how the thrift savings plan tsp works
there are several ways to invest in a thrift savings plan these can include no matter the type of tsp or contribution structure you choose the contribution limit is 22 500 for 2023 and 23 000 in 2024 employees aged 50 and over can also make catch up contributions of 7 500 in either year 78employees new to federal employment can roll over 401 k and individual retirement account ira assets into a tsp rollovers can also go in the opposite direction if federal employees move to the private sector 9a thrift savings plan tsp is a defined contribution retirement plan with advantages similar to private sector plans the tsp investment optionsthe tsp offers a choice of six funds and a mutual fund option 4the f s c and i funds in the tsp are index funds currently managed by the blackrock institutional trust company under contract by the federal retirement thrift investment board frtib this independent government agency administers the tsp and acts as a fiduciary that is legally liable to manage the tsp prudently and in the best interests of participants and their beneficiaries 10index funds in the tsp are designed to mimic the return characteristics of the corresponding benchmark index for example the c fund is invested in a fund that replicates the s p 500 index which is made up of the stocks of 500 large to medium sized u s companies 4 l funds are invested in the five individual tsp funds and their asset allocations are based on the individual investor s time horizon 11the maximum annual contribution to a thrift savings plan in 2024 if you are 50 or older you can add an extra 7 500 7the mutual fund window is for tsp participants who want more flexibility in their retirement investments you can invest a portion of your tsp savings through the tsp mutual fund window into available mutual funds you choose however there are certain requirements for participating in the mutual fund window such as having at least 40 000 in your tsp account and not investing more than 25 of your account balance in mutual funds using the window 12tsps vs irascomparing the tsp to an ira is not an either or proposition you can have both a tsp and an ira at the same time one primary difference between them is their respective contribution limits for 2023 the annual limit is 22 500 for a tsp with a catch up contribution of 7 500 for those over 50 the limit is 30 000 for an ira it is much less 6 500 7 500 if you are over 50 if you have multiple iras this is the total amount you can contribute thus a tsp allows you to build your retirement funds faster than an ira if you have the extra money to do so 8for 2024 the annual limit is 23 500 for a tsp with a catch up contribution of 7 500 for those over 50 the limit is 30 500 for an ira it is 7 000 8 000 if you are over 50 13another big difference is in the employer match the federal government provides a sliding percentage scale of matching contributions for your tsp even if you contribute nothing it will contribute 1 of your annual salary to your tsp the scale tops out at a 5 government match if you contribute 5 of your salary to your tsp thus doubling the amount of money invested 14 because an ira is something you set up for yourself with no employer involved there are no matching contributions the investment fees also differ tsp fees are pretty low usually around 0 05 and transparent 15 in the private sector ira investment fees can range from 0 5 to 2 5 depending on the kind of fund and it can sometimes be difficult to know exactly how much they are in aggregate iras offer more investment opportunities than tsps as they are limited to the six funds discussed above this allows an ira holder to be more aggressive in their investment strategies than a tsp holder 4some final differences have to do with withdrawals traditional iras and tsps as well as roth tsps have required minimum distributions rmds that start at age 73 up from 72 in previous years 16 with an ira you are allowed to take whatever withdrawals you like without a penalty starting at age 59 as long as it meets the minimum required 17tsps only allow you to withdraw monthly quarterly or annually you can request that the payment be a specific dollar amount or an amount based on your life expectancy and account balance that is recomputed annually 1819iras also have an early withdrawal penalty of 10 for any money taken out when you are younger than 59 however if you retire at age 55 or older tsps will waive the 10 penalty 20 even better if you qualify under federal employees retirement system fers special provisions this age drops to 50 21