Thrift Savings Plan

What is a Thrift Savings Plan?

A Thrift Savings Plan (TSP) is a type of retirement vehicle designed specifically for federal employees and members of the uniformed services. This defined contribution plan was first introduced through the Federal Employees’ Retirement System Act of 1986 (FERS), and is similar to a 401(k).

The Thrift Savings Plan is one of three components of the Federal Employees’ Retirement System, which includes Social Security and FERS annuities. As with other defined contribution plans, the employee funds the account with paycheck deductions prior to taxation. Additionally, with some TSPs, the federal government will make proportionally matched contributions to the account based on elective deferrals of the employees.

Contributions to a TSP are kept in the Thrift Savings Fund, and is administered by the five-member, presidentially appointed, Federal Retirement Thrift Investment Board. The Thrift Savings Fund is comprised of numerous different investment funds which are mutual fund portfolios, including the Government Securities Investment (G) Fund, the Lifecycle (L) Fund, in addition to the C, F, I, and S Funds which are index funds. As per Internal Revenue Service restrictions, individual securities are not permitted with a Thrift Savings Plan.

 

Thrift Savings Plan Rollover Rules & Limitations

The IRS has stringent rollover rules that must be followed if you don’t want to incur hefty tax penalties. Funds from a Thrift Savings Plan can be “rolled over” into another type of retirement account or between financial institutions within a period of 60 days. If you are under 59 ½, failing to do so within the 60-day timeframe from initially receiving the funds, will result in a 10% early-withdrawal penalty tax being levied on said funds. 

 

Thrift Savings Plan vs. Other Retirement Accounts

The table below compares the various types of retirement plans:

Plan TypeSponsorshipRoth Option?Allows Precious Metals Stocks?Allows Precious Metals Bullion?Allows Other Alternative Investments
Precious Metals IRAIndividualYesYesYesYes
Traditional IRAIndividualYesYesNoNo
401(k)EmployerYesMaybeNoNo
SEP IRASelf-employed or Business ownerYesYesMaybeMaybe
Solo 401(k)Self-employedYesYesYesMaybe
Simple IRAEmployerYesYesMaybeMaybe
Money Purchase PlanEmployerNoMaybeNoNo
Profit Sharing PlanEmployerNoMaybeNoNo
457(b)Government or Non-governmental Tax-exempt Employer YesMaybeNoNo
SARSEPEmployerNoYesMaybeMaybe
Keogh PlanSelf-Employed or Unincorporated Employer NoMaybeNoNo
Thrift Savings Plan (TSP)Government or Armed Services EmployerYesNoNoNo
ESOPEmployerYesMaybeNoNo
AnnuityIndividualNoMaybeNoNo

Maybe” denotes where precious metals investment options are dependent upon the retirement vehicle provider.

 

Thrift Savings Plan Contribution Limits

The Internal Revenue Agency (IRS) has specific contribution limits for a Thrift Savings Plan. For 2020, the IRS elective deferral limit is $19,500, and total contributions cannot exceed $57,000. Additionally, for individuals who participate in a Thrift Savings Plan who are 50 and over, the catch-up contribution limit is $6,500 for 2020. 

 

Thrift Savings Plan Calculator

If you are an employee of the US federal government or a member of the uniformed services, then a Thrift Savings Plan can prove to be an excellent retirement investment choice because it is a tax-advantaged investment vehicle.  There are numerous components that contribute to the amount of savings you set aside for retirement. Use this Thrift Savings Plan calculator to determine how much you could potentially save.

 

Thrift Savings Plan FAQs

As per criteria outlined by the United States Government, individuals who meet the following are eligible to participate in the Thrift Savings Plan:

“• A Federal Employees' Retirement System (FERS) employee (generally if you were hired on or after January 1, 1984), or
• A Civil Service Retirement System (CSRS) employee (generally if you were hired before January 1, 1984, and did not convert
to FERS), or
• A member of the uniformed services (active duty or Ready Reserve), or
• A civilian in certain other categories of Government service”

The Internal Revenue Agency (IRS) has specific contribution limits for a Thrift Savings Plan. For 2020, the IRS elective deferral limit is $19,500, and total contributions cannot exceed $57,000. Additionally, for individuals who participate in a Thrift Savings Plan who are 50 and over, the catch-up contribution limit is $6,500 for 2020.

If you are 59 ½ or over, you can withdraw funds from a Thrift Savings Plan without penalties. However, if you are not yet 59 ½ years old, the IRS will also impose a 10% penalty tax on the withdrawal on top of the normal income taxation.

The IRS has stringent rollover rules that must be followed if you don’t want to incur hefty tax penalties. Funds from a Thrift Savings Plan can be “rolled over” into another type of retirement account or between financial institutions within a period of 60 days. If you are under 59 ½, failing to do so within the 60-day timeframe from initially receiving the funds, will result in a 10% early-withdrawal penalty tax being levied on said funds.

If you leave your federal government or armed services position, the primary benefit of rolling your Thrift Savings Plan into a self-directed IRA like a Precious Metals IRA, is that this type of retirement account permits a myriad of diversified assets not allowed in other retirement vehicles. In addition, a self-directed IRA is solely managed by you the investor. Although under federal law, you must have a custodian who acts as an administrator over this type of retirement vehicle.

In essence, the IRS has imposed little restrictions on what you can hold in a self-directed IRA. Unlike many other retirement accounts, a self-directed IRA can be used to invest in everything from precious metals like gold and silver, to real estate, to commodities. Akin to other IRAs, the only investments not allowed in a self-directed IRA are S corporation stock, collectibles, and insurance investments.

A Thrift Savings Plan (TSP) is a type of retirement vehicle designed specifically for federal employees and members of the uniformed services. The Thrift Savings Plan is one of three components of the Federal Employees’ Retirement System, which includes Social Security and FERS annuities.

Contributions to a TSP are kept in the Thrift Savings Fund and is administered by the five-member, presidentially appointed, Federal Retirement Thrift Investment Board. The Thrift Savings Fund is comprised of numerous different investment funds which are mutual fund portfolios, including the Government Securities Investment (G) Fund, the Lifecycle (L) Fund, in addition to the C, F, I, and S Funds which are index funds. As per Internal Revenue Service restrictions, individual securities are not permitted with a Thrift Savings Plan.

Conversely, a 401(k) is a retirement account offered by most private sector companies in the United States. In addition, you have far more investment options available with a 401(k) plan.

The Internal Revenue Agency (IRS) has stringent regulations on what types of gold and silver are permitted in an IRA. Essentially, the criteria include the purity levels of the gold or silver, and where it was minted. It is crucial to understand that only specific bullion coins and bars which meet IRA-approved purity levels are permitted in this type of retirement vehicle. Some examples of bullion coins that are approved by the IRS for investing in an IRA include American Eagles, Canadian Maple Leafs, and Austrian Philharmonic.

It is imperative to understand that the IRS does NOT permit things like collectible coins or numismatics as an IRA account. Any reputable IRA company will only recommend IRA-approved gold and silver bullion coins and bars. Be wary of any Gold IRA company that attempts to push collectible coins or numismatics as an investment option for an IRA - their intentions will be dubious.

A Gold IRA company is a firm that acts as a custodian for the entirety of the process for setting up Gold IRAs (in addition to other Precious Metals IRAs). The process entails setting up the account, an IRA rollover or custodian-to-custodian transfer, purchasing IRA-approved precious metals, and storing precious metals in an accredited IRS-approved depository. Usually, Gold IRA companies have established relationships with traditional IRA custodians, IRS-approved accredited depositories, and precious metal dealers, which makes the process seamless for clients.

It is crucial to understand that under federal law if you open a self-directed IRA (including a Precious Metals IRA), you must have a custodian.

This is solely dependent on your personal preferences. What Gold IRA company you choose is contingent on what components are most important to you, whether it is storage options, ratings, or client services, amongst other factors. Once you have decided on your personal preferences, select numerous companies, then contact them to receive more information pertaining to both the respective firm and products offered.

Sometimes any movement of money from one retirement plan to another is often referred to as a “rollover”. However, the IRS has specific definitions for a rollover and a transfer. As per the IRS definition, a rollover occurs when the funds being moved are paid to you directly, and you then deposit the money into the other retirement vehicle.

The IRS has strict regulations and rules pertaining to an IRA Rollover. The guidelines outlined by the IRS for an IRA rollover include having 60 days to deposit the money you have received, in the custodian of your choice. If you are under 59 ½, failing to do so within the 60-day timeframe from initially receiving the funds, will result in a 10% early-withdrawal penalty tax being levied on said funds.

If you receive distributions from a retirement plan and you rollover into another retirement plan, as per the IRS rules there will be no taxation on those funds. In addition, funds can only be rolled over once in a 365-day period from a specific IRA.

In a trustee-to-trustee transfer (as the IRS has deemed it) you request that the original IRA custodian transfers the funds to the new IRA custodian. With a trustee-to-trustee transfer, you never touch the funds and the money transferred is not subject to taxation.

Investing in precious metals such as gold is an excellent hedge to protect your investment portfolio against economic uncertainties and inflation. A diversification strategy that includes gold (or other precious metals) not only protects your portfolio against market turmoil, but gold also provides significant growth potential. A simple method for diversification is to open a self-directed IRA.