How Does a Federal Thrift Savings Plan Work?

Not A 401(k)

Government employees have a different retirement investment system than other civilians. They do not have a 401(k) program. Instead, they have the Thrift Savings Plan. Although there are limitations to what you can do with a Thrift Savings Plan, the similarities to a 401(k) are close enough to where a federal employee can reap great benefits upon retirement.

Pre-Tax Dollars At Work

A Thrift Savings Plan is essentially a contribution plan for federal employees. Federal workers can contribute pre-taxed money into a number of savings accounts that can be matched by their employers if they meet specific qualifications. If employees are eligible for matching funds, their employer will be able to match up to 5 percent of their contributions. Members of the Civil Service Retirement System are not eligible for matching contributions. Withdrawal without penalty begins at age 70 1/2.

Differing Funds

The federal Thrift Savings Plan’s accounts are varied in nature and are designed to provide employees options in choosing how they want their money to grow. G Fund contributions are based on the government’s treasury securities. They almost always earn positive growth because of Treasury guarantees, but the growth amount is low in comparison to other funds. I Funds are based on mutual funds made of international stocks. The F Fund is a fixed-income index based on the Lehman Brothers index; it has relatively low risk. C Funds are high-risk, high-reward investments based upon common stocks. S Funds base their value from the Dow Jones Wilshire Index. The most diverse fund, the L Fund, is divided among all of the other funds. The L Fund is separated according to your anticipated withdrawal date. It’s designed to create the best mix of investments that will deliver the best return by the different L Fund target dates.

Additonal Benefits

Upon starting a Thrift Savings Plan, employees are not limited to selecting one fund and sticking with it until they retire. Members can choose which funds they wish to invest in and can even move money around from fund to fund as they wish.

Another benefit of the Thrift Savings Plan is the ability to get loans against your contributions once they hit the minimum $1,000 mark. You can pay back the loan between 1 and 5 years with an interest rate based on the current G Fund rates. There is a one-time $50 processing fee.