The Thrift Savings Plan (TSP) recently announced it will begin automatic contributions for new employees. Federal employees who are part of the Federal Employees’ Retirement System (FERS) and were hired after July 31, 2010 will be automatically enrolled in the TSP with an automatic contribution of 3% of their basic pay, which will be automatically deducted from the employee’s pay each period and deposited into the Thrift Savings Plan. This is in addition to the Agency Automatic Contributions of 1% of total base pay and will make employees eligible for Agency Matching Contributions.
Employees have the option of opting out of automatic plan participation by simply opting out when they are hired. In addition, TSP members can start, stop, or change contributions at any time by using their agency’s or service’s electronic system, or by filling out form TSP-1 (civilian TSP) or TSP-U-1 (uniformed services).
Civilian employees under FERS also have the opportunity to earn make additional Thrift Savings Plan contributions from their base pay to receive Agency Matching Contributions. Civilian TSP members who contribute at least at least 5% of their basic pay to their TSP account can receive the full amount of agency matching contributions.
Benefits of automatic Thrift Savings Plan contributions
Many employers in both the public and private sector have discovered many people believe that retirement plans are a great idea, but the employees often don’t take the time to sign up for the benefits. Companies that offer an automatic enrollment have seen a surge in plan participation, as most people opt to leave the contributions in place. In most cases, this is a great idea because automatic contributions make it easy to start saving money.
If you have the opportunity to start investing in a the TSP or a similar plan such as the 401k, then go for it. You would be surprised at how easily you can adapt to the slightly lower paychecks. Since the contributions are made before taxes, your paycheck actually decreases by a lower amount than you are contributing. For example, if you are contributing $100 per month, you might only see a difference of $65 in your paycheck because federal and state taxes haven’t been withheld from your contributions. Your TSP contributions will then grow without the drag of taxes holding them back until you make withdrawals in retirement age. Overall, this is a simple way to save money for retirement.
Other Thrift Savings Plan changes
The Thrift Savings Plan recently announced plans to add the TSP Roth 401k option, which is similar to a Roth 401k plan commonly found in many public sector jobs. The benefits are similar to a Roth IRA when it comes to how the contributions and withdrawals are taxed (contributions have already been taxed, and withdrawals are made tax free). The difference however, is that Roth IRA eligibility is based on income, and Roth IRA contribution limits are lower for IRAs that the 401k or TSP plans. The Thrift Savings Plan Roth 401k option will be a great investment opportunity for both civilian and military members alike.