Many federal employees have concerns about their Thrift Savings Plan (TSP) accounts. Either they’re not sure what they should be doing in the TSP, or they may not know how it fits into their bigger retirement picture.
There’s a lot to love about TSP. It’s easy. It’s inexpensive. There’s a lot of safety in it, and there’s opportunity for growth. It’s a great wealth accumulation tool to build a lot of money over a person’s long career.
However, there are a lot of questions looming about how the TSP works, so we wanted to address some of them here.
Nearly all federal employees participate in the TSP. As a result, here are eight questions that we frequently hear about the TSP from employees attending our Federal Retirement Impact Workshops:
Q: I thought I made changes to the fund I was invested in, but it only seems to affect my new contributions. How can I fix this?
A: We need to figure out what you did and what you intended to do. So there are two ways to change how you’re invested in the TSP.
The first change you can make is to your current balance in the TSP. It’s maybe all in one fund, but probably spread among a few funds. For most people, their money is spread among the G, F, C, S and I funds.
The second decision that you need to make is where you want all of your new money to go. So the person with this question may have said, “Hey, I thought I made this change, but it’s only affecting my new money.” They would also need to make a change to the current money, if that’s their intention. So just remember to change both your current balance and your new money, if that’s what you intend to do.
Q: Is there an advantage to contribute a certain dollar amount instead of a percentage of my salary or vice versa?
A: Maybe. If you plan only to contribute to get the 5% match, then you should probably just select the 5% match. Choose the percentage option, put in “five” and you’re done. But if you are trying to get exactly the $20,500 or the $27,000 amount, you should really choose that specific dollar amount.
Q: Can I make a contribution to the TSP from my checking account?
A: No. If you want to get money into the TSP, you must do so through your paycheck. Make certain that it’s done early enough in the year so that you can get all that you want into the TSP.
Q: If I retire before the end of the year, can I still contribute the full amount to the TSP?
A: The good news is the answer is yes! You’re permitted to contribute the full amount to TSP, which is the $20,500/yr regardless of when you retire in the year. Of course, if you are doing catch-up contributions, the full $27,000/yr is allowable. Read more about this strategy.
Q: I have an outstanding TSP loan. Does this count against how much I can contribute?
A: No. All employees are permitted to contribute up to the IRS limits, the normal $20,500. Any loan repayment that you have is totally separate from your contributions of “new” money to the TSP.
Q: Is it true that my agency only matches contributions made to the traditional TSP?
A: No. With the TSP, when you contribute to either the traditional or the Roth side, it does not matter which one. Your agency’s contribution to your account will simply be deposited into the traditional side of your account.
If you put all of your money on the Roth side, you are not missing any match. Your agency’s money is simply showing up on the traditional side of your account. The reason is that the money which goes into the Roth side of the account has to be after-tax money. The government is unwilling to pay that tax for you. They are going to make you pay the tax by putting your money in the traditional side of your account.
Q: I’ve been told that my spouse and I make too much money to contribute to the Roth TSP. Is that true?
A: No. Those income limits only apply to private sector Roth IRAs. Therefore, if a couple has an adjusted gross income of more than about $214,000 in 2022, they’re disqualified from contributing to a Roth IRA altogether. That has no effect on them having the Roth TSP. So the Roth TSP is a huge win for you if you are a high earner, or you and your spouse are high earners.
Q: Most of my money in TSP is labeled as “Traditional.” Can I change that to make it Roth?
A: No. The TSP will not allow you to convert any traditional money to make it Roth money in the TSP. The reality is that you’re only able to do that through a private sector account.
No doubt you may have had these same questions about your TSP. The real key is getting started as early in your career as possible. This helps you to really put time on your side. The more time you can put on your investing platform, the better opportunity you have to make a considerable amount of money. After all, the main goal is to ensure that you save enough money in your TSP to live comfortably in retirement.
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ABOUT THE AUTHOR:
Chris Kowalik is a federal retirement expert and frequent speaker to federal employee groups nationwide. In her highly-acclaimed Federal Retirement Impact Workshops, she and her team empowers employees to make confident decisions as they plan for the days when they no longer have to work.
As the developer of dozens of highly-regarded retirement planning materials for federal employees and the creator of the FedImpact Webinar and the FedImpact Podcast, Chris has also analyzed the challenging retirement scenarios for thousands of federal employees – helping them to avoid costly mistakes, and highlighting opportunities for them to gain greater financial security in their retirement years.
Chris’ candid and straightforward nature allows employees to get the answers they need, and to understand the impact these decisions have on their retirement. After all, if what you thought was true wasn’t, when would you like to know?