TSP: Advantages & Disadvantages (2024)

FAQs

TSP: Advantages & Disadvantages? ›

TSPs offer a limited number of investment options, have higher contribution limits, and offer matching contributions for federal employees. In contrast, IRAs offer a wider range of investment options, have lower contribution limits, and do not offer matching contributions.

TSPs offer a limited number of investment options, have higher contribution limits, and offer matching contributions for federal employees. In contrast, IRAs offer a wider range of investment options, have lower contribution limits, and do not offer matching contributions.

The taxable portion of your withdrawal is subject to federal income tax at your ordinary rate. Also, you may have to pay state income tax. An additional IRS early withdrawal penalty of 10% may apply if you're under the age of 59½.

By participating in the TSP, Federal employees and uniformed service members can save part of their income for retirement, receive matching agency contributions, and reduce their current taxes.

For federal employees and military personnel, the TSP is a resounding yes! The tax benefits, matching contributions, and low fees make it a powerful tool for secure retirement. However, it's not a "one-size-fits-all" solution. Consider your risk tolerance, investment goals, and retirement timeline.

A TSP and 401K are similar, but they have their distinct differences, too. If you are a Federal Government employee, a TSP is the better choice. It has lower fees, higher matching, and there are still many ways to customize it how you'd like with investments and withdrawal options.

Dave Ramsey's advice is to save 5% into the TSP to get the full match, then max out a Roth IRA, and then put more into the TSP if you are able to save more after that.

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.

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).

are required to withhold 20% of your payment for federal income taxes . This means that in order to roll over your entire payment, you must use other funds to make up for the 20% withheld . Suppose, for example, that you took a $10,000 distribution and wanted to roll it over to another retirement plan or IRA .

What is a good amount for TSP? ›

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.

If you are 591/2 or older, you can make withdrawals from your TSP account while you are still employed . You must pay income tax on the taxable portion of your withdrawal unless you roll it over to an IRA or other eligible employer plan .

G Fund (Government Securities Investment Fund):

The G Fund is often considered the safest option among TSP funds. It invests in U.S. Treasury securities, providing a stable return with minimal risk.

Be patient: Building wealth takes time and becoming a millionaire through the TSP will likely require a long-term perspective. Stay the course and continue saving and investing consistently, and you will increase your chances of reaching millionaire status.

A Roth TSP has higher contribution limits, automatic contributions, and matching contributions. However, the investment options are limited and at the moment you have to take RMDs at age 72. Roth IRAs have a great selection of investment options and they don't have RMDs.

The TSP offers these risk ratings but offers no context. Take, for instance, the G fund. While certainly a low volatility investment, it is ranked 1/5 on the risk table because of its principal protection features. Many people call this fund the safest TSP fund.

It may surprise some of you to learn that none of the money in your TSP account is insured by the Federal Deposit Insurance Corporation, like your bank deposits are. When you invest for retirement, you take on varying levels of risk, depending on how you allocate your investments.

interest exist. Financial professionals who recommend an IRA rollover might earn commissions or other fees as a result. In contrast, leaving assets in the TSP or rolling the assets to a plan sponsored by your new employer likely results in little or no compensation for a financial professional.

Basically, your agency will contribute money into your TSP account based on how much you are contributing. There is no match when you invest in an IRA. Another big difference between the TSP and IRAs is how much you can contribute every year. As of 2021, you can invest significantly more into the TSP compared to IRAs.