What is a Thrift Savings Plan?

A thrift savings plan is part of the retirement package offered to federal government employees. The plan is offered by the Federal Retirement Thrift Investment Board, and is basically a federal version of the 401(k) plans that private businesses offer their employees. The contributions that employees make toward a thrift savings plan can be applied before taxes, and taxes are deferred on the payouts from the plan if they are paid out after retirement age. Anyone who is eligible for the Federal Employees Retirement System or the Civil Service Retirement System can take advantage of a thrift savings plan.

Additional Savings Option

The thrift savings plan is a retirement plan option that is separate from the package already offered through the Federal Employees Retirement System or the Civil Service Retirement System. The contributions that employees put toward a thrift savings plan are not considered as a normal part of their annuity contributions toward the Federal Employees Retirement System or the Civil Service Retirement System. Federal employees are allowed to contribute up to 11% of their salary toward the thrift savings plan, and they are eligible to begin saving as soon as they begin employment.

Required for Some, Supplemental for Others

Employees who are using the Civil Service Retirement System are not required to participate in the thrift savings plan program. They can use a thrift savings plan as a supplement to their regular retirement plan. Those who use the Federal Employees Retirement System are required to utilize the thrift savings plan option as part of their standard retirement package, along with the basic annuity and social security plans. Both types of plan participants can enjoy the privilege of immediate contributions toward retirement, without any waiting periods or deferment of payments.

Contributions Drive the Savings

The way the thrift savings plan works is that the amount of money saved toward retirement is based entirely on the amount of money that the employee contributes to the plan. Employers may also contribute to the plans with matching funds or other savings program options. Earnings accumulate as employees continue to contribute during their standard working years. Federal Employees Retirement System members also enjoy agency matching contributions and immediate vesting in the contribution as soon as they begin employment. Civil Service Retirement System members are allowed to contribute up to 6% of their salary toward a thrift savings plan, but they are not eligible for any matching contributions or immediate vestment plans.

Range of Investment Opportunities

The federal government offers five different investment funds for federal employees to choose from for the thrift savings plans. The Government Securities Investment Fund, Common Stock Index Investment Fund, Fixed Income Index Investment Fund, International Stock Index Investment Fund, and Small Capitalization Stock Index Investment Fund are all solidly performing funds that provide reasonable returns on investments. Thrift savings plan members are offered high quality investment opportunities with low administrative and investment costs. Before tax savings and tax-deferred earnings also provide a better return on a federal employee’s retirement earnings.