Thrift Savings Plan Allocation

Manage risk wisely by rebalancing accounts

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Now might be a good time to rebalance the distribution of funds in your Thrift Savings Plan account. This is a good idea if it has been at least six months, but particularly if it has been more than a year, since you last rebalanced your account.

If you read my column regularly, you know that I generally recommend that TSP participants find the asset allocation, or distribution of funds, that safely supports their retirement plan with a minimum of risk, and then regularly rebalance their accounts to this allocation. In most cases, this allocation will include all five TSP funds at all times.

More advanced analysts might violate this rule by integrating their TSP accounts into an overall investment portfolio that contains other investment accounts. These investors can choose to concentrate certain assets, like cash equivalents and bonds, in their TSP accounts to take advantage of the TSP’s G Fund and tax deferral.

In early June, the Standard & Poor’s 500 Index, on which the TSP’s C Fund is based and which reflects the performance of large U.S. company stocks, is as high as it’s been since the middle of 2008. What’s more, it has risen over 85 percent in the two years since it bottomed out in the spring of 2009.

Even more interesting to me is that the Barclay’s Aggregate Bond Index, which is the basis for the F Fund’s performance, is also near multiyear highs, in spite of a raft of predictions over the past couple of years that it couldn’t possibly go much higher given the inevitability that interest rates couldn’t continue any lower. Well, interest rates dropped, and anyone who bailed out of the F Fund during the past couple of years was mistaken.

TSP.Gov – The 411 on the Thrift Savings Plan « TSP Gov

Every participant is eligible to benefit from tax deferred contributions; in-service financial hardship withdrawals from the age 59 and onwards; five available funds to invest in; the opportunity to transfer in monies from other eligible retirement savings account plans; favorable loan programs; and an option of choices in post-separation withdrawal.

TSP.Gov – Civilian employees under the FERS have the additional benefit of agency matching contributions. The FERS employee is guaranteed a 1% agency contribution even if they don’t contribute themselves. If they do contribute, the agency contribution formula is as follows: 1% for each 1% contributed by the employee (for a maximum of 3%), then 0.5% for each 1% contributed by the employee (for a maximum of an additional 1%). The maximum agency contribution therefore is 5% (1%+3%+1%). CSRS and Uniformed Service members are not eligible for matching contributions. However, Uniformed Service members (includes Military members) can contribute from additional sources of pay such as special, incentive, and bonus pays. TSP.Gov

Prior to 2006, the amount that could be contributed was limited to a certain percentage of basic pay. In the year of 2006, this percentage limit was removed; the only remaining restriction on contributions is that imposed by the Internal Revenue Service. However, matching contributions, as outlined above, are limited to 4% on the first 5% of pay contributed each pay date. TSP.Gov

The Thrift Savings Plan is an excellent retirement savings benefit that federal employees and the military would be wise to take advantage of. TSP.