An Introduction to Thrift Savings Plan

Transcription

1 An Introduction to Thrift Savings Plan James Walsh, CFP TSP Training & Liaison Specialist FEDERAL RETIREMENT THRIFT INVESTMENT BOARD 77 K Street, NE Washington, DC tsp.gov

2 Agenda Your TSP Contributions TSP Expenses Traditional vs Roth TSP Investing for the Long Haul

3 Retire With Dignity Tomorrow Making wise decisions today

4 Components of Retirement Income TSP Social Security Pension

5 What s different about the TSP? Defined Contribution Plans (Thrift Savings Plan) Defined Benefit Plans (pension or military retirement) Retirement income based on account balance at retirement Retirement income based on a predetermined formula Employee makes investment decisions and bears the risks It s YOU that has the most input here! Employer makes investment decisions and bears the risks

6 TSP account balance at retirement depends on: You choose when you begin to contribute You choose an asset allocation strategy How long you make contributions How much your balance grows How much you contribute You choose how much you will contribute How much returns are reduced by expenses and withdrawals and TSP loans

7 Your TSP Saving for Retirement

8 tsp.gov

9 TSP Financial Calculator How Much Will My Savings Grow - FERS

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11 How do your returns compare? Find your annual returns on your annual statements or on your fourth quarter statements Year You? L Income L 2020 L 2030 L 2040 L 2050 G Fund F Fund C Fund S Fund I Fund % 13.72% 15.00% 16.53% 4.93% 4.40% 15.79% 15.30% 26.32% % 6.87% 7.14% 7.36% 4.87% 7.09% 5.54% 5.49% 11.43% % % % % 3.75% 5.45% % % % % 19.14% 22.48% 25.19% 2.97% 5.99% 26.68% 34.85% 30.04% % 10.59% 12.48% 13.89% 2.81% 6.71% 15.06% 29.60% 7.94% % 0.41% -0.31% -0.96% 2.45% 7.89% 2.11% -3.38% % % 10.42% 12.61% 14.27% 15.85% 1.47% 4.29% 16.07% 18.57% 18.62% % 16.03% 20.16% 23.23% 26.20% 1.89% -1.68% 32.45% 38.35% 22.13% % 5.06% 5.74% 6.22% 6.37% 2.31% 6.73% 13.78% 7.80% -5.27% % 1.35% 1.04% 0.73% 0.45% 2.04% 0.91% 1.46% -2.92% -0.51% % 5.47% 7.07% 7.90% 8.65% 1.82% 2.91% 12.01% 16.35% 2.10% % 9.86% 14.54% 16.77% 18.81% 2.33% 3.82% 21.82% 18.22% 25.42% Average 4.31% 6.35% 7.54% 8.30% 12.72% 2.80% 4.54% 10.48% 11.66% 7.00% See: tsp.gov Investment Funds Fund Performance Summary of Returns 46

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13 Increasing Contribution Rate 30 $45, Estimated Account Balance $569, $45, Estimated Account Balance $824,892

14 Contribution Elections You can start, stop, change, or resume contributions at any time Elections must be submitted to your agency - TSP cannot process elections to deduct from pay Elections are in dollars or percentages; traditional and/or Roth Electronic submissions are preferred (e.g., mypay, Employee Personal Page, LiteBlue, Best, EBIS, Employee Express, etc.) Form TSP-1/TSP-U-1 may also be used Elections are effective the first full pay period after receipt

15 Contribution Sources & Limits Participant Contributions Agency Contributions (FERS/BRS only) Regular (2018 limit - $18,500) Catch-Up (2018 limit - $6,000) Agency Automatic 1% Agency Matching Traditional and Roth Traditional and Roth Traditional Traditional

16 Contribution Rules Employee Contributions All new and rehired employees autoenrolled at 3% (can opt out) Any whole dollar amount or percentage up to IRS elective deferral limit No vesting rule Agency Contributions (FERS/BRS) Agency Automatic (1%) Contributions Subject to vesting Agency Matching Contributions Based on first 5% of employee contributions per pay period, whether traditional or Roth No vesting rule

17 Uniformed Services Contribution Rules Contribute at least 1% of basic pay Plus any percentage from incentive, special, and bonus pay Contributions are subject to the IRC annual limitations $18,500 for 2018 (Elective Deferral Limit, 402(g)) $55,000 for 2017 CZTE Contributions* (Annual Additions Limit, 415(c)) *Contributions deducted from Combat Zone Tax Exempt (CZTE) pay are subject to section 415(c) limits but not 402(g)

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19 Annual Additions Limit Includes: tax-deferred and tax-exempt TSP contributions agency/service matching contributions agency automatic (1%) contributions Does not include catch-up contributions Maximum contribution for officers in a combat zone is $8, per month (basic pay of the most senior enlisted) plus $225 hostile fire/imminent danger pay* *Based on 2017 Military Pay Chart at

20 Uniformed Services: Combining TSP Accounts If you have BOTH a uniformed services and a civilian TSP ACCOUNTS AND are SEPARATED from the service associated with one of them YOU CAN transfer your balance out of that account and into the other account* You may transfer in either direction if separated from both *A tax-exempt balance in a uniformed services account cannot be transferred to a civilian TSP

21 Maximizing Your Match (FERS/BRS) Ed earns $3,000 per pay period and contributes 30% Susan earns $3,000 per pay period and contributes $712 ED $925 EC 4% Matching PC #1 $925 $123 PC #2 $925 $123 PC #3 $925 $123 PC #4 $925 $ PC #16 $925 $123 PC #17 $925 $123 PC #18 $925 $123 PC #19 $925 $123 PC #20 $925 $123 Total PC #20 $18,500 $2,460 SUSAN $712 EC 4% Matching PC #1 $712 $123 PC #2 $712 $123 PC #3 $712 $123 PC #4 $712 $ PC #16 $712 $123 PC #17 $712 $123 PC #18 $712 $123 PC #19 $712 $123 PC #20 $712 $123 Total PC #20 $14,240 $2,460 PC #25 $712 $123 PC #26 $700 $123 Total PC #26 $18,500 $3,198

22 Catch-Up Contributions Participants can begin making Catch-Up Contributions any time during the calendar year they turn 50 January 1 Requiring a separate election each year Dollar amount only Electronic election or TSP-1-C/TSP-U-1-C form Maximum contribution for 2018 is $6,000 Must self-certify intent to make regular contributions up to the elective deferral limit No agency matching on Catch-up contributions

23 TSP Expenses What does saving for retirement cost you?

24 TSP s Net Administrative Expenses Compared with the Average 401K Plan TSP Average 401(k) Plan $0.33 per $1,000 1 $4.10 per $1, Net administrative expenses charged to the TSP participant across all funds, Median estimated 401(k) plan fees. Source: 12th Annual NEPC Defined Contribution Plan & Fee Survey Webinar, Sep 2017

25 Transfer / Direct Rollover TSP-60 TSP- 60 Traditional TSP TSP- 60R Roth TSP Note: Cannot transfer/rollover Roth, Education and Inherited IRA into the TSP

26 Traditional vs. Roth A choice of tax treatments

27 A Choice of Tax Treatments TSP Participant Contributions Traditional (Pre-tax) Roth (After-tax )

28 Traditional TSP Contributions Traditional contributions are deducted from gross pay before taxes Lowers current taxable income and gives a tax break today BOTH contributions and earnings grow tax-deferred Agency Automatic 1% and Agency Matching contributions only traditional Lowers Adjusted Gross Income (AGI) and may: Create or enhance eligibility for the Saver s Credit Increase amount of certain itemized deductions Allow high-income taxpayers to make Roth IRA contributions in addition to TSP Both contributions and earnings are taxable as ordinary income at tax rates in effect when withdrawn

29 Roth TSP Contributions Roth contributions are deducted after gross pay taxes Does not affect current taxable income Contributions will not be taxed again Earnings grow tax-deferred until they become qualified Qualified earnings are tax-free Does not affect Adjusted Gross Income (AGI) and may Reduce or eliminate eligibility for tax credits Reduce amount of certain itemized deductions May not allow high-income taxpayers to make Roth IRA contributions in addition to TSP No conversions allowed of Traditional balance to Roth TSP

30 Roth TSP Qualification Rules Qualified earnings TSP Roth contribution must meet 5-year rule AND Age 59½; disabled; or deceased BOTH must be met Note: Prior participation in a Roth 401(k) transferred into TSP counts toward 5-year rule Once 5-year rule is met, participant retains it for the life for that type of account Nonqualified earnings are tax deferred and could be subject to IRS 10% early withdrawal penalty tax

31 Investing to Meet Retirement Goals Managing Your TSP Account

32 Diversification Without diversification Diversification is: Balancing an investment portfolio by dividing it among different securities, industries or classes With diversification It reduces risk because: It combines a variety of investments which are unlikely to all move in the same direction The TSP achieves diversification by tracking specified baskets of investments called index investment funds

33 Index Investment Funds Facilitate a passive strategy No need to: Pick investments Try to time market Standard and Poor's 500 index stocks categorized by sectors and industries. Size represents market cap. (Feb 24, 2017) Eliminate the anxiety of trying beat the market Reduce trading costs and investment expenses The TSP s index investment funds are designed to help you maximize your savings potential

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35 Growth of $100 TSP-Related Indices, $2, $2, $ $ $ $ G Fund F Fund Eq. C Fund Eq. S Fund Eq. I Fund Eq. Inflation

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37 L2050 Born in 1983 or later TSP Lifecycle Funds Allocation Targets as of January 2017 L2040 Born in 1973 to 1982 L2030 Born in 1963 to 1972 L2020 Born in 1956 to 1962 L Income Born in 1955 or earlier

38 L Funds and the Efficient Frontier Rebalanced to their target allocations each business day Adjusted quarterly to more conservative investments as the fund time horizon shortens Objective is to provide the highest expected rate of return for the amount of risk expected Investment in the L Funds does not protect from investment losses Find more information in the TSP Fund Information booklet

39 Participant-Directed Account Transactions Contribution Allocation - Participant tells TSP how they want new money to be invested - Includes: - Employee contributions - Agency contributions - Loan payments, and - Any transferred funds Interfund Transfer - Redistributes fund balances among existing TSP fund options - Does not affect the investment of future contributions deposits Done via TSP ThriftLine (877) or website TSP.gov Generally effective as of close of business each day (based on 12 noon ET) Participant will receive confirmation via website, or mail

40 Interfund Transfer Limits For each calendar month, the first two interfund transfers are unrestricted moves. After first two moves, money can only be moved into the G Fund. Example: 1 st IFT of the Month 2 nd IFT of the Month G 20% G 100% G 10% G 60% G 100% F F F F F C C C 40% C 20% C S S S 35% S 5% S I I I 15% I 15% I L 80% L L L L

41 Participant Address Participant Information Account Balance Rate of Return

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43 Spouses Rights Retirement Plan FERS or Uniformed Services CSRS Requirement* Exceptions Notarized spouse signature required** Spouse is entitled to notification of the participant s withdrawal election Whereabouts unknown or exceptional circumstances - TSP-16 or TSP-U-16 form Whereabouts unknown - TSP-16 form required * If account balance is less than $3,500, spouse s signature/notice is not required **If married but no spouse signature: Spouse is entitled to a Joint Life Annuity with 50% Survivor Benefits, Level Payments, and no cash refund feature Waiver of spouse s signature/notification valid for 90 days from approval

44 Exceptions for IRS Early Withdrawal Penalty The 10% IRS Early Withdrawal Penalty does not apply to payments if: Received at age 59½ or later Received after you separate/retire during or after the year you reach age 55 (or the year you reach age 50 if you are a public safety employee as defined in section 72(t)(10)(B)(ii) IRC TSP monthly payments based on life expectancy Annuity payments Ordered by a domestic relations court Made because of death Made from a beneficiary participant account Received in a year you have deductible 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* * Participant must provide the justification to IRS when they file their taxes

45 TSP Death Benefits Planning Your Legacy

46 Death Benefits To Whom Based on Form TSP-3, Designation of Beneficiary Participant responsible for mailing or faxing form directly to TSP Do not submit forms to agency/service If there is no TSP-3 on file, then statutory order of precedence: Spouse--Natural and Adopted Children Parents Estate--Next Of Kin How paid Death reported on Form TSP-17, Information Relating to Deceased Participant The beneficiary will receive IRS Form 1099-R reporting the distribution See tsp.gov/lifeevents or the TSP booklet, Death Benefits, for more information

47 TSP-3 Wizard

48 TSP Tips & Resources

49 TSP Tips: What & Why 1. Contribute at least 5% of your salary. WHY: Don t lose out on free money from the Agency match. 2. Transfer other retirement savings into the TSP. WHY: Other plans can cost significantly more. 3. Use the calculators at tsp.gov to help define your retirement goal. WHY: Planning your retirement is smarter than winging it.

50 TSP Tips: What & Why 5. Diversify your investment strategy or choose a TSP Lifecycle (L) Fund. WHY: Varying your investments reduces risk. 6. Review your contributions and investment strategy regularly. WHY: As life changes, so may your retirement goals. 7. Stay with the TSP after you separate. WHY: TSP s low costs are hard to beat!

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52 Access Your TSP Account View account balance View Annual & Quarterly Statements Change contribution allocation Request interfund transfers Request loans and withdrawals Create (or change a user ID) Change or request a Web password

53 Contacting the TSP

54 TSP Publications

55 Questions? FEDERAL RETIREMENT THRIFT INVESTMENT BOARD 77 K Street, NE Washington, DC tsp.gov