6 Tips for Managing Your TSP Account

TSP funds are doing well so far this year, with each operating in the black. If you’re invested in the three-decade old program, are you reaping the benefits of these gains? Or are you unsure of how to best manage your investments? Here are six tips to get you thinking about how to maximize your account.

1. Make sure you’re contributing enough to get your agency match: If you’re a FERS employee, the agency you work for will contribute a 100% match for contributions you make up to 3% of your base salary, and a 50% match for contributions on the next 2%. Above that, your agency will make no matching contributions. If you were automatically enrolled in your plan and didn’t elect to either stop, reduce, or increase this contribution, you’re only contributing 3% of your base salary, and you’re missing out on the additional 50% matching contribution your agency will make. If it’s within your budget to do so, it is highly recommended that you contribute at least 5% of your base pay to your TSP to reap the full benefit of agency matching. (There’s a handy chart on this site to help you understand your contribution vs. the agency matching contribution).

2. Diversify to help manage your risk: Avoid putting all of your TSP eggs in one basket. Why? Because if that one fund that you choose tanks, your money goes with it. Within TSP you have an option to choose the L Funds (Lifecycle) or one of the Individual TSP Funds: G Fund (Government Securities Investment), F Fund (Fixed Income Index Investment), C Fund (Common Stock Index Investment), S Fund (Small Capitalization Stock Index Investment), and I Fund (International Stock Index Investment).

You can invest in as many or as few of these funds as you would like. If you’re nervous about your own ability to appropriately diversify your investments (or you just don’t have the time or desire to), your best bet is the L Funds. In this fund, your investment allocation is determined on the amount of risk you can absorb based on your projected date of withdraw (usually your planned retirement date). These funds are rebalanced each day, and asset allocations are adjusted every quarter to make incremental changes to your investments that become increasingly more conservative the closer you get to your planned withdraw date. Target withdraw dates in the fund are currently set for 2020, 2030, 2040, and 2050.

Whether you choose the L Funds or one of the Individual TSP Funds, be sure that you are comfortable with the amount of risk you are taking in that fund. If you aren’t, you’re more likely to panic in response to the cyclical nature of the market, and you don’t want to pull your funds or radically change your investment strategy during market downturns.

3. Make catch-up contributions: Once you reach age 50, you are eligible to make contributions in addition to your regular payroll deduction, up to a certain limit. If you haven’t reached your limit, and it’s within your ability to do so financially, consider making these catch-up contributions.

4. Think about whether Roth or traditional contributions are right for you: Since 2012, TSP participants have been able to choose whether they want to make Roth or traditional contributions, or a mix of both. Traditional contributions are those that are made pre-tax, and are then taxed at the time of withdrawal. Roth contributions are taxed at the time the contribution is made (earnings on a Roth account may be subject to taxation if you do not make a qualified withdrawal. More information on that is here). Whether you choose one or both is pretty much entirely dependent on your tax situation. If you’re in a low tax bracket now, and believe you will be in a much higher tax bracket when you retire, the Roth option is likely better for you. Of note, all agency matching contributions are traditional.

5. Check-in periodically: Even if you’ve chosen the L Funds, it’s prudent to check in periodically to ensure that your investments still meet your needs. Changes in life circumstances might warrant an adjustment in your funds, so if you’re in the L Funds, check in at least once a year, and if you’ve chosen a mix of the Individual TSP Funds, check in somewhere between once a quarter and once each year. When you conduct these check ins, keep in mind that the market is cyclical and will have its ups and downs, so it’s important not to panic.

6. Just start: Whether you’re new to government or just a few years from retirement, it never hurts to start a TSP account if you haven’t already. Any little bit you can put away for retirement will benefit you when it’s finally time to reap the benefits of all of your years of hard work. Here’s a great guide to get you started.

Contribution Limits

The contribution limits in 2017 are the same as a 401(k): if you’re under 50, you can make regular annual contributions of up to $18,000. If you’re 50 or older, you can opt for “catch-up” contributions that max out at $24,000 annually.

But here’s a bonus for deployed service members and some civilians who serve in combat zones: you can contribute up to $53,000 from your income in a single year! 

Consult the TSP website for the fine print on these contributions limits. A quick review of these rules tells you that you can contribute up to the $18,000 a year in after tax (Roth) contributions, but everything over that amount up to the $53,000 limit will need to be in a pre-tax account (Traditional).

Rollovers from Your Other Accounts

If you already have a TSP account, you can roll tax-deferred (Traditional) IRA’s into the TSP. This is a great option for those wanting to maximize their use of those low-fee funds. If you have a Roth 401(k), 403(b), or 457(b), you may be able to roll those funds into the TSP, but you cannot rollover/transfer any Roth IRAs or Roth distributions.

The money you rollover won’t count toward your contribution limits, and you’ll have to open a TSP account prior to rolling anything over to it. You can start a Roth TSP balance by rolling one of the three plans into a TSP account.