THRIFT
SAVINGS PLANS
What
is a Thrift Savings Plan (TSP)?
A retirement savings plan created by the Federal
Employee's Retirement System Act of 1986 for current
or retired employees of the federal civil service. The
thrift savings plan is a defined-contribution
plan designed to give federal employees the same retirement
savings related benefits that workers in the private
sector enjoy with 401(k)
plans. Contributions to the plan are automatically
deducted from each paycheck. The thrift savings plan
offers different funds (government security fund, fixed-income
fund, common stock fund, small cap stock fund, international
stock fund, and a life cycle fund) in which employees
can invest.
Thrift
Savings Plans Overview...
• Functions exactly like a civilian 401-k
retirement plan
• Funded with pre-tax dollars similar to the 401-k
• Five index-funds and four target-date Life-Cycle
funds
- Index-funds follow indexes
such as the S&P-500 and the Wilshire-5000
- Life-Cycle funds tend
to be far too conservative for most investors
• Earnings grow tax-deferred until withdrawn
• Money can be withdrawn at 59 ½ years
old without penalty
• Money can be withdrawn early, without penalty
for down payment on home or for
emergency
expenses in the event of a "hardship"
• $15,500 maximum yearly contribution limit
• Employee may borrow between $1,000 and $50,000,
up to 50% of account's face value
and the employee must pay back himself the
loan at a 4% interest rate
What
are the benefits of the TSP?
Benefits include agency matching contributions,
agency automatic contributions, catch up contributions
and low expense ratios. Because the thrift savings plan
is based on tax-deferred contributions, any contributions
made into it will not be taxed until the money is withdrawn,
which can be deferred until retirement. Similar to standard
retirement plans, employees can easily move non-government
related IRA's and
401(k) plans into
the thrift savings plan and vice versa upon employment
changes.
How
can I use my TSP to invest in real estate, private mortgages,
or trust deeds?
The IRS has yet to allow TSP to be set-up with
self-directed custodians but there is a way to use your
TSP to invest in high-yield self-directed investments
like real estate and mortgages.
For
starters you will want to understand that monies in
your TSP can be rolled over, at any time without any
restrictions from your agency's custodian, into the
type of account we most often recommend to our the clients:
a self-directed
IRA (traditional or Roth). Furthermore, there is
no rule against having multiple retirement accounts.
If you have a TSP and you are contributing the maximum
that is matched, then you can contribute more monies
to a separate retirement account -- namely, a self-directed
Roth IRA!
There
is one other way to invest your monies, in a self-directed
manner, effectively without rolling the funds over...
this is how you do it: borrow against your TSP!!! Where
else are you going to get a 4% loan (oh by the way,
you'll be the "bank" that is earning the 4%).
You can easily borrow those monies from your own account
and use those funds to invest in real estate, private
mortgages, trust deed investments, or any other self-directed
investment. There are certainly some restrictions and
you will be subject to capital gains taxes and/or income
taxes on monies earned outisde the TSP but this may
very well be the best way to maximize your returns.
It is also important to note that you will need to pay
back, in full, any outstanding loans you have against
your TSP withhin 30 days of your final date of being
a government employee.
Would
you like more information on Thrift Savings Plans?
Here's a site with more info on the topic of
Thrift Savings Plans and other ways for military and
government employees to invest: http://militarymoneymight.com.
DISCLAIMER:
This is a private partnership
therefore investments are not guaranteed by the FDIC.
WN Funding is not a registered security with the Securities
& Exchange Commission.
All investments are by invitation-only. Be sure
to consult your attorney, accountant, and/or other licensed
professional needed before considering any investment
or partnership with WN Funding.
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