THRIFT SAVINGS PLAN Q&As

1. What is the Thrift Savings Plan?
The TSP is a tax-deferred savings plan for federal employees. It is comparable to plans offered by private employers and offers participants tax-deferred advantages similar to those of individual retirement accounts.

2. Who is eligible to participate?
All civilian federal employees are eligible to participate, but only through payroll deductions. They may contribute either a percentage of basic pay each pay period or a fixed dollar amount. Civil Service Retirement System employees may contribute up to 5 percent of their basic pay each pay period. Federal Employee Retirement System employees may contribute up to 10 percent of their basic pay each pay period to the TSP, as long as the annual total does not exceed annually adjusted Internal Revenue Service limits.

Elections to start, change or allocate TSP contributions are made during an open season. Election forms may be submitted anytime during an open season, but contributions will not begin until the first full pay period that falls within the election period.

3. Who is entitled to receive agency contributions?
Only FERS employees are eligible to receive agency contributions. When an employee becomes eligible to participate in the TSP, the agency will open a TSP account and automatically contribute 1 percent of basic pay for each pay period. The employee will receive these contributions whether or not he or she contributes money.

When an employee contributes to a TSP account, the agency makes matching contributions in addition to the automatic 1 percent. Matches apply to the first 5 percent of pay contributed each pay period -- dollar for dollar for the first 3 percent and 50 cents on the dollar for the next 2 percent.

4. How does an employee change the way an existing account balance is invested?
To change the way money already invested in the three TSP funds in an account, an employee must submit an interfund transfer request form (TSP-30) to the TSP Service Office. Generally, it is more efficient and faster to make changes using ThriftLine.

5. What is ThriftLine?
ThriftLine (1-504-255-8777) can be accessed with a touch-tone phone and offers monthly rates of return for the three TSP funds as well as the most recent 12-month return rates. TSP participants can use the ThriftLine to obtain information about their account. In addition, employees who have ever invested in the C or F funds can use ThriftLine to change how much is allocate to each fund. ThriftLine can tell how much an employee may be eligible to borrow and the current interest rate for TSP loans.

6. How does an employee start or change contributions to a TSP account?
By obtaining an election form (TSP-1) from the civilian personnel office. The form is used to show whether a percentage of basic pay or a fixed amount each pay period is wanted. The election form is also used to change the amount of TSP contributions.

If a form is submitted before January or July, the choices become effective the first full pay period in January or July. If a form is submitted during either of these months, choices will take effect for the first pay period that begins on the date an employee's employing office accepts the form.

7. Can an employee borrow from a TSP account?
An employee with at least $1,000 of his or her own contributions (including associated earnings) in a TSP account, can borrow for any purpose. For a residential loan, documentation must be provided. Residential loans can go up to 15 years; all other loans are for four years. The Internal Revenue Code limits loan amounts, and the amount borrowed cannot exceed the TSP account balance. Interest on the loan is set at the G fund rate in effect at the time the application is received

8. How is an employee informed about his or her account balance?
In late May and late November, the TSP record keeper will mail each employee a statement with information about the account balance and a detailed summary of the activity in the account during the previous six-month period. In addition, employees can call the TSP ThriftLine (1-504-255-8777) anytime for information.

9. What are the advantages and risks of investing in the C and G funds?
The C fund allows broad participation in United States stock markets through a stock index such as Standard and Poor's 500. The shares of stock held by the index fund represent ownership shares in a variety of companies. The values of these shares can move up sharply with favorable changes in conditions affecting the economy, an industry or an individual company.

The G fund Treasury securities are guaranteed by the full faith and credit of the United States. Additionally, the Thrift Investment Board's policy of investing the G fund in short-term rather than longer-term securities minimizes the market risk.

The market risk is that Treasury and other fixed-income investments may fluctuate in value. The value decreases as the general level of interest rates in the economy rises, and increases when these rates fall. Market risk is much less for short-term investments such as those in the G fund than for longer-term investments such as the F fund offers.

10. When can an employee start contributing to the TSP?
Eligible employees can sign up to contribute to the TSP only during one of the two open seasons each year: May 15-July 31 and Nov. 15-Jan. 31. Newly hired FERS employees can start contributing to the TSP during the second open season following coverage by FERS. Rehired FERS or CSRS employees previously eligible to participate can sign up during the first open season after they are re-employed. Those not previously eligible have to wait until the second open season after they are rehired.

11. How does an employee stop contributing to the TSP?
Employees may stop contributing their own money to the TSP at any time by filling in the appropriate section of a TSP-1 election form. An employee who stops contributing during an open season, must wait until the next open season to start again. An employee who stops between open seasons must wait two open seasons to begin again.

12. What are TSP's tax advantages?
There are two tax advantages to the TSP: before-tax contributions and tax-deferred investment earnings.

With before-tax contributions, contributions are subtracted from pay before federal and, in almost all cases, state income taxes are calculated. By paying less current income tax, the employee has more take-home pay than if money had been saved after it was taxed.

TSP contributions are not reported as taxable income on an employee's Form W-2 received from an agency each year. This means that TSP contributions are not reported on an employee's annual tax return. This special tax treatment does not affect one's salary of record for other federal benefits such as the FERS basic annuity or CSRS annuity, or life insurance. It also does not affect Social Security taxes or benefits.

In addition to postponing paying taxes on TSP contributions, the earnings on a TSP account are tax-deferred too. This means an employee does not have to pay taxes on TSP account earnings until the money is received.

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