How to Manage Your Thrift Savings Plan Account

Managing your Thrift Savings Plan account seem like a simple task – after all, there are only a handful of funds within the TSP. So it should be fairly easy to set up your account, allocate your investments, and make sure things stay in balance with the rest of your investment portfolio, right?

How to manage your Thrift Savings Plan

TSP Management Tips

On the surface, this is true. But things can get more complicated when you add other investments to the mix. Let’s say, for example, you have a Traditional or Roth IRA. How would that affect your investment portfolio? What if you have left the government or military service and now have a civilian 401k plan or other retirement plan? What about taxable investments such as mutual funds, stocks, bonds, or other investments?

Now things are getting a little more complicated. But they don’t have to be. Let’s take a look at how to manage your Thrift Savings Plan account – starting from making contributions, to making sure you have your funds in the right place, to ensuring your TSP fits with the rest of your investments. We will also look at types of accounts, risk management, and software you can use to make the job easier.

1. Review Your Contributions

The Thrift Savings Plan allows participants to contribute up to $17,000 per year, or up to $22,500 for those age 50 and over. It’s a good idea to review your contributions each year to make sure you are on track for your retirement. You don’t necessarily have to contribute the maximum each year to make a big difference in your retirement planning. Here are a few tips to get the most bang for your buck:

Are you contributing enough to get the match? Civil servants and other non-military TSP participants get an automatic agency match on their contributions. Even if you don’t defer any of your compensation, you will earn 1% of your salary as an agency contribution. You can get a 1% match for the next 3% of your salary that you contribute, and you will receive a 0.5% match for each of the next 2% of your salary that you contribute – up to a total of 5% match. That means you can receive a total contribution of 10% of your salary f you are willing to contribute 5% on your own. That is free money! See the chart below for more details on how the TSP agency match works:





TSP aautomatic contribution chart

TSP Agency Match: You can receive a 10% contribution by only contributing 5% of your salary.

Are you contributing special pay and bonuses? Military members aren’t eligible for agency matching, but they are able to make additional contributions throughout the year if they receive special pay and bonuses. Military members can elect to contribute from 10 – 100% of their special pay and bonuses, including reenlistment bonuses hazard duty pay, and career incentive pay. Even adding half of your special pay and bonuses will make a large difference in the long run.

2. Roth or Traditional TSP?

The Roth TSP is a new option for Thrift Savings Plan participants. The Roth TSP gives participants another option for retirement. Here is a quick overview of the options: The Roth TSP allows participants to make contributions with funds that have already been taxed, the contributions grow until retirement age, and then can be withdrawn tax-free during retirement. The Traditional TSP works the opposite way: contributions are made on a tax-exempt basis and are taxed when withdrawn during retirement.

There is no one-size-fits-all approach to choosing between the Roth TSP and the regular TSP – each situation is unique. I recommend spending some time to look at your total investment portfolio, whether or not you already have a Traditional or Roth IRA, whether or not you will have a military retirement, and other factors before you make a decision.

3. Diversify Your Portfolio, Not Each Investment Account

Tips to manageThrift Savings Plan Account

Learn how to diversify your investment portfolio

Asset allocation is making sure your investment portfolio contains a balanced approach. That means an assortment of stocks, bonds, and other investments. The key to asset allocation is remembering that it applies to all your investments, not just individual accounts. In other words, once you create the best asset allocation for your needs, you apply it across everything you own. This means you don’t need to create perfectly balanced asset allocation in your Thrift Savings Plan, another in your IRA, another in your 401k, etc. All your investments work together. It may be better to put all of your TSP holdings into one or two funds if it makes it easier to balance your entire portfolio.

4. Be Careful with Target Date Funds

Target Date Funds are a one-size-fits-all investment plan. The fund is a balanced blend of stocks, bonds, and other investments that is automatically balanced for your retirement date. These funds are great – if you only have one investment account and all your investments are in that fund. If you have more than one investment account, however, you need to be careful when using target date funds. My recommendation is to only use these funds if all your investments are in similar funds, otherwise, it can easily throw off your asset allocation.

5. Roll it in, or roll it out.

The TSP is a great place to invest – there are a variety of low cost funds that cover most of the important segments of the market. But of you have left government service, you may no longer be able to contribute to your TSP. It may be a good idea to roll your TSP account into another retirement plan if you have a variety of other investment accounts, such as IRAs, 401ks, or other employer-sponsored retirement plans. On the flip side, you might also be able to roll other retirement plans into your TSP. The idea here is to make your life easier by reducing the number of accounts you need to manage, and reduce the amount of time and energy it takes to diversify and manage your investment portfolio.

6. Manage Risk

Is your asset allocation in line with your risk tolerance? To figure this out, you need to look at all the investments in your entire portfolio, including your TSP, and other investments. Decide upon your investing timeline (retirement date), goals, and how much risk you are willing to take. Then you need to make sure your investments are in line with your risk tolerance. Target date funds are often already balanced in this manner, but it is difficult to maintain an entire portfolio if you have investments in several accounts. Often, the best way to make sure your investment portfolio has an appropriate amount if risk is to use software, such as the tool mentioned next.




7. Use Investment Tools to Help You Manage All Your Investments

Technology is amazing, and there are quite a few investment tools out there to help you manage your investment portfolio by understanding exactly what you have, what your risks are, and more. One of my favorite tools is also a free tool – Personal Capital. Here is an overview of how it works, and how you can use it to manage your TSP, along with all your other investments.

Click to crash test your portfolio.Personal Capital Overview: Personal Capital is a free tool to help you manage your investments. It works like this: You open an account, link your investment accounts to it, and the tool analyzes your holdings based on the risk tolerance you give it. Based on your investments, this tool will help you balance your investment portfolio to ensure you are always at or near your desired asset allocation.

  • How does it work? Personal Capital analyzes your investments to make sure they meet your desired allocation. They can also help you visualize how much you are spending in management fees, and whether or not you can find similar investments elsewhere.
  • Is it safe? Personal Capital uses bank level security, so yes, it is safe. I also use it personally and recommend it to family and friends.
  • How do they make money if it is a free tool. You have the option of hiring one of their investment planners if you wish, or you can use this tool on your own. The investment planners have a fiduciary duty to you, which means they must make the best investment recommendation for your situation, not the investment recommendation that makes them a commission. You do not have to use one of their investment advisors, and you will not be bothered by them if you don’t wish to contact them.
  • How can I open a free account? Visit the Personal Capital website.

Overall, I think Personal Capital is a great tool that can help you visualize how your TSP account integrates with the rest of your investments. This will help you maximize all your investments and manage them all in one location.

Photo credits: TSP, s_falkow, Personal Capital.

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Date published: October 15, 2012.

Article by

Ryan Guina is the founder and editor of this site. He is a writer, small business owner, and entrepreneur. He served over 6 years in the USAF and also writes about money management, small business, and career topics at Cash Money Life. You can also see his profile on Google

Comments

  1. In 20 years when we have to start taking RMDs from our conventional IRAs and our TSP accounts, our income tax bracket will jump up to 25%. So in the next few years we’ll finish converting our conventional IRAs to Roths, doing a little each year to fill the 15% tax bracket. Then it’ll be time for us to roll our TSP accounts over to conventional IRAs and start that Roth conversion process. I’m going to miss the TSP’s 0.025% expense ratios.

    I’m hoping that somewhere in the next few years the TSP governors will figure out a way to allow military TSP accounts to convert to Roth TSP accounts. But that tracking & compliance hassle would probably come at the cost of higher expense ratios.

  2. Crewchief1 says:

    On another note, can anyone verify about dividends being reinvested in the TSP? On the TSP website, it notes that dividends are calculated and added into the share price. It says nothing about additional shares being purchased from the dividend income, nor on the quarterly statements. So from what I can find and have read, I’m basically earning “simple” interest, not “compounding interest.” Can anyone verify? Thanks!

  3. Please provide some detail as to how well Personal Capital can track TSP funds given that the funds have no CUSIP or symbols. Are you manually inputing alternatives, such as VINIX for the C Fund, and so forth? If so, what alternative fund are you using in place of the G Fund?

    • Henri, the way it works is you create a free Personal Capital account, then enter your TSP login credentials to the Personal Capital system (Personal Capital uses bank level security and the CEO of Personal Capital is the founder of an internet security company, so I feel safe doing this). Personal Capital then automatically updates your account balances across all of your connected accounts (you can link bank accounts, the TSP, 401k accounts, brokerages, IRAs, and more).

      When you link your TSP account, you will be able to see an overview of the total value of the account, as well as each individual fund. The information includes the fund name, number of shares owned, price per share, total value, and change in value over a time period. I haven’t found any other programs that link to the TSP (Quicken is the most popular desktop financial software and they don’t link to the TSP). Overall, Personal Capital is a great tool, and it’s even better as it is free to use.

  4. Personally I do:

    C Fund: 40%
    S Fund: 40%
    I Fund: 20%

    I don’t have anything in the bond funds or the target funds. I really like your point #3. People get caught up in diversifying each different account even if it doesn’t make sense and it usually doesn’t. That’s part of the reason you have different investment accounts.

    This is a good article on the TSP plan. The military and even the website doesn’t really provide a whole lot of information. Thanks for the article!

    • Kalen, that is an easy to remember asset allocation, and should be fine while you are starting your investments. It would be a good idea to rebalance your portfolio at least once a year to account for market changes (or more frequently if there are any major market disruptions). You may also consider investing in a Roth IRA if you can work it into your budget. That will give you more long-term investment options than are afforded by the TSP.

      Also, I know many career military members who invest much lighter in bonds than is normally recommended for their age (I know some military members who don’t invest in any bonds). This is because they are treating their military pension as an income-producing bond as far as investments are concerned. This allows them to invest more aggressively in the stock markets (higher potential for gains and losses, but they have the stabilizing factor of having a pension waiting on them). This certainly isn’t a good idea for everyone, but it can work for some. I wouldn’t recommend it for most people until they have decided they will make the military a career.

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