TSP Checklist for Federal Employees in 2022 by, Aaron Steele

The start of the New Year provides an excellent opportunity to review your financial plans and strategize how to earn and save more money. It’s a superb opportunity for participants in the Thrift Savings Plan (TSP) to rethink a few crucial things about their contributions.

Below are some tips that might have a significant impact on federal employees’ TSP funds if implemented correctly and regularly. 

1. The TSP Annual Contribution Limit for 2022 Has Changed

In 2022, the maximum annual contribution amount to the TSP will increase to $20,500 ($20,500/ 26 = $788 every pay period). The maximum contribution was $19,500 in 2021.

So if you plan to max out your contribution, you may have to save a little moreabout $1,000 more.  

2. The TSP Catch-Up Contribution Has Not Changed

Federal employees over the age of 50 can still contribute an extra $6,500 to the TSP each year. You can contribute more each pay period in the year you turn 50 ($6,500/26 = $250 per pay period). As the contribution limit rises, you’ll have to reselect this amount each year.

3. Aged 50 or Older Max Funding and Catch-Up Contributions

The maximum total TSP contributions per pay period will be $1,038 in 2022. This is the absolute maximum you can put into your TSP. This amount was calculated by adding the annual contribution of $20,500 ($788 every pay period) to the catch-up contribution of $6,500 ($250 per pay period).

4. TSP Roth Funding

A Roth contribution to the TSP is a great way to create tax-free retirement savings with tax-free growth. Your contributions to a Roth TSP go into the TSP after tax has been withheld. That implies your contributions are taxed at your current income tax rate. The benefit here is that you won’t be required to pay taxes when you take your contributions and any eligible earnings.

You might, however, want to start slow so that you can absorb and pay part of the income taxes now. To progressively absorb the additional tax burden, consider a percentage of your TSP contributions, such as 2% of your 5% total TSP contributions.

Keep in mind that your higher income may influence student grants and other concerns, although most people have found it beneficial.

5. The Contribution Allocations Approach

A contribution allocation shows how you wish to invest money that comes into your account for the first time each payday. Once the money arrives in your account, you can change how it’s invested using an interfund transfer (IFT).

If the stock market falls and you buy the TSP C, S, and I Funds each pay period, you’ll be buying at a discount. In such a situation, dollar cost averaging allows you to profit as the stock market recovers or rises.

So essentially, you’ll buy at low price levels to reduce the overall impact of stock market volatility on your TSP and potentially increase gains over timemaking a falling market work in your favor.

This approach only applies to Contribution Allocation since it is the amount purchased each pay period rather than your overall balance.

6. Rebalance Your Account Yearly

Consider whether your TSP will be used for income if you are nearing retirement, especially if you are within 3-4 years of retiring. If this is the case, create a safe money retirement income strategy involving the TSP G Fund.

What is your contingency plan if the stock market drops in value? Taking monthly income from an asset that could lose money is a risky withdrawal approach.

If the asset decreases in value while you receive income, the market downturn’s impact is magnified. Recognize this threat and devise a strategy to limit it.

Withdrawals from the TSP are pro-rata, which means that an equal amount of money is taken out of each fund. You can’t just take money out of the G Fund as you have to do it proportionately across all funds, which could be risky.

When replacing the G Fund for income, there may be some excellent alternatives to examine outside of the TSP you could consider.

7. Avoid Emotional Responses

When the stock market falls, as it certainly will, you must avoid selling cheap and transferring your whole portfolio to the G Fund. The majority of TSP investors (and investors in general) are unable to time the market. They usually purchase low and sell high.

Instead, make a plan that considers how much risk you’re willing to take and how much money you’ll need, and stick to it. Create a contingency plan in the event of a market downturn so you aren’t left in a risky position.

Conclusion

Retirement planning is a lengthy and unending process, but the effort is well worth it. These 7 points will allow you to strategize better to maximize your TSP this year.

Contact Information:
Email: [email protected]
Phone: 3604642979

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After entering the financial services industry in 1994, it was a desire to guide people towards their financial independence that drove Aaron to start Steele Capital Management in 2013. Armed with an extensive background in financial planning and commercial banking coupled with a sincere passion for helping people, Aaron has the expertise and affinity for serving the unique needs of those in transition. Clients benefit from his objective financial solutions and education aligned solely withhelping them pursue the most comfortable financial life possible.Born in Olympia, Washington, Aaron spent much of his childhood in Denver, Colorado. An area outside of Phoenix, Arizona, known as the East Valley, occupies a special place in Aaron’s heart. It is where he graduated from Arizona State University with a Bachelor of Science degree in Business Administration, started a family, and advanced his professional career.Having now returned to his hometown of Olympia, and with the days of coaching his sons football and baseball teams behind him, he now has time to pursue his civic passions. Aaron is proud to serve on the Board of Regents Leadership for Thurston County as the Secretary and Treasurer for the Morningside area. His past affiliations include the West Olympia Rotary and has served on various committees for organizations throughout his community.Aaron and his beautiful wife, Holly, a Registered Nurse, consider their greatest accomplishment having raised Thomas and Tate, their two intelligent and motivated sons. Their oldest son Tate is following in his father’s entrepreneurial footsteps and currently attends the Carson College of Business at Washington State University. Their beloved youngest son, Thomas, is a student at Olympia High School.Focused on helping veterans and their families navigate the maze of long-term care solutions, Aaron specializes in customized strategies to avoid the financial crisis that care related expenses can create. Experience has shown him that many seniors are not prepared for the economic transition that takes place as they reach an advanced age.With support from the American Academy of Benefit Planners – an organization with expertise and resources on the intricacies of government benefits – he helps clients close the gap between the cost of care and their income while protecting their assets from depletion.Aaron can help you and your family to create, preserve and protect your legacy.That’s making a difference.

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