Federal Thrift Savings
Plans (TSP)
The Federal Thrift Savings Plan, commonly referred
to as the "TSP," is a defined
contribution retirement plan for employees of the federal government. Both the
Federal Employees Retirement System (FERS) and the Civil Service Retirement System
(CSRS) employees can participate in the TSP. The TSP rules are different for
each group.
The TSP has many similarities to a 401(k) plan. Employee contributions made by
both FERS and CSRS employees are made with pre-tax money. All contributions and
earnings are tax-deferred while they are in the plan. Only FERS employees can
benefit from agency (employer) automatic contributions and agency matching contributions.
Subject to certain exceptions, distributions cannot be made until an employee
leaves federal service.
The general tax rules described below are the federal income tax rules as of
January 1, 2001 and may be subject to exceptions. Always check your state (and
local) income tax rules on the TSP. Finally, since tax laws may (and probably
will) change from time to time, always check with your tax advisor before making
major decisions regarding your TSP.
Eligibility
Only federal government employees are eligible to participate in the TSP.
Employee Contribution Limits
For both FERS and CSRS employees can contribute the lesser of:
1. $10,500 in the year 2001 or
2. 10% of basic pay for FERS employees (5% of
basic pay for CSRS employees)
Employee contributions are made through payroll deductions each pay period (e.g., every two weeks) by either a fixed percentage of
wages or a dollar amount.
Note: "Basic pay" is a term defined by law and is the amount used to calculate the deduction for your FERS or CSRS annuity. Basic pay doesn't include such things as bonuses, many
forms of premium pay, awards, or buyout incentives.
Employer Contribution Limits
CSRS and FERS employees have different rules.
CSRS
There are no employer (federal government) contributions for CSRS employees.
FERS
There are two types of employer (federal government) contributions for FERS employees:
1. the agency automatic contribution and
2. the agency matching contribution.
Employer contributions are made each pay period (e.g., every two weeks).
Agency Automatic Contribution
Agency automatic contributions are equal to 1% of basic pay each pay period.
It is in addition to the agency matching contributions.
Agency Matching Contribution
Agency matching contributions are made on the first 5% of basic pay contributed
each pay period as follows:
1. 100% matching (dollar-for-dollar) for the first 3% of
basic pay contributed each pay period and
2. 50% matching (50 cents on the dollar) for the next 2% of basic
pay contributed each pay period.
Vesting
For CSRS and FERS employees, employee contributions and earnings on the contributions
are always vested and owned by the employees.
For FERS employees, agency matching contributions and the earnings on the contributions
are always vested and owned by the employees. The agency automatic contributions
and the earnings on the contributions are fully vested (owned) after three years
of service (two years in some cases).
Beneficiary Designations
Legal and tax advice is useful when determining how to complete beneficiary designations.
Properly completed designations can help save estate (death) tax, avoid probate,
allow better income tax opportunities and avoid creditor claims on retirement
assets.
Extra care needs to be taken in naming trusts as a beneficiary of most retirement
assets in case of a death. Sometimes, naming trusts as a beneficiary can trigger
income tax sooner than it would otherwise be owed and reduce the amount ultimately
shielded from death tax.
Note that many plans require the participant's spouse to be the beneficiary,
unless the spouse provides written permission for another beneficieary to be
named.
Creditor Protection
Retirement plans and accounts may have special creditor protection under federal
and/or state laws. Different types of plans and accounts may have varying degrees
of protection. State protection rules may also vary from state to state.
If you convert from one type of plan to another (e.g., from a traditional IRA
to a Roth IRA), you may be changing how much protection you have. This may be
also be the case if you move to another new state where the new state rules are
different.
Consulting with an attorney for guidance on the creditor protection issue may
be helpful.
Estate and Death Taxes
Retirement assets are added to your other assets and may be subject to federal
and/or state death (estate) tax. It depends upon the size of your overall estate
and the estate planning done for you. Consult with your advisor about ways to
defer or avoid estate tax.
For more information:
If you'd like more information about how diversified investment advisors can help you achieve your financial objectives through personalized wealth or retirement and risk management strategies, please contact us. We welcome the opportunity to discuss your unique needs and how we may best meet them.
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Charles M. Bloom, Registered Principal offers securities
and advisory services through Centaurus Financial, Inc. - 775 Avenida Pequena, CA, 93111 (mailing address: 3905 State Street Suite 7173, Santa Barbara, CA, 93105) - Member FINRA and SIPC - Life Insurance License No. 0A52786 - Centaurus Financial, Inc. and Shoreline Wealth & Investment Management are not affiliated companies.
The information contained in this web site is neither an offer nor solicitation of any security or service.
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