The Thrift Savings Plan (TSP)
The TSP was created as a supplement to the FERS system. As a defined
contribution plan TSP allows employees of the U.S. Federal Government
to contribute a certain percentage of their salaries up to a certain capped
amount. The government matches the employee contribution up to 5% of
their annual salary.
TSP is structured to work similarly to a 401(k) so that in retirement any
savings within the TSP, whether put in by the employee or the government
matching will be taxable only as the employee draws money out. The one
exception is for employees who put their money into the TSP Roth- the
contributions, growth, and interest in this account are always tax-free.
It’s important to note that CSRS participants are also eligible to make TSP contributions under the same guidelines as FERS participants.
Obviously, the FERS annuity pays less to retirees than does the CSRS annuity. However, FERS participants also receive Social Security payments in retirement and TSP matching contributions from the government while employed.
As noted above, although CSRS participants do not qualify for government matching. they may also contribute to a TSP plan and all contributions will grow according to the investments they choose. This is done in lieu of the old practice of allowing the purchase of government savings bonds via allotment from their paycheck.
Supplement to the FERS System
TSP was created as a supplement to the FERS system and is not a guaranteed payment in retirement. As a defined contribution plan, TSP allows employees of the U.S. Federal Government to contribute a certain percentage of their salaries up to a certain capped amount. The government matches the employee contribution up to a certain percentage. The combined contributions then grow with the market depending on the investments chosen by the employee.
Any lifetime income advertised on a TSP statement is in fact an annuity purchased through MetLife and can require the full surrender of your account to MetLife in return for a lifetime payment with no residual going to beneficiaries. Anyone considering TSP options should consult a qualified financial professional.
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