Retirement planning can be stressful, but figuring out how to finance it takes a great deal of the stress away. Enter the government's Thrift Savings Plan, or TSP. The first step in understanding TSPs is answering five basic questions: who, what, where, when, and why.
Who: The thrift savings plan is available to federal employees and members of the uniformed services. It is managed by BlackRock, a financial planning and investment firm headquartered in New York City.
What: TSP is a retirement savings plan similar to a private sector 401(k). Federal employees and military personnel can contribute up to a certain percentage of their base pay to their TSP. BlackRock assigns a broker to manage TSP accounts. Brokers are not held to the same standards as fiduciaries in that a broker has no vested interest in your funds; rather a broker's only job is to invest money in suitable securities.
When: If you are a federal employee who joined your agency after 2010, you're automatically enrolled in TSP with 3 percent of your base pay sent to your TSP; your agency matches this contribution automatically. If you joined your agency before 2010, an automatic 1 percent of your base pay is sent to TSP; your agency matches your additional contributions above the 1 percent. Military members must set up their own contributions and there is no matching contribution from the military.
Where: Military members can set up contributions to TSP through MyPay. Which type of funds you decide to invest in will determine when you can access the funds from that investment. There are L Funds, which are "lifestyle funds" that you can withdraw from at a predetermined time. Then there are G, F, S, C, and I funds, which rely on you to make your own investment decisions with a broker, according to the government's TSP summary.
Why: A thrift savings plan gives you the ability to participate in a long-term retirement savings and investment plan. Additionally, you can choose between a regular TSP and a Roth TSP. Traditional TSP is tax free as you contribute, but you'll pay taxes when you withdraw the funds. A Roth TSP allows you to pay taxes upon investment, and withdraw at a later date tax free. The upside to utilizing the government's TSP is that you won't pay fees to invest, and you'll have a broker to manage the funds.