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TSP and the magic of compound interest

A few things to consider when deciding if you should contribute to the Thrift Savings Plan.

Have you ever wondered if the president of the United States is eligible for a TSP account? According to Kim Weaver, director of external affairs for the Federal Retirement Thrift Investment Board, by virtue of his time in the Senate, President Biden could have a TSP account, however, that information is not public information.  What is public is the number of TSP millionaires: 94,873. It may also surprise you that the majority of the TSP’s 6,887,247 participants have less than a $50,000 account balance as of Sep. 30. Here are the numbers as of the fourth quarter of fiscal 2023:

  • Under $50,000:  4,273,183 accounts with an average of 6.01 years of contributing.
  • $50,000 - $249,000:  1,693,144 accounts with an average of 15.42 years of contributing.
  • $250,000 - $499,000:  546,447 accounts with an average of 21.11 years of contributing.
  • $500,000 - $749,000:  210,508 accounts with an average of 24.15 years of contributing.
  • $750,000 - $999,999:  96,467 accounts with an average of 26.38 years of contributing.
  • $1,000,000 and above:  94,873 accounts with an average of 29.43 years of contributing.
  • LARGEST ACCOUNT BALANCE: $7,226,814.30

As you might expect, the higher balances show the magic of compound interest since the average length of service of the TSP millionaires is almost 30 years. One of the main reasons for so many participants with low balances is that there are 1,294,512 uniformed service members in the Blended Retirement System who participate in the TSP.  According to Weaver, the TSP is adding roughly 200,000 BRS members a year and their balances, by definition, are going to be very small for quite a while. The BRS blends the traditional legacy retirement pension, also known as a defined benefit, with government payments made into individual TSP accounts, also known as a defined contribution. Similar to the difference between the “single benefit” CSRS retirement vs. the three-tiered FERS benefit program that incorporates a defined benefit government pension benefit (FERS Basic Retirement Benefit) with Social Security and the TSP.

Here is the breakdown of TSP participants by retirement system:

  • FERS: 3,999,989 participants with average account balance of $169,504
  • Uniformed Services Legacy (before the BRS):  1,298,254 participants with average account balance of $41,722
  • BRS Participants:  1,294,512 participants with average account balance of $12,664
  • CSRS:  254,266 with average account balance of $190,515
  • Beneficiary Participants (surviving spouses of TSP employee participants):  40,326 with average account balance of $145,767

Mutual Fund Window:  The number of funded Mutual Fund Window accounts doubled during fiscal 2023 from 2,000 to approximately 4,000 accounts. The  MFW is an option designed for TSP participants who are interested in greater investment flexibility. If you meet certain eligibility requirements and pay the necessary fees, you can choose to invest a portion of your TSP savings in your choice of available mutual funds. With this option, you can transfer money from your TSP account, through the mutual fund window, and open a separate investment account provided by our mutual fund window vendor. Once your account is established, you can buy, sell, and exchange mutual funds that you select from those available. If you wish to participate in the MFW, here are the fees you will be required to pay:

  • $55 annual administrative fee to ensure that use of the mutual fund window does not indirectly increase TSP administrative expenses for TSP participants who choose not to use the mutual fund window.
  • $95 annual maintenance fee
  • $28.75 per-trade fee
  • Other fees and expenses specific to the mutual funds you choose which you can review in each fund’s prospectus

Roll-Ins to the TSP:  Employees who have retirement savings plans from their former employers may roll this money into the federal TSP account. The month of September saw 4,566 roll-ins to the TSP, which was the most ever recorded in a single month.  According to the TSP Website, you can rollover money from eligible retirement plans, such as a 401(k), 403(b), or traditional IRA, to your existing TSP account. There are multiple advantages to rollover contributions to the TSP, and you can use this option even after you retire.  Rollovers allow you to consolidate your retirement savings in one place so it’s easier to evaluate whether you’re on target to meet your goals with the right asset allocation. And because the TSP’s low-cost funds are usually less expensive than funds in other employer plans, your savings can grow faster in your TSP account.

Government Shutdown:  In the event of a government shutdown, the TSP is going to continue to operate. According to members of the TSP Board, the Agency has a robust communication plan ready in the event there is a shutdown and shared that participants could obtain all needed information at 

Catch-Up Contributions under the SECURE Act 2.0: The IRS has granted an extension for provision 603 of the SECURE 2.0 Act. On Dec. 29, 2022, President Biden signed the Setting Every Community Up for Retirement Enhancement Act of 2022 (SECURE Act 2.0) into law. SECURE Act 2.0 builds on the 2019 SECURE Act and introduced several changes affecting the Thrift Savings Plan (TSP).  Prior to SECURE Act 2.0, catch-up contributions to a qualified retirement plan could be made on a traditional (pre-tax) or Roth (after-tax) basis. Section 603 of SECURE Act 2.0 (Elective Deferrals Generally Limited to Regular Contribution Limit) states that upon implementation of the provision, a participant’s catch-up contributions must be Roth if the participant’s wages (as defined in 26 U.S. Code §3121(a)) in the preceding tax year were above a certain threshold. Catch-up contributions for participants whose wages were at or below that threshold can continue to be made on a traditional (pre-tax) or Roth (after-tax) basis. SECURE Act 2.0 established the threshold for 2023 wages as $145,000. This threshold will be subject to annual cost-of-living adjustments.

Total TSP:  At the end of December 2022, the TSP had total assets of $726,000,000,000 ($726 Bil). At the end of August 2023, the total assets were$804,000,000,000 ($804 Bil).  Also at the end of August, the participant satisfaction score which takes into account phone calls, web, email, and chat was at 91.43%. What’s not to be happy about? The year-to-date returns of the five core TSP funds at the end of November were:

  • G Fund at 3.82%
  • F Fund at 1.79% 
  • C Fund at 20.76% 
  • S Fund at 13.44% 
  • I Fund at 12.33%