Comparing the Thrift Savings Plan with the 401k

Both the thrift savings plan and the 401k are types of accounts that allow you to save for retirement. Both of these accounts offer you some advantages and disadvantages when it comes to saving for your retirement. Here are a few things to consider about the thrift savings account and the 401k.

Eligibility

One of the biggest differences between the two types of accounts is eligibility. With the 401k, anyone can get involved. As long as you have an employer that offers a plan and you are over the age of 21, you should be able to get involved. In some cases, you may be required to wait for a certain period of time before you can contribute, but you will be eligible once that time has elapsed.

With the thrift savings plan, not everyone is eligible. In order to get involved with the thrift savings plan, you will have to be a government employee. You have to be a United States Civil Service employee or a member of the uniformed services. This means that the general public will not be allowed to get involved.

Contributions

Both the thrift savings plan and the 401k will allow you to make tax-deductible contributions to your account. They will deduct the amount that you decide out of your paycheck. You will not have to pay any taxes on the money until you reach the age of retirement. Both plans also have the same maximum contribution limit of $16,500 per year. If you are over the age of 50, you can contribute as much as $22,000 per year.

Matching

Both plans also allow you to receive matching contributions into your accounts from your employer. With the 401k, it is up to the employer to decide how much they want to contribute each year. The employer has a maximum that they can contribute of $49,000 per year.

With the thrift savings plan, the matching contributions are the same for everyone. To start out with, you will receive an Agency Automatic Contribution which equals 1 percent of your annual salary. In addition to this, you will receive a dollar-for-dollar matching contribution of up to 3 percent of your income. At that point, you will be able to receive a 50 percent match up to 5 percent of your income.

Investing

Both types of plans will allow you to invest the money in your account. The money that you make from investing is allowed to grow tax-free in the account. While they both allow you to invest, there are some differences in what you can invest in.

With the 401k, you will be able to select from the investment choices that your 401k provider has to offer. This means that you will have a variety of mutual funds to invest in as well as some stocks and bonds.

With the thrift savings plan, you have 10 choices to pick from. You have five index funds and five life-cycle funds that you can invest in.

blog comments powered by Disqus