Stocks create more TSP millionaires: Time to play it safe(r)? | Federal News Network (2024)

FAQs

Can TSP make you a millionaire? ›

Federal employees who are members of the Thrift Savings Plan (TSP) have the potential of becoming a TSP millionaire, with a fat nest egg in addition to their CSRS or FERS annuity. As of November 2022, there are 65,000 TSP millionaires.

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 latest figures show that there are now 76,889 millionaires as of the end of 2022.

TSP Performance Up in March and Year-to-Date in 2023

The C Fund is up 7.49% so far in 2023. The Fund with the best return so far this year is the I Fund which is up 8.63%. Some investors will note that the I Fund is near the bottom in popularity among TSP investors. 3.6% of participant allocation goes into the I Fund.

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.”

Leave it in the TSP and let it grow

Depending on when you begin retirement, you can simply leave the money in the TSP let it continue to grow. If you do not need to access it yet, it might be wise to let it be. Similar to other retirement accounts, you will need to begin minimum withdrawals at age 72.

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.

Average TSP account balances for Uniformed Service Members crested over $40,000 by the end of 2021, while balances for new 'Blended Retirement System' (BRS) participants reached close to $10,000 in just four years since the BRS became operational.

The conservative funds are the G and F funds and the aggressive funds are the C, S, and I funds.

What is the most aggressive TSP account? ›

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.

By this measure, the I Fund is the riskiest, with a maximum drawdown of -60.89%, which occurred during the 2008-2009 global financial crisis.

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).

– 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.

Getting a match on your contributions is free money! That's why it's important to invest at least enough to get the match. Most TSP participants are on top of it: More than 8 out of 10 (84%) put in at least 5% of their pay to get the full match.

The largest TSP account as of September was just under $6.5 million, while as of year-end 2021 the largest account — possibly, but not necessarily, the same one — was just under $11 million.

The vast majority of offerings in the 401(k)-style Thrift Savings Plan did not have a good month in December—or a good year in 2022 for that matter. The S Fund, invested in small and mid-sized businesses, had the worst performance for December, losing 6.55%. It was down 26.26% for 2022.

The fifth core fund, the G Fund, invests in very low-risk, low-yield government bonds and guarantees principal protection to investors.

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.

Staying with the TSP

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.

What is the most profitable TSP fund? ›

Best Performance Among Lifecycle Funds

The Lifecycle (L Funds) with the highest returns were the most aggressive funds as their percentage of stocks in the account is the highest. This means the L 2065, L 2060, and L 2055 provided investors with the best annual returns (19.90%).

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. The Roth IRA is better the further away you are from retirement.

Maximizing Agency or Service Contributions

To receive the maximum Agency or Service Matching Contributions, you must contribute 5% of your basic pay each pay period.

However, the L Income Fund is the most conservative of the L Funds. It focuses on money preservation while providing a small exposure to the riskier funds (C, S, and I Funds) in order to reduce inflation's effect on your purchasing power.

AFIFX is often the most aggressive of the American funds, yet it's still slightly less volatile than the S&P 500. The fund has topped the index by an average of 76 basis points (a basis point is one one-hundredth of a percent) per year over the past 15 years.

The TSP's performance in April 2022 reflected the worst showing for the stock market and most of the funds in the Thrift Savings Plan (TSP) in months. Inflation, the Russia/Ukraine war, and a general negative sentiment about the direction of the country have taken a toll on financial markets.

The C Fund is a heavily diversified investment but it does come with the risks. The C Fund is moderately volatile and is subject to market risk as the price of stocks in the S&P 500 Index rise and fall. Further, you are exposed to inflation risk if your C Fund investment does not grow enough to offset inflation.

Given the current economic and market cycle, if you're nearing retirement and your cash reserves are not close to at least 6-12 months of your expenses, you may want to consider slowing down your TSP contributions so that you are able to take more of your paycheck home and use that additional capital to build up your ...

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.

What is the new TSP amount for 2023? ›

The Thrift Savings Plan (TSP) contribution limits have been announced for 2023. The 2023 IRS annual limit for regular TSP contributions is $22,500, and the TSP Catch-up annual contributions limit is $7,500.

You can choose to have your retirement dollars invested in everything from a short-term U.S. Treasury security to index funds made of domestic and international stocks.

Contributing to the TSP

But here's the deal. The U.S. government will provide a 5% contribution of your basic pay to the TSP, so 5 percent is the absolute minimum you should be contributing. If you contribute less than that, you're missing out on free money.

I frequently state that there is no such thing as too much money in the Thrift Savings Plan. If you want your TSP balance to be able to generate an inflation-indexed annual income of $10,000, most financial planners will suggest that you have a $250,000 balance at the time you retire.

Every Thrift Savings Plan fund scored positive returns in January, starting out 2023 on a good note for federal investors. The biggest winner was the small cap stock index S Fund, with a return of 10.82%.

The largest TSP account balance the end of March 2021 was an astounding $9,318,238, which is up from “just” $6.3 million March 2020.

The IRS calculates Thrift Savings Plan contribution limits annually based on the cost of living indexes. The 2023 TSP contribution limits are set at $22,500 for elective deferrals, up from $20,500 in 2022. The total maximum annual addition is $66,000 in 2023.

– 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.

Average TSP account balances for Uniformed Service Members crested over $40,000 by the end of 2021, while balances for new 'Blended Retirement System' (BRS) participants reached close to $10,000 in just four years since the BRS became operational.

What is the average TSP account size? ›

Average TSP account balances for FERS participants reached $156,702.00, while average balances for CSRS participants reached $174,679.00 as of October 2022. Average TSP account balances for FERS participants reached $21,302.00, while average balances for CSRS participants reached $29,075.00 as of October 2022.

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.