Basic Principles of Investing in TSP
The TSP plan is very similar to a 401(k) plan: a retirement savings plan with tax advantages offered through an employer. The U.S. government is the employer in the case of the TSP. Federal employees, such as FBI agents, members of Congress, and service members in the Army, Navy, Air Force, and Coast Guard, can benefit from the TSP.
Traditional Investment vs. Post-Tax Investment in TSP
Pre-tax contributions are often the best for those who expect to be in a lower tax bracket when they retire. Deferring taxes until later can be a good idea because you can avoid paying higher taxes now and pay them later at a lower rate.
How to Enroll in TSP
Enrollment in TSP is automatic if you joined federal service in October 2020 or later. It can also be done online through your agency’s electronic payroll system. You can also register by paper form.
TSP Matching Contributions
Like most 401(k) plans, TSP participants can receive matching contributions from their agency or service in addition to their own savings. The matching contribution is exactly what it sounds like: when you contribute dollars, so does your employer. The matching formula is somewhat complex, but it’s a good formula. You will receive an automatic contribution of 1% of your salary. Matching funds can be received on contributions up to 5% of salary from there.
Selecting the Best TSP Funds
You need to make two decisions when enrolling in TSP: how much you want to save and how to invest your savings. The TSP offers several funds to choose from.
Frequently Asked Questions (FAQs)
How much should I contribute to TSP? A common recommendation is to save for retirement at least 15% of your income. Others believe the minimum should be above your employer’s contribution; in the case of TSP funds, that would be 5% of your income. However, this is a very personal question, and it’s best to ask a financial advisor who can consider your unique circumstances.
Who manages TSP funds? The TSP funds are managed by the Federal Retirement Thrift Investment Board. The board meets monthly to discuss issues related to the retirement funds. If you want to follow what is discussed in the board, you can read the meeting minutes online.
How can you change your TSP fund allocation? TSP participants can visit the Thrift Savings Plan website to change their investments. There are two ways to change how you invest your TSP funds. The first is to adjust your contribution allocation, which changes how new money is invested. The other option is to transfer funds between existing TSP funds (IFT) from one investment to another. You are allowed to make two IFTs in a calendar month only, and any IFT requests after that can only transfer funds to the G Fund.
Source: https://www.thebalancemoney.com/how-to-invest-in-tsp-funds-4148113
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