Thrift Savings Plan Review

Transcription

1 Thrift Savings Plan Review This material is based upon work supported by the National Institute of Food and Agriculture, U.S. Department of Agriculture, and the Office of Family Readiness Policy, U.S. Department of Defense under Award Numbers , , and Research and evidenced-based professional development through engaged online communities Sign up for webinar notifications at 2 Join the Conversation Online! MFLN Personal Military Families Learning Network Military Families Learning Network LinkedIn Group 3 1

2 THRIFT SAVINGS PLAN REVIEW Presented by Stewart Kaplan, AFC, RFC, RPA Federal Re7rement Thri< Investment Board 77 K Street NE Washington, D.C., Agenda Overview of the 2016 NDAA Blended Re:rement System for the Uniformed Services Overview of the ThriB Savings Plan 5 TSP Rules under 2016 NDAA Blended Re7rement System for the Uniformed Services 6 2

3 TSP Rules Under Blended System* Effec7ve Jan 1, 2018 Automa7c Contribu7ons Matching Contribu7ons Enrollment Service member contribu7on rate Ves7ng of DoD contribu7ons 2016 Na7onal Defense Authoriza7on Act 1%, Begins 60 days a<er entry (or at elec7on), Ends at 26 YOS Up to 4%, Begins 2 YOS + 1 day a<er entry, Ends at 26 YOS On or a<er 2 Jan 18: Automa7c at entry; auto reenrollment every Jan if member has opted out 3% automa7c; full match requires 5%, no default to Roth TSP 2 YOS Opt- in eligibility Serving on 1/1/2018 and < 12 YOS as of 12/31/2017 Opt- in period 1/1/ /31/2018 (+ hardship extensions) *As of Jan 8, Overview of the Thri< Savings Plan Make Wise Decisions Today Re:re with Dignity Tomorrow Saving for Re:rement Your TSP Contribu:ons Inves:ng for the Long Haul Managing Your TSP Account Turning Savings to Income TSP Income Op:ons TSP Resources 8 Make Wise Decisions Today RETIRE WITH DIGNITY TOMORROW 9 3

4 What will your re7rement look like? In re:rement, the ThriB Savings Plan supplements fixed (formula- based) income sources Social Security Defined benefit plans, e.g., CSRS/FERS annuity, military pension TSP account balance at re:rement depends on: How long contribu:ons are made How much has been contributed or withdrawn Earnings on contribu:ons Plan expense ra:o/fees 10 Factors that affect TSP balance Helpful FERS: contribute enough to get full agency match Contribute five percent to get maximum agency match of four percent Allocate contribu:ons to investment funds based on appropriate balance of risk to return Periodically: Review account performance and long- term strategy Rebalance and reallocate based on review Or, choose a Lifecycle Fund rebalancing and realloca:ons occur automa:cally 11 Factors that affect TSP balance Harmful Frequent Interfund Transfers Short- term, tac:cal moves using index funds is an unsuccessful long- term investment strategy Using TSP to access savings that should have been put into another type of account Loans Temporary deple:on Financial Hardship In- Service Withdrawals Permanent deple:on 12 4

5 Saving for Re:rement YOUR TSP CONTRIBUTIONS 13 mypay Make contribu7on elec7on: Basic Pay Special* Incen7ve* Bonus* *must also contribute at least 1% from basic pay mypay How Do I Start? Choose tax treatment: Tradi7onal (tax- deferred) Contribu7ons deducted from pay before Federal taxes are withheld Federal taxes are deferred Taxes must be paid on everything when withdrawn mypay and/or US Mail Roth (a<er- tax) Contribu7ons deducted from pay a<er Federal taxes are withheld Federal taxes no longer apply to contribu7ons Earnings may be withdrawn tax- free once they are qualified Decide how much: Percentage of basic pay Plus a percentage from incen7ve, special and bonus pay mypay TSP.gov Enter birthdate and address: Must update address each 7me you move Note this is not the same as your DFAS correspondence address Receive correspondence from the TSP: Welcome Lemer Account number Temporary password needed to access account on TSP.gov Establish account access: Make a contribu7on alloca7on to allocate future contribu7ons Make an interfund transfer to change the investment of money already in your account Main Menu 15 5

6 Contribu7on Elec7ons 0 16 Address and Date of Birth 17 TSP Website ( Access Your Account View account balance View Annual & Quarterly Statements Change your contribu:on alloca:on Request inter- fund transfers Request loans and withdrawals Create (or change) a user ID Change or request a Web password 18 6

7 See Calculators under Planning and Tools on TSP.gov 19 Use this calculator on the TSP.gov website under Planning and Tools to find out! 20 Example: E- 3, under 2 years (2015) 21 7

8 Example: E- 3, under 2 years (2015) Your future contribu7ons: $14, Growth of your future contribu7ons: $139, Total es7mated TSP account balance: $152, Example: E- 3, under 2 years (2015) Your future contribu7ons: $40, Growth of your future contribu7ons: $250, Total es7mated TSP account balance: $290, Example: E- 3, under 2 years (2015) 5.00% Your future contribu7ons: $73, Growth of your future contribu7ons: $294, Total es7mated TSP account balance: $367,

9 30 Example: E- 3, under 2 years (2015) 7% 5.00% Your future contribu7ons: $102, Growth of your future contribu7ons: $411, Total es7mated TSP account balance: $514, Tradi7onal TSP Federal income taxes are deferred on Tradi:onal contribu:ons made to the TSP Contribu:ons are deducted from pay before Federal taxes are withheld, i.e., contribu:ons are pre- tax Employee pays Federal income taxes only on remaining salary Par:cipants pay Federal income tax on distribu:ons from their TSP account based on the applicable tax rate for the year they receive them Deferral of state or county taxes is determined by each individual jurisdic:on 26 Roth TSP Federal income taxes are withheld on Roth contribu:ons made to the TSP Contribu:ons are deducted from pay a<er Federal taxes are withheld, i.e., contribu:ons are aber- tax Employee pays Federal income taxes on en:re salary Par:cipants will not pay Federal income tax on distribu:ons from their TSP account in the future: For the por:on that consists only of contribu:ons For the por:on that consists of earnings if they meet both criteria to be qualified Five years have passed since January 1 of the year par:cipant made their first Roth contribu:on Are age 59½ or older, permanently disabled, or deceased 27 9

10 Tradi7onal or Roth? Current tax rate is: In 25 years, tax rate is: Example: 25% Equal impact on net pay You make a Tradi7onal Contribu7on of $10,000 You make a Roth Contribu7on of $7,500 (and pay $2,500 in Federal income taxes for current year) assuming 7% average A<er tax distribu7on Tax free distribu7on annual rate of return) 15% $46,133 $40,706 OR 25% $40,706 $40,706 28% $39,078 $40, Retail Mutual Funds 401(k) Plans TSP $0.29 per $1,000 1 $4.10 per $1,000 2 $7.40 per $1, Net cost to TSP par7cipants, averaged across all funds 2 All- in, par7cipant- weighted cost of large 401(k) plans. Source: Deloime, Inside the Structure of Defined Contribu<on/401(k) Plan Fees, Asset- weighted average expense ra7o for equity mutual funds. Source: Investment Company Ins7tute, 2014 Investment Company Factbook 29 $377,425 $336, k $307,361 Mutual Years (Assuming 7% annual rate of return)

11 QUESTIONS? 31 Inves:ng for the Long Haul MANAGING YOUR TSP ACCOUNT

12 Growth of $100 TSP- Related Indices, $ $ $ $ $ $ Infla7on G Fund Securi7es US Agg S&P 500 DJ US Comple7on EAFE (F Fund) (C Fund) (S Fund) (I Fund) 34 Lifecycle Funds Investment Alloca7on* L 2040 L 2050 L Income L 2020 L 2030 *As of Jan Logic of the Lifecycle Funds Low Expected Return High G 74% Low Expected Risk High Investment in the L Funds does not protect from investment losses 36 12

13 Don t amempt to 7me the market ü Studies show no evidence of successful outcomes using market :ming strategies ü Apemp:ng to :me the market increases the risk of not being invested when the market goes up significantly Use a long- term strategy ü Choose an asset alloca:on that corresponds to your :me horizon ü Rebalance and reallocate accordingly, or ü Choose a Lifecycle Fund Avoid using the TSP as a solu7on to meet short- term financial needs ü Loans ü Financial Hardship Withdrawals 37 Par7cipant- Directed Account Transac7ons - - Contribu7on Alloca7on Tells the TSP how par:cipant wants new money going into their account to be invested among the TSP investment fund op:ons Includes employee contribu:ons, agency contribu:ons, TSP loan payments, and any transferred or rollover funds Interfund Transfer - Allows par:cipant to transfer all or part of their exis:ng TSP fund balances among the different TSP investment fund op:ons - Does not affect the investment of future deposits into their TSP account May be done via TSP ThriBLine or TSP.gov Generally effec:ve as of close of business each day (based on 12 noon ET cutoff) Par:cipant will receive confirma:on via website, or mail 38 Types of Loans General Purpose No documenta:on required (pay back in 1-5 years) Residen7al For purchase or construc:on of a primary residence only (pay back in 1-15 years) 39 13

14 Costs of a Loan $50 processing fee - deducted when loan is disbursed Loan interest Based on G fund rate at :me applica:on is processed Fixed for life of the loan The invisible (and possibly the largest) cost is foregone investment earnings and reduced compounding of re:rement savings 40 Financial Hardship Withdrawals Qualifying circumstances Nega:ve monthly cash flow Medical expenses Personal casualty losses Legal expenses for separa:on or divorce Restric:ons Minimum withdrawal $1,000 May only withdraw your own contribu:ons and earnings Six month non- contribu:on/wai:ng period 41 Costs of a Financial Hardship Withdrawal Withdrawal can t be repaid permanently reduces re:rement savings Contribu:ons suspended for 6 months No contribu:ons means no matching (FERS) Withholding rate is 10%, actual tax is likely to be higher Addi:onal 10% penalty tax on distribu:ons prior to age 59½ See tsp.gov/plan participation or the TSP booklet: In-Service Withdrawals, for more information 42 14

15 Turning Savings to Income TSP INCOME OPTIONS 43 Par7al Withdrawal (Must be separated) Allows for a one :me withdrawal of a minimum of $1,000 up to the en:re balance of the account Withdrawing en:re balance will close out account Provides an opportunity to transfer a por:on of account to an IRA or another qualified plan Par:cipants should discuss and understand all op:ons with tax or financial professional before making withdrawal decisions See the instruc:ons for Form TSP- 77, Request for a Par:al Withdrawal When Separated, for more informa:on 44 Full Withdrawal (Must be separated) 45 15

16 TSP Bulle7n Op7ons Use for re:rement income or use for purposes other than re:rement income? Income Op:ons Flexible income: Monthly payments Guaranteed income: Life annui:es Custom solu:ons: Mixed withdrawals Par:cipants with both Uniformed Services and civilian TSP accounts may combine them* *See the instruc:ons for Form TSP- 65, Request to Combine Civilian and Uniformed Services TSP Accounts, for more informa:on 47 Wait If income is not needed un:l re:rement, leave your savings in the plan and do nothing Con:nue to stay invested in the TSP funds and earn market returns Con:nue to defer income taxes un:l distribu:ons begin 48 16

17 Flexible Income Monthly payments by fixed dollar amount Amount specified by par:cipant Minimum payment $25 Amount may be changed annually Monthly payments based on life expectancy Payments are computed by TSP Amount automa:cally adjusts annually 49 Inbound Transfers and Rollovers Tradi:onal IRA 403(b) 401(k) 457(b) Roth 403(b) Roth 401(k) Roth 457(b) Tradi:onal TSP Roth TSP 50 Guaranteed Income TSP life annuity Income is guaranteed for the life of the annuitant(s) Funds are transferred from TSP to the annuity provider, and benefits are locked in when request is processed 51 17

18 Lump Sum Withdrawal May request all or any percentage of account balance as a single payment Treated as an eligible rollover distribu:on 52 Mixed Withdrawals 70 Form TSP Excep7ons to the IRS Early Withdrawal Penalty The 10% IRS Early Withdrawal Penalty does not apply to payments that are: Received at age 59½ or later Received aber you separate/re:re during or aber the year you reach age 55 (or the year you reach age 50 if you are a public safety employee as defined in sec:on 72(t)(10)(B)(ii) of the internal revenue code Received in a year you have deduc:ble medical expenses that exceed 10% of your adjusted gross income (7.5% if you or your spouse is 65 or over) Received as a result of total and permanent disability* Annuity payments TSP monthly payments based on life expectancy Ordered by a domes:c rela:ons court Made because of death Made from a beneficiary par:cipant account * Par:cipant must provide the jus:fica:on to IRS when they file their taxes See: IRS Publica7ons 575, Pension and Annuity Income and IRS Publica7on 721, Tax Guide to U.S. Civil Service Benefits 54 18

19 Spouses Rights Re7rement Plan Requirement* Excep7ons FERS or Uniformed Services CSRS Notarized spouse signature required** Spouse is en7tled to no7fica7on of the par7cipant s withdrawal elec7on Whereabouts unknown or excep7onal circumstances - TSP- 16 or TSP- U- 16 required Whereabouts unknown - TSP- 16 required * If account balance is less than $3,500, spouse s signature/no:ce is not required **If married but no spouse signature: Spouse is en:tled to a Joint Life Annuity with 50% Survivor Benefits, Level Payments, and no cash refund feature 55 Waiver of spouse s signature/no:fica:on valid for 90 days from approval QUESTIONS? 56 TSP RESOURCES 57 19

20 TSP Publica7ons at TSP.gov 58 TSP Thri<line 59 Communica7ng with the TSP 60 20

21 TSP Training Informa7on for CY2016 TSP 101: Overview of the TSP TSP 200: Advanced TSP Topics TSP for the Uniformed Services (2- day class) (1- day class) (1- day class) Introductory course designed primarily for Advanced course for agency benefits officers Course designed for individuals providing human resources staff members who who are responsible for developing financial personal financial counseling and/or administer all or part of the TSP program. educa7on plans and providing re7rement financial educa7on in military environments. Covers all facets of the TSP including financial educa7on to their employees. Provides a fairly comprehensive overview of automa7c enrollment, contribu7on rules and Explores frequently asked ques7ons about the TSP with special emphasis on issues most limits, tradi7onal vs. Roth contribu7ons, how the and common misconcep7ons about the relevant to military financial educators. It informa7on is exchanged between the TSP TSP. Knowledge of the basic rules for TSP also may provide a basis for financial and employing agencies, ves7ng, the TSP eligibility and par7cipa7on are prerequisites educators to build their own TSP curriculum. investment menu, court orders, loans, for this course. Covers contribu7on rules and limits, withdrawals, and death benefits. tradi7onal and Roth contribu7ons, the TSP investment funds, loans, withdrawals, and death benefits. March March 24 April April 22 April 14 May10-11 May 12 June 7-8 June 9 July July 22 August 9-10 August 11 August 25 October October 27 *Classes held at FRTIB in Washington DC 61 Key Takeaways The 2016 Na:onal Defense Authoriza:on Act includes major changes to the military re:rement system regarding service member par:cipa:on in the TSP. Service members who contribute to the TSP must understand its role in providing re:rement income and how to manage this asset wisely. Service members must understand the steps to begin making contribu:ons and sexng up an account on TSP.gov. Service members should understand which type of contribu:on is most advantageous for them (Roth or Tradi:onal). The Lifecycle Funds may be an excellent choice for service members because they include an investment mix tailored to :me horizons and are rebalanced and readjusted automa:cally. Service members should understand the pros and cons of TSP loans and hardship withdrawals before taking a loan or hardship withdrawal. TSP s income op:ons provide a great deal of flexibility and careful considera:on should be given before making any decisions. 62 Evaluation and CEUs/Certificate of Completion The Personal Finance Concentration Area offers 1.5 credit hours from AFCPE and FinCert certificates of completion for today s webinar. To receive a certificate of completion, please complete the evaluation and post-test found at: SV_d6XVIoQZtIUd8sB Must pass post-test with an 80% or higher to receive certificate

22 Personal Finance Upcoming Event Savings Strategies for Military Families Date: Tuesday, February 16, 2016 Time: 11 Eastern Location: For more information on MFLN- Personal Finance go to: 64 Find all upcoming and recorded webinars covering: Personal Finance Military Caregiving Family Development Family Transitions Network Literacy Nutrition & Wellness Community Capacity Building This material is based upon work supported by the National Institute of Food and Agriculture, U.S. Department of Agriculture, and the Office of Family Readiness Policy, U.S. Department of Defense under Award Numbers , , and