Like a 401(k) plan -- one of the most popular retirement plans in the private sector -- federal employees and members of the military can contribute up to $15,500 in tax-deferred income to their plans in 2008 or up to $20,500 if they are 50 or over. In 2009, those limits are $16,500 or $22,000 for the 50-and-over set.
As in a 401(k), contributions grow tax-free until they are withdrawn in retirement. There's a 10% penalty for money withdrawn before age 59 1/2, with a few exceptions. Mandatory annual withdrawals begin at age 70 1/2.
Federal Employees Retirement System
In addition to the TSP, which depends on employee contributions for its final results, almost all federal employees are covered by a traditional pension plan, which guarantees certain payments in retirement based on years of service and salary.
Employees hired on or after Jan. 1, 1984, generally are covered by the federal employee retirement system. The hiring agency contributes 1% of salary per year to each of those employee's TSP programs, whether or not the employee contributes. The agency will also match up to 5% of each employee's salary if he or she opts to contribute up to that level.
Civil Service and TSPs
The civil service pension plan covers civilian employees hired before 1984. Employees covered by civil service are not eligible for a match or a 1% contribution to their TSPs. They are free, however, to contribute on their own.
Uniformed Services
In general, no matching contributions are offered to military personnel. But contributions that are made from tax-exempt combat or hazardous duty pay are never taxed, even on withdrawal.
TSP Calculators
Investing tax-deferred income can be a powerful tool for building retirement savings, regardless of the type of program. An online calculator can help you determine how your contributions might grow.
