Thrift Savings Plan Investor's Handbook for Federal Employees - Fedweek

Thrift Savings Plan Investor's Handbook for Federal Employees (eBook)

Fedweek (Autor)

eBook Download: EPUB

2020 | 1. Auflage
200 Seiten
Bookbaby (Verlag)
978-1-0983-0112-5 (ISBN)

The TSP has implemented long-awaited new withdrawal options and while the investment choices are still limited compared to an IRA, the program is still very good, and expenses are some of the lowest you can find (over time this adds up in a big way). This new 6th Edition guide is designed to help you take full advantage of the TSP, understand the program's rules and important dates, and help set yourself up for a secure retirement. What's insideYou already know the basics of your TSP plan; now it's time to kick things into high gear. We developed the TSP Investors Handbook especially to help you squeeze the most out of your investments and other benefits of the popular TSP program. This brand new "e;6th Edition"e; handbook places the TSP among your other assets, explains the real value of its best features. Take a look at just some of what's new in this All New Sixth Edition of The Thrift Savings Plan Investor's Handbook:New, more flexible withdrawal options. TSP's new policies on investment limits, inter-fund transfers and transfers from other retirement savings programs. Roth investing (tax-free withdraws to benefit more from compound interest). A detailed perspective on what the "e;new"e; TSP is all about-and what it means to you. The relationship between the TSP and IRAs-what types of accounts can be involved in transfers and under what circumstances. Special rules for employees who are also Reservists or National Guard members-when they can establish a second, "e;military"e; TSP account, how much they can invest in it, how the two accounts work in relation to each other, and considerations for combining accounts. Newly Revised tables on rates of return and an analysis-and how they can guide your TSP investment and withdrawal strategies. Completely updated guide to resources, forms and services available in the TSP program. What else is in this all-new handbook?What the TSP's Design Means to You: Payroll Withholding, Rates and Contributions, Tax Treatments, Roth Balances, Investment Choices, Loan Programs, In-Service Withdrawals and moreThe TSP's Place in Your Overall Assets: TSP Tax Advantage, Administrative Expenses, TSP's Role in Your Retirement Savings, TSP's and IRAs, Balancing Risks and moreTime and Timing Considerations for Continuing TSP Investing: Account Growth, Maximizing Investments, Risk and Return, The L Fund, Your Time Frame and moreInvestment Questions and Answers: Investment Rules, The G Fund, The C Fund, The F Fund, The S Fund, The I Fund, The L Fund, Tracking Returns andInterfund Transfers and moreLooking Ahead to a TSP Withdrawal: Growth of Current Account Balance and Future Investments, Translating Your TSP Account into Potential Income. A Framework for Your Withdrawal Decision: Projecting Your Basic Federal Retirement Benefits and Income from Other Sources, How Long Your Might be Retired, Assessing Your Income Goals and Needs, Timing Your TSP Withdrawal and Finding the Best Deal. Lump Sum Withdrawals and Annuities: The Advantages and Disadvantages as well as Tax Implications. Survivor Benefit Considerations: TSP Death Benefits, Civil Service Retirement Survivor Benefits, Social Security Survivor Benefits and Your Survivor Annuity Choice. TSP Contacts and Forms: TSP Service Office, The ThriftLine, The TSP Website and Forms.

Foreword

The Thrift Savings Plan today is a far different program from the one envisioned in the mid-1980s when it was created as part of the legislation establishing the Federal Employees Retirement System.

At that time, the TSP was pictured as a significant part of the retirement package for FERS employees but only co-equal at best with the two other elements of FERS, Social Security and a civil service annuity. And for Civil Service Retirement System employees, the program was merely an afterthought in the minds of the TSP’s designers—as well as in the minds of many CSRS employees themselves.

Today, the TSP plays a dominant role in retirement planning for FERS employees, especially in light of the uncertainty regarding Social Security’s long-term financial grounding and the relative paucity—in comparison with CSRS benefits—of the FERS civil service annuity. And many CSRS employees use the TSP as a valuable supplement to their annuity benefit that opens up new options for their career and retirement planning.

The average federal employee TSP account now is above $140,000 and some TSP investors with relatively high salaries, high investment rates and successful investment records have accounts worth many times that. With time and continued investment, employees currently with smaller accounts could well build up accounts in that range, too.

The TSP compares well—and in some cases, as with its administrative fees, superbly—with 401(k) and similar retirement savings programs offered by other employers. As matching contributions have eroded in those other plans, the TSP has held steady. It offers a readily understandable set of investment options. And it is overseen by an independent board that is required to put the interests of investors above all else.

But because changes in law are needed to change the basic terms of the TSP, the program in some ways fell behind the times and is working to catch up. One was the addition of a “Roth” option in which the traditional TSP investment status is reversed. That is, instead of money going in tax-free and coming out along with its associated earnings as a taxable distribution, money goes in after-tax; it comes out tax-free, as do its associated earnings so long as certain conditions are met.

Other changes have included starting agency contributions immediately for newly hired FERS employees rather than only after a waiting period; automatically enrolling them with a default investment unless they change that choice or opt out; and allowing surviving spouses to leave accounts intact instead of being compelled to close them after the account holder’s death.

The most recent changes addressed the limited withdrawal choices. The TSP’s policy for many years had been that after retirement, an account holder could take only one partial withdraw and after that, the next withdrawal choice had to be for the remainder. And even one partial withdrawal was not allowed for those who took an in-service age-based withdrawal, allowed after age 59½ (only one of which, in turn, was allowed). There was one more flexible form of withdrawal, at the time called “substantially equal” payments, but the numerous restrictions on that option made it “flexible” only in a relative way.

With IRAs, in contrast, you can pretty much draw out whatever amount you want, whenever you want. As a result, just within the first year after separation—whether for retirement or by resignation—nearly two-fifths of account holders transferred out their money.

That concern led the TSP to ask Congress to allow it to expand its withdrawal options and such a law was enacted in late 2017. In September 2019, under a combination of new authorities under that law and the TSP’s own initiatives, new policies became effective to:

• End the limit of one age-based in-service withdrawal (allowed without tax penalty after age 59½). Now up to four a year are allowed, at least 30 days apart.

• End the policy limiting account holders to only one partial withdrawal post-separation (with the second withdrawal requiring that a choice be made for the remaining account balance). Now an unlimited number is allowed, also at least 30 days apart.

• Turn the “substantially equal” payment withdrawal option into the “installment” payment option, adding the ability to: elect quarterly or annual payments in addition to monthly payments and change that election at any time; change the amount at any time rather than just once a year; elect partial lump-sum withdrawals even while taking installment payments; and elect any of the withdrawal options with the remaining balance after stopping payments, rather than being required to take out the rest as a lump sum.

• Allow investors with both traditional and Roth balances to choose to take withdrawals (both in- service and post-separation) from only one or the other, in addition to what had been up to that point the only allowable method, taking withdrawals proportionately from both.

• End a ban against new personal investments for six months after taking an in-service financial hardship withdrawal.

• End a requirement to make a decision on withdrawing the full account by April 1 of the year after turning age 70½, eliminating a complex suspension and reinstatement process for those who didn’t (the requirement to begin taking certain minimum withdrawals at that point remains in effect, however).

Participant surveys also have found dissatisfaction with the limited range of investments. The TSP offers just five basic funds, all tracking broad market indexes, and five lifecycle funds, which mix the basic funds in differing ratios depending on the planned holding period. That’s the tiniest fraction of what’s available on the open market.

Congress as long ago as 2009 enacted a law allowing the TSP to create an investment “window” through which participants could direct at least part of their accounts. The TSP sat on that idea for years, out of a view that investors would have a hard time making up for the added costs of outside investing, and that by chasing returns they would raise their risk of losses.

Finally, during 2015, the TSP committed to contracting with a mutual fund provider to begin such a service. But soon after making that commitment, the TSP turned much of its attention to broadened participation rules for military service members that had to be launched as of January 2018. After that, its attention focused on carrying out the new withdrawal options.

Exactly when an investment window is to be available was still undecided as of this book’s publication; subscribe to the FEDweek newsletter at www.fedweek.com for the latest information.

For the meantime, the TSP has made some changes within its own control involving its target date Lifecycle funds. In late 2018, a consultant’s study concluded that those funds were overly conservative, in terms of their mix of investments, in comparison with similar funds offered elsewhere. The TSP responded by ending its practice of making those funds more conservative over time, freezing their investment allocations in place until they catch up to ratios they would have reached if they had started out with a more stock-oriented mix. That immediately affected the 2020, 2030, 2040 and 2050 funds although not the Income fund, which always kept the same mix even as the others grew more conservative over time.

Starting in mid-2020, the Income fund too is going to become more aggressive in its allocations, with an increase in the portion invested in the stock funds phased in over 10 years. At the same time, when the 2020 fund will have the same investment profile as the Income fund, the two will merge and the TSP will offer funds in five-year increments from 2025 through 2065. Farther ahead, in 2021 the TSP will simplify the process for those age 50 and older to make “catch-up contribution” investments which are allowed for them above the standard dollar limit.

Also within the TSP’s discretion are initiatives to provide investors with more personalized attention and better service.

Under its long-range plan, the TSP intends to reach out to investors in certain situations. For example, they would get a phone call from the TSP on hiring and one at the one-year work anniversary reminding them about the program’s features. The same would happen at life events such as getting called up to active military duty, changing federal jobs, turning age 50, 55 and 59, and at retirement, among other points. In those conversations the TSP would provide consultation, not just information, about important considerations.

The TSP also plans to reach out to investors who cut back on their investing rate, took a hardship withdrawal, or stopped investing altogether for a time.

Meanwhile, transactions that have required much paper and patience from investors are being pushed online, including new features designed to reduce the chances that they will make mistakes in their withdrawal choices. And the TSP intends to produce easier to use and more helpful projections of account growth and future income more in line with the projections of IRA providers.

In sum, the TSP is a constantly evolving program. This fully updated handbook is designed to help you understand the implications and use the TSP effectively for...

Erscheint lt. Verlag	10.3.2020
Sprache	englisch
Themenwelt	Sozialwissenschaften ► Pädagogik
ISBN-10	1-0983-0112-9 / 1098301129
ISBN-13	978-1-0983-0112-5 / 9781098301125

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