3. Diversify Your Portfolio, Not Each Investment Account
4. Be Careful with Target Date Funds
5. Roll it in, or roll it out.
6. Manage Risk
7. Use Investment Tools to Help You Manage All Your Investments
Personal Capital Overview:
Managing your Thrift Savings Plan account seems like a simple task – after all, there are only a handful of funds within the TSP. So it should be fairly easy to set up your account, allocate your investments, and make sure things stay in balance with the rest of your investment portfolio, right?
On the surface, this is true. But things can get more complicated when you add other investments to the mix. Let’s say, for example, you have a Traditional or Roth IRA. How would that affect your investment portfolio?
What if you have left the government or military service and now have a civilian 401k plan or another retirement plan? What about taxable investments such as mutual funds, stocks, bonds, or other investments?
Now things are getting a little more complicated. But they don’t have to be. Let’s take a look at how to manage your Thrift Savings Plan account – starting from making contributions, to making sure you have your funds in the right place, to ensuring your TSP fits with the rest of your investments. We will also look at types of accounts, risk management, and software you can use to make the job easier.
The Thrift Savings Plan allows participants to contribute up to $22,500 per year, or up to $30,000 for those age 50 and over. It’s a good idea to review your contributions each year to make sure you are on track for your retirement. You don’t necessarily have to contribute the maximum each year to make a big difference in your retirement planning. Here are a few tips to get the most bang for your buck:
Are you contributing enough to get the match?
Civil servants and other non-military TSP participants get an automatic agency match on their contributions. Even if you don’t defer any of your compensation, you will earn 1% of your salary as an agency contribution.
You can get a 1% match for the next 3% of your salary that you contribute, and you will receive a 0.5% match for each of the next 2% of your salary that you contribute – up to a total of 5% match. That means you can receive a total contribution of 10% of your salary f you are willing to contribute 5% on your own. That is free money! See the chart below for more details on how the TSP agency match works:
Military members aren’t eligible for agency matching, but they are able to make additional contributions throughout the year if they receive special pay and bonuses. Military members can elect to contribute from 10 – 100% of their special pay and bonuses, including reenlistment bonuses, hazard duty pay, and career incentive pay. Even adding half of your special pay and bonuses will make a large difference in the long run.
2. Roth or Traditional TSP?
The Roth TSP is a new option for Thrift Savings Plan participants. The Roth TSP gives participants another option for retirement. Here is a quick overview of the options: The Roth TSP allows participants to make contributions with funds that have already been taxed, the contributions grow until retirement age, and then can be withdrawn tax-free during retirement.
The Traditional TSP works the opposite way: contributions are made on a tax-exempt basis and are taxed when withdrawn during retirement.
There is no one-size-fits-all approach to choosing between the Roth TSP and the regular TSP – each situation is unique. I recommend spending some time to look at your total investment portfolio, whether or not you already have a Traditional or Roth IRA, whether or not you will have a military retirement, and other factors before you make a decision.
3. Diversify Your Portfolio, Not Each Investment Account
Asset allocation is making sure your investment portfolio contains a balanced approach. That means an assortment of stocks, bonds, and other investments. The key to asset allocation is remembering that it applies to all your investments, not just individual accounts.
In other words, once you create the best asset allocation for your needs, you apply it across everything you own. This means you don’t need to create perfectly balanced asset allocation in your Thrift Savings Plan, another in your IRA, another in your 401k, etc.
All your investments work together. It may be better to put all of your TSP holdings into one or two funds if it makes it easier to balance your entire portfolio.
4. Be Careful with Target Date Funds
Target Date Funds are a one-size-fits-all investment plan. The fund is a balanced blend of stocks, bonds, and other investments that are automatically balanced for your retirement date. These funds are great – if you only have one investment account and all your investments are in that fund.
If you have more than one investment account, however, you need to be careful when using target date funds. My recommendation is to only use these funds if all your investments are in similar funds, otherwise, it can easily throw off your asset allocation.
5. Roll it in, or roll it out.
The TSP is a great place to invest – there are a variety of low-cost funds that cover most of the important segments of the market. But of you have left government service, you may no longer be able to contribute to your TSP. It may be a good idea to roll your TSP account into another retirement plan if you have a variety of other investment accounts, such as IRAs, 401ks, or other employer-sponsored retirement plans.
On the flip side, you might also be able to roll other retirement plans into your TSP. The idea here is to make your life easier by reducing the number of accounts you need to manage, which in turn, will reduce the amount of time and energy it takes to diversify and manage your investment portfolio.
6. Manage Risk
Is your asset allocation in line with your risk tolerance? To figure this out, you need to look at all the investments in your entire portfolio, including your TSP, and other investments. Decide upon your investing timeline (retirement date), goals, and how much risk you are willing to take. Then you need to make sure your investments are in line with your risk tolerance.
Target date funds are often already balanced in this manner, but it is difficult to maintain an entire portfolio if you have investments in several accounts. Often, the best way to make sure your investment portfolio has an appropriate amount of risk is to use software to help you analyze your entire portfolio.
An excellent, (and free!), software program is the Personal Capital app, which can link to your TSP and other financial accounts to give you a full overview of your investment portfolio in one place.
Technology is amazing, and there are quite a few investment tools out there to help you manage your investment portfolio by understanding exactly what you have, what your risks are, and more.
One of my favorite tools is also a free tool – Personal Capital. Here is an overview of how Personal Capital works, and how you can use it to manage your TSP, along with all your other investments.
Personal Capital Overview:
Personal Capital is a free tool to help you manage your investments. It works like this: You open an account, link your investment accounts to it, and the tool analyzes your holdings based on the risk tolerance you give it.
Based on your investments, this tool will help you balance your investment portfolio to ensure you are always at or near your desired asset allocation.
How does it work? Personal Capital analyzes your investments to make sure they meet your desired allocation. They can also help you visualize how much you are spending in management fees, and whether or not you can find similar investments elsewhere.
Is it safe? Personal Capital uses bank-level security, so yes, it is safe. I also use it personally and recommend it to family and friends.
How do they make money if it is a free tool? You have the option of hiring one of their investment planners if you wish, or you can use this tool on your own. The investment planners have a fiduciary duty to you, which means they must make the best investment recommendation for your situation, not the investment recommendation that makes them a commission. You do not have to use one of their investment advisors, and you will not be bothered by them if you don’t wish to contact them.
Overall, I think Personal Capital is a great tool that can help you visualize how your TSP account integrates with the rest of your investments. This will help you maximize all your investments and manage them all in one location.
Ryan Guina is The Military Wallet’s founder. He is a writer, small business owner, and entrepreneur. He served over six years on active duty in the USAF and is a current member of the Illinois Air National Guard.
Ryan started The Military Wallet in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then.
Featured In: Ryan’s writing has been featured in the following publications: Forbes, Military.com, US News & World Report, Yahoo Finance, Reserve & National Guard Magazine (print and online editions), Military Influencer Magazine, Cash Money Life, The Military Guide, USAA, Go Banking Rates, and many other publications.
Taking a loan from your TSP is a bad idea. The money you're putting into your TSP is for retirement, not for buying a new car. If you leave federal employment with an outstanding TSP loan you have to pay back the full loan balance within 90 days.
Eligible rollover distributions of your traditional balance may be rolled over to a traditional IRA, an eligible employer plan, or a Roth IRA. taxed in the current year, and no income tax will be withheld. You won't be taxed on this money until you withdraw it from the traditional IRA or the eligible employer plan.
In a nutshell, Ramsey advises federal employees to invest at least 5% in a Roth TSP, then invest the rest in a Roth IRA. He also recommends investing in a handful of TSP funds -- funds C,S, and I -- with a higher percent in the C Fund (at least 60 to 80%).
The average TSP balance has grown steadily in the last decade, reaching the six-figure mark in 2013. As of 2021, the average TSP balance for FERS participants was $181,279, while the average TSP balance for CSRS participants was $194,424.
Your catch-up contributions will be in addition to the 2023 TSP regular contribution limit, which means employees can contribute up to $30,000 in 2023. To maximize the catch-up contribution amount of $7,500 for 2023, employees will need to contribute an additional $288 per pay period ($7,500/26 = $288.46).
Your TSP account is a portable retirement benefit. This means that when you withdraw your account, you can have the TSP transfer part or all of your single pay- ment or certain monthly payments to a traditional IRA or an eligible employer plan (for example, the 401(k) plan of a new employer).
It depends, but most people should contribute to their TSP at least up to the matching funds limit (3% of your salary). Beyond this, the TSP is better if your taxes are high today and you expect them to be much lower in retirement. It is better to use your deduction against the higher tax rate.
If you're younger than 59½, you may have to pay a 10% early withdrawal penalty tax. Any tax-exempt or Roth contributions included in your withdrawal are not subject to federal income tax; neither are any qualified Roth earnings.
In most cases we can recommend framing the issue this way: Your money has the most potential for growth if you take your entire minimum distribution at the end of each calendar year. However, personal budgeting may be easiest if you take your minimum distribution in 12 monthly portions.
You can request to receive a total distribution of your entire TSP account balance if you want to take all of your money out of the TSP. Once processed, your TSP account balance will be $0, and you'll no longer be able to move money into the TSP from eligible plans.
Unlike investment accounts, TSP withdrawals don't get the advantage of being taxed at the lower long-term capital gains rates. TSP withdrawals are always taxed at your ordinary income tax rate. However, whenever you take money out of the Roth TSP then that money comes out completely tax free.
The G Fund is invested in short-term U.S. Treasury securities specially issued to the TSP. Payment of principal and interest is guaranteed by the U.S. government. Thus, there is no “credit risk.”
TSP contributions and investing should be top of mind when you begin your federal career. An employee who earns 50,000 per year and contributes 2,500 dollars with a 2,500-dollar match from the government can reach the TSP millionaire dollar mark in 25-30 years by investing aggressively.
Employees should invest at least 5% in the TSP; that is the percentage needed to obtain the maximum available matching funds. Beyond that, Employees need to balance long-term investment needs against other needs.
By age 50, you would be considered on track if you have three to six times your preretirement gross income saved. And by age 60, you should have 5.5 to 11 times your salary saved in order to be considered on track for retirement.
Your best bet is to stick with the C, S and I Funds. Here's the ratio we recommend for your portfolio: 80% in the C Fund, which is tied to the performance of the S&P 500. 10% in the S Fund, which includes stocks from small- to mid-sized companies that offer high risk and high return.
If you're a FERS or eligible BRS participant, you receive Agency/Service Matching Contributions on the first 5% of pay you contribute every pay period. The first 3% is matched dollar-for-dollar by your agency or service; the next 2% is matched at 50 cents on the dollar.
To contribute the 2023 maximum annual amount for both regular TSP and TSP Catch-up for a combined total of $30,000, you should enter one election amount of $1,154 into myPay during December 4 – 10, 2022, and your election should be effective on December 18, 2022, the first pay period for 2023.
If you over contribute, you may request a refund of the excess amount from the TSP. For a limited in January each year, we make the Refund Request Form available. You can get the form by calling the ThriftLine or logging in to My Account. We must receive your excess deferral refund request no later than March 15.
Yes, you are able to stop TSP withdrawals at any time and many people do take more from their TSP between when the FERS Supplement stops and when they start Social Security. Also, your TSP can continue to grow even when you are taking withdrawals.
So far in 2023, it has gained 11.74%.” That is no longer the case. The I Fund is still up 7.26% for the year and 4.52% for the past 12 months, but its year-t0-date returns now lag behind the C Fund. The 12-month returns for the I Fund are still the highest of any TSP Fund.
You can roll over money from eligible retirement plans, such as a 401(k), 403(b), or traditional IRA, to your existing TSP account. There are multiple advantages to rollover contributions to the TSP, and you can use this option even after you retire.
While they may not have as many funds to choose from, TSP participants do have one big advantage over most 401(k) investors: lower fees. The total expense ratio, which covers both investment and administrative fees, is 0.066% for individual TSP funds.
With traditional TSP, your contributions go into the TSP before tax withholding, which can potentially lower your current income tax rate. But when you take money from your traditional TSP, you'll pay taxes on both your contributions and earnings at the income tax rate of the year you make the withdrawal.
Yes. Your participation in the TSP does not affect your eligibility to contribute to an IRA. However, the Internal Revenue Code (IRC) establishes limits on the dollar amount that you can contribute to eligible employer plans like the TSP and to individual retirement accounts such as traditional IRAs and Roth IRAs.
You should designate a person or persons, your estate, or a trust to receive your TSP account after your death. To designate a beneficiary or beneficiaries, log in to My Account. For us to honor it, your beneficiary designation must be on file with us at the time of your death.
the Roth balance are below $3,500,TSP will reject the participant's request. If only one balance is below $3,500, then the TSP will pay that balance to the participant in a single payment and use the balance that is at least $3,500.
The rule of 55 is an IRS provision that allows workers who leave their job for any reason to start taking penalty-free distributions from their current employer's retirement plan once they've reached age 55.
Do RMDs Impact Social Security Benefits? Yes. Required minimum distributions are taxable and can impact your income. Higher taxable income may negative impact Social Security or Medicare benefits.
You can't skip taking your RMDs. Doing so results in a hefty fee payable to the IRS — 25% of the distribution you don't take in a tax year. So if your RMD for the year is $4,000 and you don't take it, you'll owe the IRS $1,000.
Generally, a RMD is calculated for each account by dividing the prior December 31 balance of that IRA or retirement plan account by a life expectancy factor that the IRS publishes in Tables in Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).
The TSP will automatically withdraw your RMD for you at the end of the year if you don't do it yourself. This means that TSP has your back if you forget in a given year but I would certainly still keep an eye on it if I were you.
It generally takes between 7 to 10 business days to process your request once you've properly completed and submitted it. We disburse withdrawals each business day. You can check My Account at tsp.gov or call the ThriftLine to find out the status of your withdrawal request, including whether the payment has been made.
Is there mandatory tax withholding from RMD? Because an RMD cannot be rolled over, the mandatory 20% tax withholding does not apply. Rather, the default withholding rate is 10% of the RMD amount; however, a participant can elect to have more or less withheld, and may even choose to waive withholding altogether.
By using a TSP to pay off a mortgage, you will lose the mortgage-interest deduction that reduces your AGI, or adjusted gross income. Further, because tax-deferred assets are being used to pay off the mortgage, the tax consequences are compounded¹.
The TSP is the retirement savings vehicle for federal employees. There are only three states—Illinois, Mississippi and Pennsylvania—that explicitly exclude distributions from 401(k) plans, IRAs or TSPs from taxation. Nine other states do not tax most or all forms of income.
In a nutshell, Ramsey advises federal employees to invest at least 5% in a Roth TSP, then invest the rest in a Roth IRA. He also recommends investing in a handful of TSP funds -- funds C,S, and I -- with a higher percent in the C Fund (at least 60 to 80%).
The maximum contribution rates in 2023 will be: $22,500 for regular TSP or 401(k) contributions (up from $20,500 in 2022) $7,500 for catch-up contributions for those 50 and over. $6,500 for Individual Retirement Account (IRA) holders, up from $6,000.
What is the safest TSP fund? The G fund is generally the safest option as it invests in government securities. Although you won't lose money investing in this fund, your rate of return will be low. This may be a good option if you are close to retirement.
Despite the turnaround in 2023, the total number of TSP millionaires is still lower than it was at the time of the stock market's recent peak. As of December 31, 2021, there were 112,880 millionaires in the federal government's Thrift Savings Plan (TSP).
The C, S, and I funds are the more aggressive of the funds in the TSP. The reason they are called “aggressive” is because they have a much higher chance of sustaining major growth over time. But because of this, they can also be much more volatile than the G and F funds.
Make a single withdrawal / transfer the TSP to an IRA
Many people in retirement elect to withdraw the entire amount and transfer the TSP to an IRA. This is typically the best option for folks simply because it gives you greater control.
In 2023 you can contribute the full $22,500 and get matching on top of that, up to the “annual addition limit” of $66,000. The standard TSP limit is called the “elective deferral limit.”
Consider leaving your funds in the TSP unless you don't want to deal with extra paper work or you want more investment options. Otherwise, consider rolling your TSP account assets into your new 401(k) plan if you have one, or one of the other following options.
As a general rule, short-term money should be in more conservative investments like the G and F funds. Long-term money should be in more aggressive funds like the C, S, and I. These aggressive funds are going to be the key to doubling your TSP overtime.
According to data from the BLS, average incomes in 2021 after taxes were as follows for older households: 65-74 years: $59,872 per year or $4,989 per month. 75 and older: $43,217 per year or $3,601 per month.
You can keep your TSP account after you separate from federal service as long as you have a vested balance of $200 or more. Many participants choose to keep their money in the TSP because of the TSP's low-cost funds.
As long as you are contributing at least 5% of your bi-weekly gross pay each pay period, you will receive the 4% Agency Matching contributions each pay period. Additionally, you will receive the Agency Automatic 1% contribution each pay period.
The thought has crossed your mind that you could use some of what you've saved in your TSP to pay off your mortgage, but should you? Usually, the answer is no. The biggest reason not to use your TSP is typically taxes.
The C, S, and I funds are the more aggressive of the funds in the TSP. The reason they are called “aggressive” is because they have a much higher chance of sustaining major growth over time. But because of this, they can also be much more volatile than the G and F funds.
Introduction: My name is Eusebia Nader, I am a encouraging, brainy, lively, nice, famous, healthy, clever person who loves writing and wants to share my knowledge and understanding with you.
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