaning that the money invested in the plan is tax free until it is withdrawn.
Some federal employees are eligible to receive matching contributions from their agency. This does not apply to members of the military.
Employees who are eligible for matching contributions will be matched dollar-for-dollar up to 3% of their base pay. They are then matched 0.5% for contributions of 4% or 5% (for a total of 4%)
Some employees also qualify for an Agency Automatic Contribution of 1% of their base pay. This would bring the total potential match for an eligible employee to 5% of their base pay.
The match is not allowed for “catch-up” contributions.
The TSP has 10 fund choices, 5 which are index funds and 5 which are lifecycle funds. Employees may choose from any or all of the funds in which to invest their TSP, and may change their allocations at any time.
The five individual funds are: government securities fund, fixed income fund, common stock fund (essentially the S&P 500), small cap fund, and international fund.
The five lifecycle funds have the following target dates: income (for individuals currently receiving monthly payments), 2020, 2030, 2040, and 2050.
Similar to a 401k, participants can also take out a loan from the TSP program, although it is not advised.