Retirement through a Thrift Savings Plan (TSP). It’s something that most of us don’t think we need to worry about until we get older. Retirement is also something that most of us don’t think we can worry about right now. After all, we have student loans, expensive healthcare costs, rising housing prices, kid’s college, aging parents, and a host of other financial worries that usually push the idea of retirement to the back of our mind. Additionally, retirement can be overwhelming. Most people have no idea what to invest in, how the investing process works, what tax implications our decisions may have, and most of all; how much money do you need to retire. 

While all of these questions will be answered in future articles, this article will start on the ground floor with the question: What are the different types of retirement plans? There are several different types of retirement plans and in this article, we will be addressing #13: Thrift Savings Plans (TSP). These articles will give you an idea of what to look for when deciding on how to save for retirement and what type(s) of retirement accounts to save in.

Types of Retirement Plans

1. Traditional IRA
2. Roth IRA
3. 401(k)
4. 403(b)
5. SIMPLE IRA
6. Simplified Employee Pension (SEP)
7. Salary Reduction Simplified Employee Pension Plan (SARSEP)
8. Payroll Deduction IRA
9. Profit-Sharing Plan
10. Defined Benefit Plan
11. Money Purchase Plan
12. Employee Stock Ownership Plan (ESOP)
13. Thrift Savings Plan (this article)
14. 457 Plan

IMPORTANT: READ THIS BEFORE CONTINUING

Before we get into the types of retirement accounts, it is important to make one key distinction. A retirement account, itself, is not an investment. If you say something to the extent of, “My 401(k) hasn’t done very well this past year and I’m thinking of picking a different one” you would be making an incorrect statement.

Think of it like this: There are 14 different types of retirement accounts (we will discuss the other 13 in different articles). Each one of those retirement accounts should be thought of as a cooking pot. If you cook something in that pot and you don’t like what it tastes like, you don’t dump the contents into another pot and hope that it tastes better. You change the ingredients of that pot to something else. Now think of the ingredients as different investment products (stocks, bonds, cash, mutual funds, and/or a host of other products/ingredients).To get the taste you want, you change the ingredients, not the pot. You may be wondering, what ingredients do I put into my pot? That is a fair question, but you cannot answer that question until you figure out what pot is best for you. Now buckle up and find out what the 14 different types of retirement accounts (pots) you have at your disposal.

Credit: Nicholas Gras: https://unsplash.com/@armgd

(13) Thrift Savings Plan (TSP)

A TSP is almost the exact same as a 401k. The main difference is that a TSP is the retirement vehicle that United States federal government workers use. Think of a TSP as the government’s version of a 401k.

Nearly all of the rules and regulations for a TSP are the same as a 401k (which we will go over in a few minutes). 

One of the biggest differences between a TSP and a 401k is that there are thousands of different investing options for 401ks and only 6 different funds to choose for in a TSP. (Although there are thousands of different funds to invest in a 401k, you will only have a handful available to you at your job.)

Before we go over the different rules and regulations involving a TSP, let’s go over the six different TSP funds available to government workers. Think of these as the different TSP ingredients. The TSP itself is the cooking pot. You can invest in any one or combination of these six funds that you choose.

1. Lifecycle Funds: Lifecycle funds are named something like L 2040, L 2045, L 2050, etc. The “L” stands for lifecycle and the number is roughly the year you would expect to retire. What these funds do is they invest rather aggressively the further you are from retirement and as the years tick by, the funds become more conservative. For example, an L 2060 fund will be pretty aggressive while an L 2030 will be relatively conservative. 

The idea behind this is that the further you are away from retirement the better you are to take risks in your investments to see a bigger gain. And likewise, when you are closer to retirement you may not want to take as big of risks because you don’t have long for the market to recover before you retire.

2. G Fund: “G” funds stand for Government Securities Investment Funds. The G Fund is made up of governmental securities. These are investments that you don’t really need to worry about ever going down in value. But the trade-off for these funds is that they will grow very little. They likely will not be able to even keep up with inflation.

3. F Fund: The “F” stands for Fixed Income Index. The F Fund is made up of some government securities and some fixed income securities. This is a fancy way of saying that this fund is really safe as well. It’s not quite as safe as the G Fund, but compared to other funds it is still really safe. A lot of pensions are invested into funds that look a lot like the F Fund.

Remember, since the F Fund is still really safe, it will not have a very high return. It will most likely keep up with inflation and then a little more, but not a whole lot higher than that usually.

4. C Fund: The “C” stands for Common Stock Index. The C Fund is generally considered the benchmark for the TSP. It is a lot like an S&P 500 Index Fund. What this means is that the C Fund will mirror what the overall stock market does. It won’t be a lot higher or a lot lower than the overall stock market. It invests in companies like Google, Netflix, Tesla, Walmart, Home Depot, etc. Most of the companies that you have heard of are in this fund.

The C Fund has a medium amount of risk but also generally has a medium amount of gain. The C Fund is also the most popular and widely used fund of all the TSP investments.

5. S Fund: The “S” stands for Small Cap Stock Index. The S Fund is the riskiest of all of the TSP investment options. The S Fund invests in small and medium sized businesses primarily. Some of them you have probably heard of like Uber and DocuSign. But a lot of the businesses you have probably never heard of before. These are businesses that are largely in the tech industry and have an awesome potential for really big growth. But what comes with that is the potential for the companies to fail as well.

The S Fund has a good potential for really big gains but also a big potential for really big losses. But because the S Fund is invested in a whole bunch of different companies, you need not worry if you see on the news that one particular company went out of business. The S Fund (and the other funds for that matter) are invested in hundreds of different companies.

6. I Fund: The “I” stands for International Stock Index. When you think of the I Fund compared to all of the others think of the funds like you would sweet and salty. All of the other funds are various flavors of sweet, but the I Fund is the salty fund.

The I Fund invests in companies outside of the United States. This gives the investor another level of diversity (meaning you are spreading out your risk). That means that if the economy in the US goes to crap, you are still invested in other companies that are located outside of the US. Likewise, in the I Fund, you can take advantage of emerging markets like China, India, Mexico, etc. 

The I fund is generally a little on the risky side but not much. Returns for the I fund are generally somewhere between the F Fund and the C Fund.

If you had to rank each of these funds on a scale of 1-10 for the amount of returns and the amount or risk it would look something like this:

(1=Low Return, 10=High Return, 1=Low Risk, 10=High Risk)

	Risk Level	Return Level
L Fund	Depends on Fund	Depends on Fund
G Fund	1	1
F Fund	3	3
C Fund	6	6
S Fund	8	8
I Fund	4	4

These are obviously estimates and can change all of the time. But in my experience of my own TSP as well as from clients that I have worked with, this seems to be pretty accurate.

Now that we have gone over all of the different investment options, here are some things that you should probably be familiar with regarding a TSP. You don’t have to memorize these or anything, just know that these rules and regulations exist.

1. Investments: Within a TSP you can have many different investments such as:

1. Stocks
2. Bonds
3. Mutual funds
4. Unit investment trusts
5. Government securities (Treasury bills, treasury notes, and treasury bonds)
6. US government-issued gold and silver coins. 

If you don’t know what all of these different terms mean, that is perfectly fine. Just know that you can have nearly all investment within an IRA.

But, there are a few items that cannot be in an TSP. TSPs cannot have:

1. Antiques
2. Gems
3. Rare coins
4. Works of art
5. Life insurance contracts: This is because life insurance contracts are not securities (investments).
6. Municipal bonds: This is because putting a municipal bond in an IRA would negate the tax free status of the municipal bond.

Antiques, gems, rare coins, and works of art cannot be included in TSPs because these items do not have a solid market value. Meaning: I might be willing to pay $50,000 for a painting, but you may be willing to only pay $3,000 for the same painting. It is too difficult to find an agreeable market value.

2. Contribution Limits (as of 2021): You can contribute up to $19,500 to a TSP if you are 49 years old or younger. If you are 50 years old or older, you can contribute an additional $6,500 for a grand total of $26,000. This is known as the “catch-up” contribution. It is meant to help people who are a little bit older put more money in their retirement account because they have less time before retirement. The catch-up contribution can start to be made the year that you turn 50. So if your birthday is in September, you can contribute the full $26,000 starting in January of that year even though you are only 49.

Age	Maximum Contribution
Less than 50	$19,500
50 (the year you turn 50)	$26,000
Older than 50	$26,000

3. Income Limitation: There is no income limitation for those investing into a TSP as of 2021. This means that you can make $1,000 per year or $100,000,000 per year and still invest in a TSP if you are a government employee and have one available to you.

4. TSP Early Withdrawal: If you are younger than 59 ½ you may be able to withdraw from your TSP. This can be done in the form of a loan that you will pay back over a specified period of time (plus interest) or a permanent withdrawal from the TSP. Please do not do this if you can avoid it AT ALL. You will be hammered with taxes and a 10% penalty. Plus, you will unplug any earnings that you would have otherwise made in the TSP.

5. Roth Option TSP: You may also have access to a Roth TSP. A Roth TSP is the same as a regular TSP with the exception that you will pay the taxes on the money when you put it into the account rather than when you take it out. (This is a really good option). It’s like paying taxes on the seed and not the harvest. To better understand how a Roth TSP works, check out the article about a Roth IRA.

Final Thoughts

If you work for a governmental organization, please invest in your TSP. It is a really good retirement program. My suggestion would be to invest in the Roth first and then if you max out the Roth TSP, move over to the regular TSP and start working on that.

I hope that you are investing in your future because guess what, no one else will. You have to build the life you want. And if you want to retire, you will have to make that happen.

You know what the best part of that is? You can do it! I will do my best to help you!

Until next time!