About Federal Thrift Savings Plans
The Thrift Savings Plan, created by the federal government, is a voluntary retirement program for federal employees, including members of Congress.
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Function
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The Thrift Savings Plan (TSP) is a retirement savings plan developed for civilian employees of the federal government as well as for those in any of the government's uniformed services. Administered by the Federal Retirement Thrift Investment Board, the TSP is similar to retirement benefits, such as 401(k) plans, offered to employees of private corporations. Private sector companies are contracted for record-keeping services. The Thrift Savings Plan is a defined contribution plan, based upon the amount you have contributed to your particular account during your tenure and any earnings realized on those contributions.
History
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Congress established the Thrift Savings Plan in the Federal Employees' Retirement System Act of 1986. The Floyd D. Spence National Defense Authorization Act was signed Oct. 30, 2000. This act extended participation to members of the uniformed services, including the Ready Reserve.
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Features
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Some important features of the Thrift Savings Plan are immediate contribution rights, low administrative and investment expenses, the ability to take out a loan on contributions and earnings for hardship reasons, participants over the age of 50 can make catch-up contributions, benefits go with the employee after separation from federal employment or service, spousal rights are protected regarding loans and withdrawals. The Thrift Savings Plan was designed to be protected from politics by implementing an independent Federal Retirement Thrift Investment Board to administer the plan. This board is regularly reviewed and audited to prevent mismanagement and wrongdoing. The five board appointees are chosen by the president and serve four-year terms. These five part-time appointees select the person who will serve as the full-time executive director.
The board is required, by law, to act only in the best interest of TSP participants and their beneficiaries. Should the board fail to follow this mandate, it is subject to criminal and civil liability. The very structure of the Thrift Savings Plan works to prevent political manipulation because it invests in index funds instead of individual stocks.
Considerations
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Certain aspects of the Thrift Savings Plan deserve special consideration. These elements are not detriments, they are merely things that government employees need to be aware of when investing in this type of retirement plan. Employees, for example, that are covered by the (FERS) Federal Employees' Retirement System and the (CSRS) Civil Service Retirement System are eligible to contribute to the TSP, however, they are governed by different rules. Another important point to remember is that, like many other retirement accounts and plans, the Thrift Savings Plan has an annual contribution limit defined by the IRS. This limit is adjusted annually for cost-of-living increases.
Benefits
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Participating in the Thrift Savings Plan has several tax-related benefits, including the ability to make before-tax contributions and all earnings on TSP contributions are tax-deferred until the time of withdrawal, during retirement. Another incentive for some government employees may be the Retirement Savings Contributions Credit . This gives low- to moderate-income-earning employees a tax credit on federal returns for each year they contribute to their TSP plan.
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