Thrift Savings Plan

A Thrift Savings Plan is a retirement plan that is designated specifically for United States Civil Service employees, retirees and uniformed servicemen. The Thrift Savings Plan is divided into three parts: The Federal Employees Retirement System, Federal Employees Retirement System Annuity and Social Security.

The Federal Employees Retirement System is developed to mimic the 401(k) savings plan in the private sector. Once an individual enters the United States Civil Service or the United States Armed Forces he, or she, is automatically enrolled in the Thrift Savings Plan. In addition the Civil Servant or Serviceman is automatically vested in the thrift savings plan when they become active.

The Thrift Savings Plan allows for a maximum of $16,500 in annual contributions to the thrift savings plan. There is an automatic 3% allocation of the individuals’ salary into the thrift savings plan yearly. This is the default plan and a service member who wishes to allocate more must proactively do so. In addition, if a member of the Civil Service or Armed forces is over the age of 50 they are eligible for “catch up” contributions. This means that those eligible individuals may increase their yearly contributions by $5,500, allowing them a total allocation to the thrift savings plan of $22,000.

The advantages of the thrift savings plan are much akin to a 401(k) in that the amount that is contributed to the plan is not taxed until it is taken out of the thrift savings plan in the future. Another advantage is that the federal government contributes to the thrift savings plan by making an “agency automatic contribution.” The agency automatic contribution consists of an automatic dollar for dollar contribution to the individuals’ thrift savings plan up to 3% of the individuals’ contribution. After the 3% threshold is met the federal government will match 50% of the individuals’ contribution up to 5% of the individuals’ salary. Any amount contributed by the individual in excess of 5% of his, or her, salary will not be matched afterwards.

There are 10 investing options that a member of the Civil Service or Armed Forces will have in investing in their thrift savings plan. These investments include 5 individual funds and 5 lifecycle funds. These investments are in the form of trust funds that are managed by the Office of The Comptroller of the Currency. If you are eligible to enter into a thrift savings plan then it is wise to discuss the various options with the appropriate personnel in the federal government

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