Last modified Thu., January 25, 2007 - 12:13 AM
Originally created Thursday, January 25, 2007

TSP is a great way to save

MCSN Kenneth Abbate, Periscope Staff

Nowadays Americans have several investment options from which to choose when deciding how they want to prepare themselves for their golden years. Unfortunately, many people lack the expertise required to successfully navigate the complex world of finance. That's why the Federal Government created the Thrift Savings Plan for federal employees and members for the Armed Forces.

Congress established the TSP in the Federal Employees' Retirement System Act of 1986. The purpose of the TSP is to provide retirement income and offer Federal employees and servicemembers the same type of savings and tax benefits that many private corporations offer their employees under "401(k)" plans. In the civilian component of the TSP, employees covered by the Federal Employees' Retirement System and the Civil Service Retirement System can contribute to the TSP.

The participation rules are different for FERS and CSRS employees. The TSP is a defined contribution plan. The retirement income that you receive from your TSP account will depend on how much you have contributed to your account during your working years and the earnings on those contributions. The contributions that you make to your TSP account are voluntary and are separate from your contributions to your FERS Basic Annuity or CSRS annuity.

"For the civilians who have TSP, that is their 401k," said Felipe Gonzalez, the financial counselor for Naval Submarine Base Kings Bay. "Servicemembers get a pension plus the TSP."

Currently, TSP offers six different kinds of investment funds: The Government Securities Investment, Fixed Income Index Investment, Common Stock Index Investment, Small Capitalization Stock Index Investment, International Stock Index Investment, and Lifecycle.

The newest fund, the L Fund, provides a convenient way to diversify your account among the G, F, C, S, and I Funds, using professionally determined investment mixes that are tailored to different time horizons. Your "time horizon" is the date (after you leave Federal service) that you think you will need the money in your TSP account.

Because it is important for each L Fund to maintain its target investment mix, the TSP will automatically rebalance each L Fund daily. Then, each quarter, the investments in each L Fund will shift to a slightly more conservative mix. In addition, experts will review the investment mixes periodically to be sure they are still appropriate.

"The L fund is great because TSP will take the money that I put in it and move it around for me based on how the market is doing," said Gonzalez. "For example, if you plan on being in for the long run, TSP will be a little bit more aggressive for you and move more of your money around to which ever funds are doing well at the time."

So why choose to invest in TSP? There are several reasons to choose the TSP for your retirement savings. Some of those include but are not limited to:

You save money on income taxes.

You have a choice of five investment funds.

All of the money you have deducted from your pay goes into your investment account, and no income tax is deducted.

You don't pay the tax until you withdraw money, usually during retirement.

Contributions of your tax-exempt combat or hazardous-duty pay retain their tax-exempt status, so you won't pay tax on this money, even when you withdraw it.

If you need access to your money, you can borrow from your TSP at a low rate of interest.

Personal loans can be for up to five years.

Loans to purchase your residence can be for up to 15 years.

Your loan is repaid through payroll deductions; it's like borrowing from yourself.

TSP offers in-service withdrawals for financial hardship, or after age 59.

You are given a choice of post-separation withdrawal options.

You are given the ability to transfer money from other eligible retirement savings plans into your TSP account.

Investing in TSP is fairly simple. If you have access to your mypay account you can do this online at mypay.gov. You can also get started by filling out a TSP-U-1 form. To calculate your contribution (per paycheck) to the TSP, multiply your paycheck by the percentage you wish to contribute.

For example, if you wish to contribute 1 percent of $1,000, you would be contributing $10 per month to the TSP. You can also earmark a portion (up to 100 percent) of any bonus pay to go directly to the TSP. There are a few things to remember, should you need to withdraw from your TSP. Any time you take money from your fund, you are taking money out of your retirement.

So really think about it before you withdraw and consider any and all other options. Before you take out money, you might consider taking a loan from the plan. You would be paying yourself back through payroll deductions, and essentially borrowing from yourself. Remember: Should you have to make a withdrawal, you must pay taxes and possible penalties.

If you have specific questions regarding the Thrift Savings Plan or your TSP account, you can find all your answers on the tsp.gov homepage www.tsp.gov.