Thrift Savings Plan: What Are Its Benefits And How Do I Buy Crypto With It?
The Thrift Savings Plan (TSP) is the federal government’s equivalent of a 401(k) for its employees. It offers federal employees and members of the uniformed services (both military and non-military) a retirement plan with low fees and diversified investment options.
Understanding the structure and benefits of a TSP can help you know exactly what to look for when opening a new account that can hold assets beyond those that are normally in a conventional IRA, such as cash, mutual funds, stocks, and bonds.
If you’re interested in other assets—including cryptocurrency—and considering a transfer to reallocate your retirement savings, it’s a good idea to review what your TSP entails so you can ask better questions and make the best financial decisions for your nest egg.
If you already know what your TSP involves and want to jump into the benefits of holding crypto in your retirement savings, click here..
What is a Thrift Savings Plan?
A TSP is a tax-deferred retirement savings and investment plan for federal employees and members of the uniformed services, which include the Army, Navy, Air Force, Marine Corps, Coast Guard, Public Health Service, and National Guard.
The TSP is one component of the federal employee retirement package that also includes Social Security and the Federal Employees Retirement System (FERS) basic annuity, which aim to help set employees up with financial stability in retirement. In addition, the TSP has a program known as “Lifecycle Funds” (or “the L Funds”) provide professionally managed investment options.
History of the TSP
Since its inception, the Thrift Savings Plan has been revisited and further refined to help it better serve the employees using it to plan and save for their retirement.
- 1986 – Start of TSP. The TSP was established by the Federal Employees’ Retirement System Act, which was signed into law by President Reagan on June 6, 1986. The law replaced the existing Civil Service Retirement System (CSRS) with FERS.
- 1987 – Employee contributions. The first employee contributions to TSP began in April 1987. Since then, the TSP has grown to more than five million participants and nearly half a trillion dollars in assets, making it the largest defined contribution retirement plan in the world.
- 2001 – Retirement consolidation. Beginning in July 2001, TSP participants were allowed to transfer funds from their IRA and other retirement plans to the TSP.
- 2005 – Lifecycle Funds. In August 2005, Lifecycle Funds were added as an investment option for TSP participants, offering professional management adjusts assets based on the target retirement date.
- 2009 – Thrift Savings Plan Enhancement Act. Signed into law by President Obama in June 2009, this act added automatic enrollment for all new hires, transfers, and reappointments as well as new investment options.
- 2012 – Roth option. In May 2012, TSP participants were given the ability to make after-tax Roth TSP contributions.
What are the benefits of a TSP?
The government has tried to make the TSP an attractive, competitive retirement option for employees trying to save money for retirement. The main benefits of a TSP include:
- Traditional and Roth contributions permitted. Traditional contributions come from your pre-tax income, meaning that retirement earnings are tax-deferred. On the other hand, Roth contributions are tax-free when withdrawn since they come out of your post-tax income.
- Lower fees. Fees charged to a TSP account in 2018 were approximately 40 cents per $1,000 of investment, far below those charged by other retirement plans. This helps you save more money instead of having to spend it on fees.
- Employer automatic and matching contributions. The federal government automatically contributes one percent of your basic pay to your TSP account, regardless of whether you make a contribution or not. The government also provides matching contributions according to the following schedule: the first three percent of pay that you contribute will be matched dollar-for-dollar; the next two percent will be matched at 50 cents on the dollar; and contributions above 5 percent of your pay will not be matched.
- Catch-up contributions allowed. Once you reach 50 years of age, you are eligible to make catch-up contributions as long as you contribute the maximum amount allowed of regular employee contributions for the year to the TSP or to an equivalent tax-deferred employer plan, such as a 401(k) or 403(b) plan.
- Loans and in-service withdrawals for flexibility. You can borrow money from your account up to the amount of your own contributions and earnings. You can also access funds while still employed under certain circumstances, such as financial hardship or age.
Rules of a TSP
To be eligible for a TSP, you must be a federal government employee, a member of the military or other uniformed services, or a civilian in certain other categories of government service. The following TSP contribution limits apply for 2024:
- The elective deferral limit is $23,000. For federal employees, this limit applies to the combined total of Traditional and Roth contributions. For members of the uninformed services, the limit applies to all Traditional and Roth contributions from taxable basic pay, incentive pay, special pay, and bonus pay, but not to Traditional contributions made from tax-exempt pay earned in a combat zone.
- The annual addition limit is $69,000. This limit applies to the total amount of all contributions made on behalf of an employee in a calendar year, including tax-deferred, after-tax, and tax-exempt employee contributions and employer automatic and matching contributions.
- The catch-up contribution limit is $7,500. You must be 50 years or older to make catch-up contributions. This limit is separate from the elective deferral and annual addition limit.
For a Traditional TSP account, you defer paying taxes on your contributions and earnings until you take a distribution. If you are a uniformed services member making tax-exempt contributions, your contributions will be tax-free at withdrawal but your earnings will be subject to income tax.
For a Roth TSP account, you pay taxes on your contributions as you make them, and your earnings are tax-free at withdrawal as long as you meet certain requirements.
For tax advice or to ask questions about taxes, please consult with a qualified tax professional.
Why hold cryptocurrency in my retirement account?
Adding alternative assets like cryptocurrency to your retirement holdings can offer a range of benefits that may help secure your nest egg.
- Diversify your savings. Adding in alternative assets like cryptocurrency expands your holdings, keeping you from placing all of your savings into one basket.
- Benefit from disruption. Cryptocurrency breaks from the traditional banking system, and so it operates somewhat independently from the trends of conventional currency. This could possibly provide some isolation in the event of economic difficulty, and hence even protection.
- Embrace decentralization. Governments and banks cannot directly interfere with your holdings as they can with fiat money, since they are not the controlling entities in charge.
- Leverage tax-deferred status while still buying crypto. Placing your capital as crypto into an IRA means that both it—and any gains you may accrue—can sit tax-free until you are ready to take a distribution. For tax information about your specific situation, consult with a tax professional.
- Protect some savings from inflation. While fiat money is subject to inflation, cryptocurrency instead is affected by adaptive scaling, or natural limits on availability that arise as crypto supply increases. Even if the dollar takes a hit based on inflation, your crypto is not likely to suffer.
- Protect part of your retirement from a stock bubble. On average, every 6-10 years the market price corrects for overvalued stocks. Assets like cryptocurrency function separately from stocks, potentially protecting your holdings from market fluctuations including crashes.
How do I buy cryptocurrency with a TSP?
If you have a TSP and want to add cryptocurrency to your retirement savings, you’ll need to set up a self-directed IRA (SDIRA). This SDIRA will then have its own classification, such as Traditional, Roth, SEP, or SIMPLE.
You can choose to transfer or rollover some or all of your TSP; you might even choose to do this alongside moving funds from other existing retirement accounts. Questions may come up as you consider the logistics and paperwork for doing this, but the good news is that you don’t have to navigate this alone.
Am I Eligible To Transfer My TSP Into a Cryptocurrency IRA?
Generally, you will need to have separated from the military or government service under which you held the TSP, but then you have options regarding how you manage your funds. You can roll them over into an IRA, avoiding withdrawal fees and maintaining tax advantages. If you want immediate access to some or all of your money, you can also choose to withdraw money from your account and transfer some into an SDIRA.
It is always advisable to check with a professional regarding your particular situation, since specific circumstances can affect eligibility.
Opening Your SDIRA with BitIRA
Working with BitIRA to open and manage your SDIRA includes being matched with a Digital Currency Specialist who will be on hand to help you review your existing accounts, explore your options for funding and purchasing your cryptocurrency IRA, as well as answering any questions you may have along the way.
The actual process for adding cryptocurrency to your SDIRA or Digital IRA is straightforward, ultimately coming down to six key steps:
- Request your BitIRA free info guide for creating a Digital IRA.
- Call us at BitIRA, and we will pair you with a Digital Currency Specialist who can answer any questions that you have.
- Consult with your Digital Currency Specialist to identify the funding sources and accounts you can rollover to your SDIRA, including your TSP.
- Pick the classification of SDIRA you want to open.
- Choose what cryptocurrency you want to add to your portfolio, and then purchase it.
- Monitor the performance of you Digital IRA through BitIRA’s Customer Web Portal called My BitIRA.
The process for adding cryptocurrency to your TSP can be simple and straightforward—let us show you how.