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The Thrift Savings Plan (TSP) is a
retirement
savings and investment plan for Federal employees. Congress
established the TSP in the Federal Employees' Retirement System Act of
1986. The purpose of the TSP is to provide retirement income. The
TSP offers Federal employees the same type of savings and tax
benefits that many private corporations offer their employees
under "401(k)" plans. TSP regulations are published in title 5 of the
Code of Federal Regulations, Parts 1600–1690, and are periodically
supplemented and amended in the Federal Register. The National Defense
Authorization Act extended participation in the TSP to members of the
uniformed services, including the Ready Reserve.
If you receive a TSP withdrawal payment before you reach age 59½, in
addition to the regular income tax, you may have to pay an early
withdrawal penalty tax equal to 10% of any portion of the payment not
transferred or rolled over. However, if you are age 55 or older
in the year you separate or retire, the 10% early withdrawal penalty tax
does not apply.
See resources for additional tax information.
TSP Roth Contributions Starting in 2012
Read on for additional information.
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TSP Menu
The Thrift Savings Plan is an important benefit designed to help FERS, CSRS
and CSRS Offset federal employees save for their future. The TSP offers all
participants:
- Tax deferral on contributions
- A choice of 5 investment funds and additional life cycle funds.
- A loan program
- In-service withdrawals for financial hardship or after age 59½
- A choice of post-separation
withdrawal options
- The ability to transfer money from other eligible retirement savings
plans into your TSP account
The TSP is especially important for FERS employees because it is one of three
parts of your retirement coverage. Employees can now contribute a significant
portion of their basic pay each pay period, up to the IRS annual limit. CSRS
employees do not receive Government contributions in their TSP accounts.
However, CSRS employees can still take advantage of the TSP to provide a source
of retirement income in addition to your CSRS retirement benefit.
The amount you can
contribute changes annually. You may elect to contribute any dollar amount
or percentage of basic pay. However, your annual dollar total cannot exceed the
Internal Revenue Code
limit, which is $16,500 for 2009 and $16,500 for 2010.
TSP has a link to a financial literacy website that you may want to link to:
http://www.tsp.gov/curinfo/OC09-11.pdf There is also
http://www.mymoney.gov/ that OPM has
mentioned in other documents.
Question: I have been planning for retirement for some
time. I want to withdraw partial sums from the Plan after separation and
roll each of them over directly into my Roth account. What are the tax
consequences?
Answer: The key is in the type of IRA. When you rollover
any investment account that hasn’t yet been taxed (TSP, traditional IRA,
401k) to an after-tax investment account, such as a Roth IRA, taxes must be
paid to Uncle Sam at the time of the rollover.
If you want to avoid being taxed on the entire rollover amount, you can
leave the funds in TSP (provided the amount is over the minimum) or roll the
account over to a Traditional IRA.
Before electing to rollover the entire amount out of TSP you should
consider the administrative expenses of the new investment. If you leave a
minimum balance in TSP and keep the funds in a pretax account (traditional
IRA), you will be able to roll funds back into TSP if you elect to do
so. Also carefully examine the withdrawal reasons and age for withdrawal, as
they are different in TSP than other IRA type accounts.
Federal employees should consider contributing the maximum amount
possible; especially FERS employees that must often rely on TSP withdrawals
to maintain their standard of living in retirement. The maximum TSP
contribution for 2012 increased to $17,000. For 26 pay periods, that will
equal a $654 contribution per pay period. However, because the 2011 leave
year ends on December 31st, determining when to make the change may be a
little tricky. Most agency's employees will need to make the change
effective in pay period 26 to affect the first pay period in January, 2012.
This means employees will need to change their TSP deductions between
December 18th - December 31st, if you want the maximum TSP deduction in
equal amounts each pay period. If you miss this time frame you can increase
your TSP contributions in a subsequent pay period in 2012.
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