- The Washington Times - Monday, January 9, 2006

Listing the good points of being age 50 or older wouldn’t take very long for most who’ve crossed that magical threshold.

But there is one advantage to reaching the half-century mark if you participate in Uncle Sam’s in-house 401(k) plan, the Thrift Savings Plan. The magic words are: Catch-up contributions.

Effective Jan. 1, over-50 federal-military investors can put in an extra $5,000 for the year 2006. That’s in addition to the new, higher limit of $15,000 that TSP investors will be able to contribute via payroll deduction this year.

Both the catch-up contributions and the regular TSP contributions (for a total of $20,000) are tax-deferred. And they are in addition to the 5 percent matching contributions (also tax-deferred) that is available to the majority of civilian federal investors. The match does not go to military personnel, nor to employees under the old Civil Service Retirement System.

New 2006 rules also eliminate the percentage-of-salary limits that the TSP formerly imposed. That prevented lower-paid workers from putting in the maximum individual contributions allowed by the Internal Revenue Service for higher-income employees. Now — if you can find the money — even the lowest-paid fed can put in as much as higher-paid feds.

The federal Thrift Savings Plan is considered one of the best 401(k) plans around. That’s because it has two things that are unique to the 401(k) community. One is the G-fund. It’s made up of special-to-feds U.S. Treasury securities that never have a bad day.

The second feature is that the administrative fees charged TSP participants are the lowest in the business (about half the rate charged by the next-lowest mutual fund). That’s a feature that can add thousands of dollars to your account balance over a full career of investing.

The TSP has five funds that cover the U.S. and world stock markets, plus a series of Lifecycle funds tailored for the date you plan to begin withdrawing from your account. The so-called L-funds are adjusted daily and become slightly more conservative as you age and get closer to retirement.

Last year, I-fund (an international stock index) was the best performer for the second consecutive year with a return of 13.6 percent. The S-fund, which tracks all but the 500 largest U.S. companies, returned 10.45 percent. The supersafe G-fund returned 4.49 percent compared with only 2.40 percent for the slightly more volatile F-fund, which is a bond index. The popular C-fund (which tracks the Standard & Poor’s 500) returned 4.96 percent.

As more private companies freeze or eliminate pension plans, and drop matching contributions to employee accounts, the TSP stands out as the bright, shining investment option on the hill. The fact that it holds much of the optional retirement nest egg for top political appointees, members of the House and Senate and retired officials means it is going to be around for a long time, and subject to extreme and continuing oversight.

Congress is expected to consider adding an R-fund to the TSP lineup. Backers say the fund, which would be a REIT (as in real estate investment trust), would be made up of commercial real estate which, in recent years, has been a big gainer. Opponents argue that federal-military people already hold real estate investments in the C and S funds, and that the potential for risk is too great.

But for the vast majority of feds the greatest risk they take — of retiring without sufficient funds — is failure to take advantage of the TSP.

Mike Causey, senior editor at Federal News Radio AM 1050, can be reached at 202/895-5132 or [email protected]

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