Site Map Icon
RSS Feed icon
 
 
 
March 19, 2024
Action Center
Action Center
Action Center
Important TSP Information
Posted On: Nov 19, 2013

 

Thrift Savings Plan (TSP) Primer

This primer is not intended to provide financial investment advice, its sole purpose is to explain what the TP is and the options that it makes available to you.  Also, in the interest of full disclosure, much of the information in this primer was plagiarized from the TSP web site, www.tsp.gov.  This is a rather lengthy primer but the TSP is vital to your retirement plans so it is to your financial benefit to plough through it..  Even though it is lengthy is only covers a minimum of what you need to know.  You are strongly encouraged to check out the TSP website and browse through the information available.

TSP is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. It was established by Congress in the Federal Employees' Retirement System (FERS) Act of 1986 and offers the same types of savings and tax benefits that many private corporations offer their employees under 401(k) plans. It is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you and the USPS put into your account during your working years and the earnings accumulated over that time.

The TSP is administered by Federal Retirement Thrift Investment Board (FRTIB or "Board") which is an independent Government agency that is managed by five presidentially appointed board members and an Executive Director who are required by law to manage the TSP prudently and solely in the interest of the participants and their beneficiaries.  However, while you are employed, the USPS is your primary TSP contact. You should inform the USPS about any changes or corrections to personal information that might affect your TSP account including address changes.  After you separate from the USPS, the TSP becomes your primary point of contact.

For employees in FERS the TSP is one of the three integral parts that make up your retirement portfolio.  The other two are Social Security and your FERS annuity, i.e. your postal retirement. You will need all three if you hope to have a comfortable retirement. If you’re a FERS employee hired before August 1, 2010 and are not contributing your own money, you still have a TSP account with accruing Agency Automatic Contributions equal to 1% of your base salary every year into your account.  However, in addition, they will match $1 for $1 on the first 3% you contribute and 50¢ per $1 on the next 2%.  So, if you contribute at least 5% of your base salary, the USPS will deposit an additional 4% of your base salary.  Thus you can receive an additional 5% of "free money" deposited into your account every year. For a postal worker making $55,000, that equates to $2,750.

 

 If you’re a FERS employee hired (or a FERS or CSRS employee rehired) after July 31, 2010, the USPS has automatically enrolled you in the TSP, and 3% of your basic pay is deducted from your paycheck every pay period and deposited in your TSP account, unless you made a contribution election to stop or change your contributions. If you’re FERS, you also get contributions from the USPS, so the total automatic contribution to your TSP account is 7% every pay period.

 

If you are covered by the Civil Service Retirement System (CSRS) the TSP is a supplement to your CSRS annuity but the USPS does not contribute any matching funds.  Regardless of your retirement system, participating in the TSP can significantly increase your retirement income, but starting early is important. Contributing early gives the money in your account more time to increase in value through the compounding of earnings.

 

An advantage  the TSP has over private funds is its low administrative and investment expense, currently .027%.  The average fee for privately managed defined contribution plans is .83%.  So for every $1,000 you have in your TSP you pay 27¢ for the "Board" to manage it.  If you chose to invest in a private fund, you'll probably pay $8.30, or more, per thousand.  That is a significant difference and, over the years, as your account grows, that can amount to a huge difference.  For instance, $50,000 invested in the TSP, assuming a 7% annual rate of return, will grow to $377,742 in thirty years.  That same $50,000, with an .83% management fee, would only grow to $301,318. 

 

A basic choice you have to make is the  tax treatments for your contributions.  You can opt for traditional (pre-tax) contributions with tax-deferred investment earnings, or Roth (after-tax) contributions with tax-free earnings at retirement.  It all depends on whether you want to pay taxes on the money you contribute as you contribute it, or wait until you retire and start making withdrawals.  You do have the option of splitting your TSP account, and contributions, into both traditional or Roth, it does not have to be one or the other.  The TSP website has charts that show the results you could achieve depending on your choice of traditional or Roth.

 

A common reason for choosing the traditional tax deferred method is that many employees will be in a higher tax bracket while working than when they retire, so they will pay a lower rate on their withdrawals after they retire.  If you chose this type of account you will have to pay taxes on all of your withdrawals, whether they be contributions or earnings.

 

Others prefer the Roth accounts because they are uncertain as to what the tax rates will be when they retire or anticipate that their account will have grown significantly.  If you chose the Roth account you will not have to pay taxes on your withdrawals, whether they be contributions or earnings.

 

The maximum amount an employee can contribute during any year, a problem not many of us have to deal with is $17,500.  In addition,  participants over 50 can make an additional "catch-up" contributions of $5,500 per year, for a total of $23,000.  If you can afford to contribute $23,000 per year, why are you still working?

 

There are numerous investment options available to you in the TSP and how you chose to invest could make a huge difference in the size of your account when you retire.  You really need to take some time to learn about TSP and what investment options are best for you.  There are five basic funds, G Fund, F Fund, C Fund S Fund and I Fund.  There are also five L Funds which contain a various mixture of the five basic funds.

 

It is important to understand the individual funds.  The G Fund only invests in government securities that are specially issued to the TSP.  Thus this fund will provide interest income without the risk of losing any principal.  However, it has a low rate of return, 1.47% in 2012, and may or may not even keep up with inflation.  Especially when you factor in taxes. The interest rate is set once per month by the Treasury Department based on the closing market prices of all Treasury securities with four or more years of maturity.

 

The other four basic funds are all index funds.  That means they invest in broad market sectors and simply follow the market.  They do not try to time the market by buying and selling stocks, they simply match what the market does.  It is interesting to note that most managed funds that buy and sell, as their managers analyze and predict market trends, wind up underperforming the market in the long run.  In other words, you could well be better off staying with an index fund than trying to time the market.

 

The F Fund tracks the Barclays Capital U.S. Aggregate Bond Index which, as the name implies, follows the U.S. bond markets.  This includes both government and corporate issued  securities. This fund returned by 4.29% in 2012. 

 

The C Fund replicates the Standard & Poor's (S&P) 500 stock index which contains common stocks of 500 companies that represent the U.S. stock markets.  The dollar value of the S&P 500 makes up roughly 75% of the value of the U.S. stock markets.   This fund returned 16.07% in 2012.

 

The S Fund tracks the Dow Jones U.S. Completion Total Stock Market (TSM) Index which contains all common stocks not in the S&P 500.  It makes up the remaining 25% of the value of the U.S. stock markets.  This fund returned 18.57% in 2012.

 

The I Fund replicates the MSCI Europe, Australasia, and Far East (EAFE) index which covers the equity markets of 22 developed stock markets.  These are not "emerging" markets such as China or India due to the volatility of emerging markets.  This fund returned 18.62 % in 2012.

 

You can choose how to allocate your fund balance and future contributions however you want.  Everything in one fund or a mixture of all.  Factors to consider are your how close you are to retirement, how much can you afford to lose, and your comfort risk level.  Putting everything into the G fund is a no risk strategy but will give you very little return. On the flip side, putting everything into the C, S or I Funds is a high risk venture with possible high returns an high losses.  For instance in 2006 the C fund lost 36.99%, the S Fund lost 38.32% while the I Fund lost 42.43%.  So you need to decide how much risk you are willing to take and allocate your investments accordingly.

 

For those employees who may not have the time, experience, or interest to manage their

TSP retirement savings, the TSP has created  five L Funds, which are:

 

L 2050 for participants who will need their money in the year 2045 or later.

L 2040 For participants who will need their money between 2035 and 2044.

L 2030 for participants who will need their money between 2025 and 2034.

L 2020 or participants who will need their money between 2015 and 2024.

L Income for participants who are already withdrawing their accounts in monthly payments, or who plan to need their money between now and 2014

 

The assumption underlying the L Funds is that participants with longer investment time horizons are able to tolerate more risk while seeking higher returns. The funds automatically adjust to reflect a reduced ability to sustain risk as the investment time horizon approaches. Each L Fund invests in a mix of the five individual TSP funds. The mix is chosen by experts based on each fund’s time horizon.

 

The L Funds’ asset allocations are designed to achieve the highest expected rate of return for the amount of risk taken. If the time horizon is a long time from now, the L Fund will be more exposed to risky assets, such as stocks in the C, S, and I Funds. As time horizons shorten, allocations gradually shift toward less volatile Government securities (G Fund). The TSP web site has an L Fund  pie chart with a sliding bar at the bottom which you can manipulate to see how the mix of funds changes as you approach your retirement date.

 

The L Income Fund is designed to preserve your account balance while protecting against inflation. Each L Fund is rebalanced each business day to restore the fund to its intended investment mix. Each quarter, the funds’ asset allocations are adjusted to slightly more

conservative investments. When an L Fund reaches its designated time horizon, it will roll into the L Income Fund, and a new fund will be added with a more distant time horizon.

 

One last thing to consider when choosing an L Fund.  Assuming you plan to retire in 2040 you might just put all of your money into the L 2040 fund.  However, come 2040 and you retire, you may not withdraw all of your money at once, you could opt for monthly payments.  In that case all of your money will be in the L 2040 fund when you retire but you will only access most of it  in future years.  So, you may consider putting some in the L 2040 and some in the L 2050.

 

For those who do want to actively manage their money, responding to or anticipating market conditions, there are two types of investment transactions available to you.  The first are your contribution allocations where you specify how you want to invest new money going into

your TSP account. Your contribution allocation will apply to all future deposits to your account.

These include: employee contributions; agency contributions (if you are FERS) any money you move into the TSP from other retirement plans; and any TSP loan payments. Your contribution allocation will not affect money that is already in your account.

 

The second are Interfund transfers which moves the money already in your account among the TSP investment funds.  When you make an interfund transfer, you choose the new percentage you want invested in each fund. You cannot move specific dollar amounts among the funds.

Also, you cannot move specific types of money among the funds. For example, if you have traditional (including tax-exempt) and Roth balances in your account, your  interfund transfer will move a proportional amount from each type of money into the funds that you have

specified.

 

Interfund transfers are not unlimited. Each calendar month, your first two interfund transfers

may be used to redistribute money in your account among any or all of the TSP funds. After the first two, your interfund transfers can only move money into the G Fund (in which case, you will increase the percentage of your account held in the G Fund by reducing the percentage held in one or more of the other TSP funds).  The G Fund is considered a "Safe Haven", so you can always move money into the G Fund, but only twice per month out of the G Fund.

 

Now that we have covered how to put money into your , how can you take it out?  There are three ways to get your money out of the TSP:

 

• A loan

• An in-service withdrawal (i.e., a withdrawal while you are still employed by the Federal Government)

• A post-separation withdrawal (i.e., a withdrawal after you separate from service)

 

Any loan or withdrawal you take from your account will be paid proportionally from your traditional and Roth balances, and from each TSP fund in which you have investments. For example, you cannot request a loan or withdrawal from only the taxable portion of your traditional balance that is invested in the G Fund. If you have both traditional and Roth

balances and you are invested in five TSP funds, both balances and all your fund investments will be impacted by your loan or withdrawal.

 

 

You repay your loan with interest. The interest rate is the interest rate for the G Fund at the time your loan application is processed. The TSP also charges a processing fee of $50 for each loan. This fee is used to cover the cost of processing and servicing your loan. It is deducted from the amount of  the loan that you receive.

 

Loan repayments are made through payroll deductions.  They are deducted from your pay

each pay period in the amount to which you agreed.  If you fail to repay your loan in accordance with your Loan Agreement), or you do not repay your loan when you separate from service, the

TSP will report a taxable distribution to the IRS. If you have an outstanding loan when you leave Federal service, you must pay it back within 90 days or the outstanding balance will be treated as taxable income and there could possibly an early withdrawal penalty tax.

 

Before you take a loan, consider that your loan costs are not limited to the interest and fee that you pay. The cost of a loan can be much more far-reaching. When you borrow from your account, you miss out on the earnings that might have accrued on the money you borrowed. Even though you must pay the money back to your account with interest, the interest you pay to your

account may be less than what you might have earned if you had kept the money in the TSP.

 

There are two types of TSP loans:

 

• A general purpose loan

• A loan for the purchase or construction of a primary residence.

 

You can have only one general purpose and one residential loan outstanding at a time. The total amount that you can borrow is limited to your own contributions and the earnings on

those contributions. You cannot borrow less than $1,000 or more than $50,000. You can find out the amount you may be eligible to borrow from your TSP account by visiting the TSP website or calling the ThriftLine (877-968-3778). You can also use the Estimate Loan Payments calculator on the TSP website to estimate your loan payment amount before you request a loan.

 

Also, If you are a married FERS employee your spouse must consent to your loan by signing the Loan Agreement. If you are a married CSRS participant, your spouse will be notified of your loan. These rules apply even if you are separated from your spouse.

 

Another way to access your TSP funds is via  In-Service Withdrawals.  In-service withdrawals (i.e., withdrawals from your account while you are still employed) are available to all active participants. The TSP does not charge a fee for making an in-service withdrawal. However, the overall impact on your retirement savings may be significant.

There are two types of in-service withdrawals:

• A financial hardship in-service withdrawal

• An age-based in-service withdrawal

You can make a financial hardship in-service withdrawal if you can certify, under penalty of perjury, that you have a financial hardship as a result of a recurring negative cash flow, legal expenses for separation or divorce, medical expenses, or a personal casualty loss. You may withdraw only your contributions and any earnings those contributions have accrued. You can request $1,000 or more; however, the amount that you request cannot exceed the actual amount of your certified financial hardship. Further, you may not make contributions to your account

(and if you are FERS, you will not receive the associated matching contributions) for 6 months after the disbursement of your funds.

You can make an age-based in-service withdrawal anytime after you reach age 59½, as long as you are still a civilian Federal employee. You may withdraw part or all of your vested account balance. You can request a dollar amount of $1,000 or more, or your entire account balance even if it is less than $1,000). You are permitted to make only one age-based in-service withdrawal. If you make one, you will not be eligible to make a partial withdrawal from your account after you separate from service.

 

As with a loan, if you are a married FERS employee your spouse must consent to your in-service withdrawal. If you are a married CSRS participant, the TSP must notify your spouse before an in-service withdrawal can be made. These rules apply even if you are separated from

your spouse.

 

You must pay Federal income taxes on the taxable portion of in-service withdrawals when they are paid directly to you. You will owe taxes on the portion of your withdrawal that comes out of your traditional balance. You will not pay Federal income taxes on the portion of your in-service withdrawal that comes from your Roth contributions .Financial hardship in-service withdrawals may be subject to an early withdrawal penalty tax if you are younger than age 59½ when you make your withdrawal.

 

Your final withdrawal options are the post-separation withdrawals.  There are two

types of post-separation withdrawals:

 

• A partial withdrawal

• A full withdrawal

 

With a partial withdrawal you can take out $1,000 or more and leave the rest in your account until you decide to withdraw it at a later date. You may make only one partial withdrawal from your account. If you made an age-based in-service withdrawal, you are not eligible for a

partial withdrawal. After your first partial withdrawal, the next withdrawal must be a full withdrawal.

 

Some employees may want to make more than one partial withdraw as their needs dictates.  For instance, to purchase a new car or go on a nice vacation.  One option to consider is to make a large partial withdrawal and make a direct rollover into a private IRA.  Let's say you have $200,000 in your account, you could transfer $100,000 into a commercial IRA which allows you to withdraw money as you please and leave the rest in your TSP.  However, keep in mind  the difference in management fees described earlier.

 

Also it is key that you transfer the money directly into the new IRA.  If you have the TSP send you a check you have tax consequences.  Take the previous example where you make a partial withdrawal of $100,000.  If you request a check the TSP will withhold taxes and you will receive roughly $80,000.  However, to avoid taxes on your withdrawal you have to reinvest the entire $100,000 within 60 days, but you only got $80,000.  You have to come up with the other $20,000.  If you do not reinvest the full $100,000, the difference is taxable and may be subject to early withdrawal penalties if you are not 59½.  If you deposit the full amount, you can get your taxes refunded when you file your tax return,

 

With a Full withdrawal you choose how your entire account will be distributed using one, or any combination, of  three withdrawal options available to you:

 

• A single payment

• A series of TSP monthly payments

• A life annuity purchased for you by the TSP

 

A single payment allows you to withdraw your entire TSP account at one time in one payment. It is sometimes referred to as a “lump sum.”

 

TSP monthly payments allow you to withdraw your entire account in a series of payments that will be paid to you each month from your TSP account. You can ask for a specific dollar amount each month or you can have the TSP calculate a monthly payment based on your life expectancy. If you choose a specific dollar amount, it must be at least $25.  At any time while you are receiving monthly payments, you can ask the TSP to stop the monthly payments and pay you your remaining account balance in a single payment. Also, once a year, you have the opportunity to make changes to the dollar amount of the monthly payments you are receiving. You also have the opportunity to make a one-time switch to receiving monthly payments based on a dollar amount rather than monthly payments based on life expectancy.

 

An annuity pays a benefit to you (or to your survivor) every month for life. The TSP purchases the annuity on your behalf from a private insurance company. You can have the TSP purchase an annuity with all or any portion of your account balance when you request a full withdrawal. In general, the amount you use for the purchase of an annuity must be $3,500 or more.

 

You have a choice of three basic annuity types:

 

• A single life annuity paid only to you during your lifetime

• A joint life annuity with your spouse paid to you while you and your spouse are alive. When one of you dies, payments are made to the survivor for the rest of his or her life.

• A joint life annuity with someone (other than your spouse) who has an insurable interest in y

ou paid to you while you and the person you choose are alive. When one of you dies, payments are made to the survivor for his or her life.

 

If you elect a joint annuity, you may be able to choose between a 50% or 100% payment option to the survivor.

 

As with the other withdrawal option there are spousal rights involved. If you are a married FERS employee your spouse must consent to your partial withdrawal. If you are a married CSRS participant, the TSP must notify your spouse before a partial withdrawal can be made.  If your vested account balance at the time of your full withdrawal is more than $3,500, your withdrawal will be subject to Federal law regarding spouses’ rights. These rules apply even if you are separated from your spouse:

• If you are a married FERS participant, your spouse is entitled to an annuity with a 50% survivor benefit, level payments, and no cash refund feature. Your spouse must waive the right to this particular annuity unless you use your entire account balance to purchase it.

 

• If you are a married CSRS participant, the TSP must notify your spouse before it can process your withdrawal, regardless of which withdrawal option

 

You could opt to leave all  your money in the TSP until you reach age 70½.   If you are separated from postal service, you are required to make a withdrawal choice for your TSP account balance

by April 1 of the year following the year you become  age 70½.  If you do not withdraw (or begin withdrawing) your account by the required withdrawal deadline, your account balance will be forfeited to the TSP. You can reclaim your account; however, you will not receive earnings on your account from the time the account was forfeited.  At the same deadline, you will also be subject to the IRS required minimum distribution rules. These rules require you to receive a certain portion of your account each year based on your life expectancy. The TSP will send you information about these rules if they apply to you.

 

The last topic deals with death benefits.  In the event of your death, your account will be distributed to the beneficiary or beneficiaries you designate on the TSP’s Designation of Beneficiary form. If you do not designate beneficiaries to receive your account, it will be disbursed according to the following order of precedence required by law:

1. To your spouse

2. If none, to your child or children equally, and to descendants of deceased children by

representation.

3. If none, to your parents equally or the surviving parent;

4. If none, to the appointed executor or administrator of your estate; or

5. If none, to your next of kin who is entitled to your estate under the laws of the state in which you resided at the time of your death.

 

For this order of precedence, a child includes a natural child or an adopted child but does not include a stepchild who has not been adopted. A parent does not include a stepparent, unless your stepparent has adopted you. “By representation” means that if your child predeceases you,

his or her share will be divided equally among his or her children.

 

You should be aware that a will or any other document (such as a prenuptial agreement) is not valid for the disposition of your TSP account.  You must designate a beneficiary using TSP-3 Designation of Beneficiary. The completed form must be properly signed, witnessed, and received by the TSP on or before the date of your death.  This is often a problem when the TSP participant gets divorced, remarries but never fills out a new TSP-3 under the false assumption that the will will make the new spouse the beneficiary.

 

In the event of your death, if your spouse is a beneficiary of your account and your spouse’s share is $200 or more, a “beneficiary participant” account will be established in your spouse’s name. Any death benefit processed from your account for your spouse will be deposited into this TSP account and invested in the G Fund. Your spouse can leave the money in the TSP

and manage the investments in the TSP’s funds, combine the account with his or her own TSP account, if applicable, or withdraw the money using any of the TSP post-separation withdrawal options described earlier.

 

There are numerous sources of information about the Thrift Savings Plan.

.

The most up-to-date information about the Plan in general, and your account in particular, is on the TSP website, tsp.gov.

 

You can also obtain limited information from the TSP’s automated voice response system, the ThriftLine, 877-968-3778..

 

 

 

 

If you need clarification about plan features or have additional questions about your account, your best resource while you are still employed by the Federal Government is your agency or service. It is responsible for correcting or changing your personal TSP-related information and resolving any issues regarding your contributions and loan payments. If necessary, it will

also be able to contact the TSP on your behalf.

 

If you are separated from Federal service, your primary resource is the TSP:

 

Thrift Savings Plan

P.O.Box 385021

Birmingham, AL 35238

 

Telephone:

 

Call the ThriftLine to speak to a Participant Service Representative.

(7 am -9 pm Eastern time) 877-847-4385

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Member Login
Username:

Password:


Not registered yet?
Click Here to sign-up

Forgot Your Login?
Site Search
Site Map
RSS Feeds
<< March 2024 >>
S M T W T F S
1 2
3 4 5 6 7 8 9
10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29 30
31

pwobut.gif (8277 bytes)

Weather Report
UnionActive Newswire
 
Join the Newswire!
Updated: Mar. 18 (22:04)

‘Working-Class People Aren’t Lazy, They’re Fed Up,’ UAW Leader Tells Senate
Teamsters Local 355
Update for Pepsi Members
Teamsters Local 162
AFGE Local 1647 In-Person Meeting on Wednesday, March 20, 2024
AFGE Local 1647
Social Security, PRO Act, Pensions Top Teamsters Interview With Biden
Teamsters Local 992
Online Book Signing
IBEW Local 125
Week Ending 3/15/2024
Teamsters Local 992
 
     
 
 
Ohio Postal Workers Union
Copyright © 2024, All Rights Reserved.
Powered By UnionActive™

184944 hits since Dec 10, 2008
Visit Unions-America.com!

Top of Page image