Thrift Savings Plan

Q – How much can I put into the TSP?

A – Since the money you are contributing is tax deferred, the amount is controlled by the IRS elective deferral amount. For 2011, federal employees can have withheld from their pay $16,500.

Q – What is the Catch-up provision?

A – The Catch-up is an opportunity for any employee age 50 and beyond who is also contributing the maximum for the year to put an additional $5,500 into the TSP on a tax deferred basis in 2011. You must reelect to participate in the Catch-up each year.

Q – What form(s) do I us to make the contributions?

A – You use the TSP-1 form, electronic version, for the regular contribution and the TSP-1C, electronic version for the Catch-up contribution.

Q – Can I send the Thrift Plan a check?

A – No, you cannot send a check to the Thrift Plan. Only pretax money goes into the TSP, therefore, it must be withheld from payroll.

Q – Why can’t I just setup my contribution for both the regular contribution and the Catch-up contributions and divide 26 pays into it?

A – The TSP-1, which controls the regular contributions, is setup so that when you have had the IRS,elective deferral amount withheld from your pay, the withholding ends. Therefore, the most you could contribute this year is $16,500. Further, the Catch-up contribution doesn’t get any agency match. If you are in FERS, you want to contribute (at least 5%) each pay period to get the maximum agency match.

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Q – Do I have to wait until certain times to change my contribution amounts?

A – No, there are no longer open seasons. You can change your contributions at any time.

Q – What investment options do I have?

A – The Thrift Savings Plan offers you 6 investment funds:

G Fund — Government Securities Fund
F Fund — Fixed Income Index Fund
C Fund — Common Stock Index Fund
S Fund — Small Cap Index Fund
I Fund — International Stock Index Fund
L Funds — Lifecycle Funds

Government Securities Investment (G) Fund—The G Fund is invested in nonmarketable U.S. Treasury securities specially issued to the TSP guaranteed by the full faith and credit of the U.S. Government. There is no possibility of loss of principal (i.e., the face amount of the security) from default by the U.S. Government and, thus, no credit risk. The current Board policy of investing only in short-term securities also eliminates the risk of loss from fluctuations in the value of securities as a result of changes in overall market rates of interest (market risk). These policies result in a long-term rate being earned on short-term securities. Long-term rates are usually higher than short-term rates; therefore, the G Fund routinely returns a greater rate than short-term marketable securities. G Fund earnings consist entirely of interest income on the securities. G Fund interest is reinvested by the Board as it is received from the U.S. Treasury each business day.

Fixed Income Index Investment (F) Fund—The F Fund’s investment objective is to match the performance of the Barclays Capital U.S. Aggregate Bond Index, a broad index representing the U.S. bond market. The F Fund invests in a bond index fund that tracks the Barclays Capital U.S. Aggregate Bond Index. This broad index includes U.S. Government, mortgage-backed, corporate, and foreign government (issued in the U.S.) sectors of the U.S. bond market. The earnings consist of interest income on the securities and gains (or losses) in the value of the securities. The F Fund uses an indexing approach to investing. In other words, it is a passively managed fund that remains invested according to its investment strategy regardless of conditions in the bond market or the economy.

Because the F Fund returns move up and down with the returns in the bond market, your F Fund investment is subject to market risk. For example, when interest rates rise, bond prices (and thus, the returns of the index and the F Fund) fall. Conversely, in an environment of falling interest rates, bond prices, as well as the index and F Fund returns, rise. As an F Fund investor, you are also exposed to credit (default) risk, or the possibility that principal and interest payments on the bonds that comprise the index will not be paid. The F Fund is subject to inflation risk, meaning your F Fund investment may not grow enough to offset the reduction in purchasing power that results from inflation. Your F Fund investment is also exposed to prepayment risk, which is the probability that if interest rates fall, bonds that are represented in the index will be paid back early thus forcing lenders to reinvest at lower rates.

Although there are several types of risks associated with the F Fund, the overall risk is relatively low in comparison to certain other fixed income investments in the market because the F Fund includes only investment-grade securities. As a result, F Fund investors are rewarded with the opportunity to earn higher rates of return over the long term than they would from investments in short-term securities such as the G Fund.

Common Stock Index Investment (C) Fund— The C Fund’s investment objective is to match the performance of the Standard and Poor’s 500 (S&P 500) Index, a broad market index made up of stocks of 500 large to medium-sized U.S. companies. The C Fund invests in a stock index fund that fully replicates the Standard and Poor’s 500 (S&P 500) Index. The earnings consist primarily of dividend income and gains (or losses) in the price of stocks. The C Fund is a passively managed fund that remains invested according to its indexed investment strategy regardless of stock market movements or general economic conditions. Your investment in the C Fund is subject to market risk because the prices of the stocks in the S&P 500 Index rise and fall. By investing in the C Fund, you are also exposed to inflation risk, meaning your C Fund investment may not grow enough to offset inflation. While investment in the C Fund carries risk, it also offers the opportunity to experience gains from equity ownership of large and mid-sized U.S. company stocks.

The S&P 500 Index consists of 500 large to medium-sized U.S. companies. This index provides a representative measure of U.S. stock market performance. The companies in the index represent 119 separate industries classified into 10 major groups as of December 31, 2010: Financials 15.4%; Information Technology 19%; Health Care 13.4%; Consumer Discretionary 9%; Industrials 9.9%; Consumer Staples 11.7%; Energy 11.2%; Telecom Services 3.1%; Utilities 3.8%; Materials 3.4%. As of December 31, 2010, the largest 100 companies in the S&P 500 represented approximately 69% of the indexes market value. The S&P 500 Index includes 412 securities traded on the New York Stock Exchange and 88 securities that are traded on the NASDAQ. The C Fund is invested in Black Rocks Equity Index Fund which holds all the stocks, included in the S&P 500 Index in virtually the same weights as they are in the index.

Small Capitalization Stock Index Investment (S) Fund— The S Fund’s investment objective is to match the performance of the Dow Jones U.S. Completion Total Stock Market Index, a broad market index made up of stocks of U.S. companies not included in the S&P 500 index. The S Fund invests in a stock index fund that tracks the Dow Jones U.S. Completion Total Stock Market Index. The earnings consist of dividend income and gains (or losses) in the price of stocks. The S Fund uses an indexing approach to investing. In other words, it is a passively managed fund that remains invested according to its investment strategy regardless of conditions in the bond market or the economy. Your investment in the S Fund is subject to market risk because the Dow Jones U.S. Completion Total Stock Market Index returns will move up and down in response to overall economic conditions. By investing in the S Fund, you are also exposed to inflation risk, meaning your S Fund investment may not grow enough to offset the reduction in purchasing power that results from inflation. While investments in the S Fund carries risk, it also offers the opportunity to experience gains from equity ownership of small to mid-sized U.S. companies. It provides an excellent means of further diversifying your domestic equity holdings.　

This index is designed to be the broadest measure of the non-S&P 500 domestic stock markets. Within the index there are 138 Real Estate Investment Trusts (REITs). The Dow Jones U.S. Completion TSM Index makes up 24% of the market value of the U.S. stock market value (500 value). The Dow Jones U.S. Completion TSM Index is invested as of December 31, 2010, as follows: Financials 24.2%; Consumer Discretionary 13.7%; Information Technology 15%; Health Care 11.5%; Industrials 13.4%; Energy 6.8%; Materials 5.9%; Utilities 4.3%; Consumer Staples 3.4%; Telecom Services 1.8%. Note that the “Dow Jones U.S. Completion TSM Index” is so named because with the S and the C Funds your investments will cover the total value of the U.S. Stock market.

The primary source of earnings is the changes in the prices of the stocks, although dividend income is also a source of earnings. The Dow Jones U.S. Completion TSM Index tends to fluctuate more than the S&P 500 Index because the stock prices of the smaller companies in the index tend to react more strongly (positively and negatively) to changes in the economy. Therefore, an S Fund investment can be more volatile and potentially riskier than a C Fund investment. Although the Dow Jones U.S. Completion TSM Index is even more broadly diversified than the S&P 500 Index, losses will occur in the S Fund if the Dow Jones U.S. Completion TSM Index declines in response to changes in overall economic conditions.

International Stock Index Investment (I) Fund — The Federal Retirement Thrift Investment Board has chosen as the benchmark for the I Fund the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index which tracks the overall performance of the major companies and industries in the European, Australian and Asian stock markets. The EAFE Index consists of the stocks of companies in 21 countries. The companies in the EAFE Index are large companies similar to the S&P 500. Therefore, you have the volatility of the stock market plus the changes in the value of the U.S. dollar relative to currencies of the countries represented in the index. Dividend income is also a source of earnings. The EAFE Index is broadly diversified among countries and industries, so the effect of poor performance in one stock market or group of companies is reduced. Losses will occur in the I Fund if the EAFE Index declines in response to changes in overall economic conditions or to increases in the value of the U.S. dollar. EAFE Index returns tend to fluctuate more than S&P 500 Index or Dow Jones U.S. Completion Index returns, and therefore I Fund investments can be more volatile and potentially riskier than C or S Fund investments.

Q – What are the “L” Funds?

A – There are 5 time horizon funds, the shorter the time horizon the more conservative the investment mix, the longer the time horizon, the more aggressive the investment mix.

L Income is for participants who are close to withdrawing some of their funds. It is designed to achieve a low level of growth with a high emphasis on preservation of assets.

Lifecycle Funds are asset allocation portfolios with investment mixes tailored to some participants target time horizon. The target horizon is generally when the participant intends to withdraw the funds. As the withdrawal date approaches, the fund’s investment mix automatically becomes more conservative (i.e., less risky). Participants who select Lifecycle funds do not need to reallocate their account assets to achieve this result; the Lifecycle investment models automatically reallocate the account for the participant.

Lifecycle (L) Fund – L Income is for participants who are currently living on their TSP funds. It is designed to achieve a low level of growth with a high emphasis on preservation of assets.

The L funds provide you with a convenient way to diversify your account among the G, F, C, S, and I Funds, using professionally determined investment mixes that are tailored to different time horizons. Your “time horizon” is the date (after you leave Federal service) that you think you will need the money in your TSP account. Because it is important for each L Fund to maintain its target investment mix, the TSP will automatically rebalance each L Fund daily. Then, each quarter, the investments in each L Fund will shift to a slightly more conservative mix. In addition, experts will review the investment mixes periodically to be sure they are still appropriate.

Unlike the other four L Funds, the L Income Fund’s asset allocation does not change quarterly. However, like the other Funds, it is rebalanced daily to maintain its target investment mix.

As of August 2005 when the L Fund became operational the allocation was as follows:

G 74%

F 6%

C 12%

S 3%

I 5%

L 2020 is for participants who will withdraw their money beginning 2015 through 2024. It is designed to achieve a moderate to high level of growth with a low emphasis on preservation of assets. The Fund’s allocation in the G, F, C, S, and I Funds is adjusted quarterly. L 2020 will roll into the L Income Fund automatically in July 2020 when its allocation becomes the same as the allocation of L Income Fund.

As of August 2005 the allocation was:

G 27%

F 8%

C 34%

S 12%

I 19%　　

As of January 2011 the allocation was:

G 35.80%

F 7.45%

C 30.15%

S 9.80%

I 16.80%

L 2030 is for participants who will withdraw their money beginning 2025 through 2034. It is designed to achieve a high level of growth with a low emphasis on preservation of assets. The Fund’s allocation in the G, F, C, S, and I Funds is adjusted quarterly. L 2030 will roll into the L Income Fund automatically in July 2030 when its allocation becomes the same as the allocation of L Income Fund.

As of August 2005 the allocation was:

G 16%

F 9%

C 38%

S 16%

I 21%　

As of January 2011 the allocation was:

G 22.05%

F 8.45%

C 35.80%

S 13.80%

I 19.90%

L 2040 is for participants who will begin to withdraw their money after 2035 through 2044.

It is designed to achieve a high level of growth with a very low emphasis on preservation of assets. The Fund’s allocation in the G, F, C, S, and I Income Funds is adjusted quarterly. L 2040 will roll into the L Income Fund automatically in July 2040 when its allocation becomes the same as the allocation of L Income Fund.

As of August 2005 the allocation was:

G 5%

F 10%

C 42%

S 18%

I 25%

As of January 2011 the allocation was:

G 11.05%

F 9.45%

C 39.80%

S 16.90%

I 22.80%

The L 2050 Fund became available for your election at 12 noon Eastern time on January 28, 2011. The elections became effective on January 31, 2011. The L 2050 Fund focuses more on growth than on preservation of assets. Therefore it has the most aggressive investment mix of all the L Funds, with higher percentages in domestic and foreign stocks (the C, S, and I Funds) and lower percentages in Government securities and bonds (the G and F Funds). Like all the L Funds, as the L 2050 Fund ages, its investment mix will gradually shift to more conservative investments.

As of January 2011 the allocation was:

G 3.50%

F 7.00%

C 43.80%

S 18.90%

I 26.80% 　　

Q – What are the administrative costs for the TSP?

A – The administrative expenses of investing in the TSP funds are extremely low.

G Fund $0.28 per $1,000 account balance; F Fund $0.28 per $1,000 account balance; C Fund $0.28 per $1,000 account balance; S Fund $0.28 per $1,000 account balance; I Fund $0.28 per $1,000 account balance and the L Funds Administrative Expenses are based on the expenses of the G, F, C, S and I Funds in proportion to their allocations in the L Funds.

Q – How often can I move my account balances among the funds?

A – While you are employed or even after retirement you may move the money in the TSP among the investment funds by completing a TSP-50 form, using the Thrift Line ( 1-877-968-3778) or using the Thrift Web Site(www.tsp.gov).

You can only make interfund transfers in terms of the percentage of your total account balance that you want invested in each of the funds after the transfer is completed. Interfund transfers are effective within two business days of the request being received by the TSP. Interfund transfers are limited to two per month. Any other transfers in that month would be only into the “G” Fund. The TSP-50 is also used to allocate investment of future contributions (both employee and agency) as well as loan payments and rollovers from outside tax-deferred accounts among the funds.

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Q – Should I move my money out of the TSP when I retire?

A – You do not have to move your money out of the TSP when you retire. Be careful on what you decide to do. If you withdraw the money it is taxable. Further, if you retire before age 55 and withdraw the TSP balance, you could also pay a 10% early distribution penalty.

If you do a plan-to-plan transfer and the money is moved into an IRA or qualified pension plan there will be no penalty and the taxes won’t be due until you withdraw the money.

Focus on the administrative costs for managing the investments, the risk, and rate of return before you decide to move your money from the TSP.

Additionally, if you retire at age 55 or beyond age 55, you can access your TSP account without any early distribution penalty using any withdrawal method. An IRA can be accessed only through actuarially projected lifetime payments or by converting it to an annuity prior to age 59 ½ , otherwise the 10% early distribution penalty would apply.

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Q – Can I access my money while I am still working?

A – TSP participants who are employed by the Federal Government have two in-service withdrawals:

Age-based in-service withdrawals for participants who are 59½ or older;
Financial hardship in-service withdrawals for participants who document financial hardships.

Age-Based In-Service Withdrawal at age 59½ or later—this is an option that requires no documentation, other than of age. The withdrawn amount will be treated as taxable income; however, there would be no early withdrawal penalty.

With a Financial Hardship Withdrawal you must document the financial hardship and pay taxes, and the early withdrawal penalty if you are under 59½, (there are some exceptions to the penalty) but you do not pay the money back—this is not a loan.

The above options are withdrawals not loans. You cannot return the money to your account, therefore the TSP account is permanently depleted and you lose the future earnings on the amount withdrawn. So long as the account holder is in pay status, a loan should be considered in lieu of an in-service withdrawal.

Q – Isn’t there a loan program?

A – While you are employed by the Federal government you have the option of taking a loan from your TSP account. There are two types of loans: general purpose (5-year repayment) or primary residence (15-year repayment). You may borrow from your own contributions and the interest on them.

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You will be borrowing your money from the TSP not using your money as collateral. You may pay the loan back through payroll deductions, and interest will be charged. The interest rate for the life of the loan is the latest available interest rate on the Government Securities Fund at the time your loan application is received at the TSP Service Office. The interest you pay on the loan will go into your TSP account, along with the repayments of loan principal.

Q – Why do I have to pay the loan back with interest?

A – You pay the loan back with interest to “make your account whole”. While the money was loaned to you, it was not earning interest for you. By paying interest on the loan at the G fund rate you are to some extent, making that lost earnings whole.

Q – Can I take a loan after I am retired?

A – No, you cannot take a loan after retirement. More importantly, if you have an outstanding loan at retirement you will be given 90 days to pay it in full otherwise, it will be reported to IRS as a taxable distribution of tax deferred money.

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Q – What are my withdrawal options?

A – When you separate from Federal employment your agency is required to give you a TSP Withdrawal Package. If you do not receive it go to the TSP web site or contact the TSP service office ( 1-877-968-3778) for the package.

Your agency must also notify the TSP that you have separated and provide the date of your separation. The TSP cannot process your withdrawal request until your agency has provided your separation information. Additionally, the Thrift Board cannot process a withdrawal request if you have an outstanding TSP loan. You must either repay the loan in full or the loan will be declared a taxable distribution of tax-deferred money.

Upon separation from Federal employment you do not have to elect any withdrawal method. In fact you can leave all of your money in the TSP and continue to manage it until April 1 following the year you attain age 70½ or time of retirement if later. At 70½ or retirement if later you will have to take a minimum distribution, the balance of your money can remain in the TSP under your management.

There are three withdrawal concepts:

Lump Sum
Series of Monthly Payments
Life Annuity

You can have the TSP transfer all or part of a single payment, or in some cases a series of monthly payments to an IRA or other eligible retirement plan. You can have your payment or payments electronically deposited into an account at your financial institution. Therefore, the withdrawal options are:

Transfer to IRA or Other Qualified Pension Plan: The retiree/separated employee may elect to transfer the entire account (if IRS minimum distributions aren’t required) to an IRA or other qualified pension plan. The balance will not be subject to taxation until withdrawal. All stipulations of the IRA or pension plan apply upon transfer.
Lump Sum: The retiree/separated employee may elect to receive all monies in the account in one lump-sum payment.
Equal Installments: The retiree/separated employee may elect to receive the account balance in roughly equal payments, based on one of two methods: (1) set amount, or (2) based on actuarially projected lifetime. In the event that the retiree/separated employee dies before receiving all installments, the remaining money is paid to the beneficiary.
Annuity: The annuities are administered by an insurance company, presently Metropolitan Life.

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Q – What are the annuity options?

A – Single Life Annuity—Level Payment: The retiree/separated employee may elect to receive equal monthly payments for life. Benefits end with the death of the retiree/separated employee.

Single Life Annuity—Increasing Payment: The retiree/separated employee may elect to receive monthly payments which increase at a set rate yearly. Monthly checks are initially lower, then increase over time to help keep up with inflation. Benefits end with the death of the retiree/separated employee.

Joint & Survivor Spouse Annuity — Level Payment: The retiree/separated employee may elect to receive equal monthly payments for life plus a monthly benefit payable to the survivor spouse.

Joint & Survivor Spouse Annuity— Increasing Payment: The retiree/separated employee may elect to receive monthly payments which increase at a set rate yearly plus a monthly benefit payable to the survivor spouse.

The joint and survivor spouse annuity provides a survivor annuity of either 100% or 50% to the survivor no matter who dies first.

Joint & Survivor Annuity—Other: The retiree/separated employee may elect to receive equal monthly payments for life plus a monthly benefit payable to an insurable interest individual or to a former spouse.

If you name a joint annuitant ‘other’ who is more than 10 years younger than you, you must choose a joint life annuity of 50%. There is an exception if the ‘other’ is a former spouse to whom all or a portion of your TSP account is payable pursuant to a retirement benefits court order.

There are some additional features which may be added to the annuity:

Cash refund assures that any of your principal remaining at your death will be paid to your beneficiary in a lump-sum;
10-year certain payout assures that you receive annuity payments for as long as you live. However, if you die within 10 years of the start of your annuity, your beneficiary will receive the payments for the remaining portion of the 10-year period.

Q – I am married do I have to provide something to my spouse from my TSP?

A – If you are in CSRS, married and making a full or partial withdrawal, your spouse will be notified regardless of the amount of the withdrawal.

If you are in FERS, married and making a full or partial withdrawal, requirements for a full survivor’s annuity apply. Your spouse can waive their rights to the full survivor’s annuity, but their signature must be notarized. If you are making a partial withdrawal, requirements for spousal consent apply, regardless of the amount you are requesting or the balance of the account.

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Q – Can I take an amount out of TSP after I retire but not take the whole account balance?

A – Yes, after you leave Federal service, you may take a one-time partial withdrawal (if you had not taken an age-based in-service withdrawal).

You may use any combination of withdrawal options to make a post-retirement full withdrawal. Payments will begin as soon as you make the full withdrawal election.

Q – Can I move other money into my TSP?

A – You can transfer any money that is in your name and totally tax deferred into the TSP. You can do the transfer while employed or after retirement so long as you have not started taking distributions. You would use the TSP 60 form to transfer money from an IRA into the TSP.

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Q – Can I move my TSP into a Roth IRA?

A – You can now move your TSP account into a Roth IRA after retirement. However, the TSP will be treated as taxable income before it is invested in the Roth IRA, which then will grow tax free.

Q – Are there penalties if I withdrawal money before I am 59 ½?

A – Yes, IRS Early Distribution Penalties will apply

Q – What is the penalty?

A – The IRS imposes 10% penalty on amounts that are paid out of the TSP if you separate or retire before the year in which you attain age 55, and withdraw the account balance in a single payment or a series of payments. In this case, all payments received before age 59 ½ would be subject to the 10% early withdrawal penalty.

Q – Are there exceptions to the penalty?

A – Yes, the penalty does not apply to a series of monthly payments based on actuarially projected life expectancy, nor is it imposed on annuity payments, payments made because of death, or payments made to disability retirees.

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There is no penalty if the employee retires during, or after, the year of attainment of age 55.

Q – Are there specific requirements or restrictions after I have started receiving the actuarially projected life expectancy payments?

A – Yes, in order to avoid the 10% early distribution penalty, you must continue to receive the actuarially projected life expectancy payments for 5 years or until age 59 ½ whichever is the LATER.

Q – Is there a point in time when I must withdraw all of my money from the TSP?

A – There are IRS Minimum Distribution Requirements which require that April 1 following attaining age 70 ½, you take a distribution from your TSP and claim the distribution as taxable income. They do not require that you take the full account balance.

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Thrift Savings Plan