Maximizing Your Contributions to the Thrift Savings Plan

Written by: Mike Valles

If you work for the government, whether as a civilian or member of the military, you can take advantage of the Thrift Savings Plan (TSP) to enhance your retirement savings. The key to making it work well for you, though, is to maximize your contributions to the Plan while you are able.

The Thrift Savings Plan is available in three slightly different forms (FERS, CSRS, and Uniformed Services) to government employees. It is important that you know which form applies to you before you can maximize your contributions to get the most benefit from the plan.

For each of the three groups, money is only put into the TSP after you sign up for it and designate how much you want to contribute each paycheck. You will also need to choose between Traditional and Roth contributions. Traditional contributions means that your contribution is not taxed, allowing you to get a larger paycheck. A Roth contribution is the opposite, and you are taxed on the money before you contribute, resulting in a smaller paycheck. If desired, it is possible to have both.

The Key to Maximizing Benefits

The important thing to understand about getting the most from your TSP is the power of compounding interest. Compounding interest can multiply your deposited money many times – if given enough years. Making ongoing deposits, coupled with matching contributions from your agency (not available to the military), can give you a sizeable sum over the years equaling hundreds of thousands of dollars, but starting early is absolutely essential.

Designate Funds

Funds put into the TSP are automatically invested into the G Fund, which is considered the safest form. Because it is the safest, it also yields the lowest interest. If you want to earn higher interest rates, it will be necessary to direct your allocations to be invested elsewhere. The TSP website enables you to compare the various Fund options, along with other important information.

An alternative to you choosing which fund to go with is to choose the “L” or Lifecycle Fund. This one is a professionally chosen balance of stocks, bonds, and Government securities, and it will vary based on when you want to start withdrawing the funds for retirement.

Special Options for Uniformed Members

Uniformed members have a special option. They can contribute any amount from special pay, incentive pay, or bonus pay, and it is not counted as part of your maximum contribution limits. Combat pay, and other tax-exempt pay is tax exempt and so are the earnings – if you have a Roth account. Otherwise, the money will be taxed at withdrawal.

Choose Between Traditional and Roth Accounts

The government’s TSP program recommends that you carefully consider between Traditional and Roth accounts. Several factors are given as guidelines. Among them are whether you think your income is apt to increase in the future, and your age. A Roth account would probably be the better option if you are young and expect to make more money later. If you are older, a Traditional account would most likely be better because your taxes will be lower when you make withdrawals.

In order to get the most from the Thrift Savings Plan, it is essential to be familiar with it and stay on top of what is happening to your account. Changes in life will affect its performance, and may even stop new payments from being added to it.


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