What’s So Great About the TSP?

whats so great about the TSP

Ready to start investing for retirement? Don’t overlook one of the easiest ways to get started: the Thrift Savings Plan, or TSP. This tax-advantaged program allows service members to invest money for retirement through payroll deductions. Think of it as the federal government’s version of a 401(k).

Though employer-provided plans like the TSP sometimes get knocked for a relatively limited array of investment options, there are lots of reasons to get the ball rolling. You should strongly consider signing up because:

  • It’s easy. Just set it up so part of each paycheck goes into the TSP through the automated myPay system. You can access your account through the TSP website (tsp.gov) or the Thriftline phone number (1-877-968-3778).
  • It’s automatic. Once you’re set up, TSP contributions are taken from your paychecks before you ever see the money. When it comes to saving and investing, if you don’t see it and don’t have to think about it, you’re more likely to do it.
  • It’s tax deferred and affordable. Like with IRAs, federal income taxes on earnings in your TSP are deferred until they are withdrawn. Plus, TSP expenses are low compared to civilian employer-provided plans and other mutual funds inside or outside IRAs. All of this means more of your money goes to work for you.
  • It has traditional and Roth options. Just as there are traditional and Roth IRAs, there are traditional and Roth TSPs. Based on what will work best for you from an income tax perspective (both now and when you withdraw during retirement) you can direct TSP contributions to a traditional account, a Roth account, or some of each.
  •  It has a lot of investment choices. Within the TSP, you can create a diversified portfolio of investments at the right level of risk for you. You can stick with lower risk government securities or fixed income index funds. You can go mid to high-risk common stock, small cap, or international funds. You can even choose lifecycle funds that adjust risks over time.
  • It has high contribution limits. The TSP’s annual limit is about 3x the amount you can typically contribute to IRAs. Contribute from basic pay, incentive pay, special pay, and even bonus pay. For example, the 2017 max is $18,000 — those receiving tax-exempt combat pay or age 50+ could contribute even more.

If there’s just one step you take towards a retirement strategy, the TSP is it. Long story: Yes, you’ll need to think it over, choose investment options, and set up contribution amounts within the rules. Short story: just do it.