Making the Most of Your Thrift Savings Plan Account

For most federal employees, the Thrift Savings Plan is one-third of their retirement picture. The Thrift Savings Plan, a small annuity and Social Security make up the components of the Federal Employees Retirement System.

The Thrift Savings Plan is the only one of the three elements that federal employees have significant control over. Federal employees under the Civil Service Retirement System and military personnel may also participate, but they do not receive the same advantages within the plan that FERS employees do.

Making the most of your Thrift Savings Account requires a few relatively simple strategies.

1
Make sure the Thrift Savings Plan is where you should put your money.

Middle aged couple counting coins
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Depending on your income, assets and situation in life the Thrift Savings Plan may not be the appropriate vehicle to save for retirement. Because the federal government matches employee contributions up to a limit, many federal employees choose to use the Thrift Savings Plan as the primary way they sock away money each month for retirement.

The plan has limited investment options, so some investors might want to put their money elsewhere. The plan does not allow participants to invest in individual stocks or other publicly traded investments. Participants’ choices are limited to a handful of sector funds and lifecycle funds.

2
Contribute as much as possible.

Once you decide the Thrift Savings Plan is your primary method for putting money away for retirement, contribute as much as you can afford. If you do not contribute enough to reach the limit to which the federal government matches your contributions, you are throwing money away.

The total amount you can contribute within a year is limited by the Internal Revenue Service. Many years, the amount is increased slightly above the amount set for the previous year. There are also age-based provisions that allow for a higher cap. Consult the Office of Personnel Management to see which limits apply to you.

3
Consider the Roth option.

The Roth option was put into place on May 7, 2012, and it allows Thrift Savings Plan participants to contribute money to their accounts after payroll taxes have been paid. Traditional contributions are made before taxes. Individuals may contribute under both the Roth and traditional options.

Individuals should examine their own tax situations to determine whether the Roth option makes sense for them. If you expect your tax rate to be higher now than in retirement, choose traditional contributions. If you expect your tax rate to be higher in retirement than it is now, choose the Roth option. A qualified tax professional can help you make this determination and tell you if there are other factors you should consider.

4
Do not withdraw early.

Participants are allowed to withdraw money under certain circumstances. Loans are also permissible; however, participants should exhaust all other options before taking out a Thrift Savings Plan loan. Borrowing from your Thrift Savings Plan account is essentially borrowing from your future because you forego the interest earned on the money borrowed.

5
Invest according to your situation.

Retirement planning should be tailored to each individual saving for retirement. Your investment strategy does not need to be the same as the person three cubicles down the hallway. Make sure that your retirement plans fit you, and if your financial situation changes, adjust your retirement plans as necessary.

6
Monitor your investments.

Thrift Savings Plan participants receive quarterly and annual statements. For most people in most circumstances, these statements should provide plenty of information to stay on top of your investments. Long-term investments generally do not need more frequent monitoring.

Expert’s Note: The content of this article is for informational purposes only. This article is not intended to give tax or investment advice. Consult a qualified professional for tax or investment advice.

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