TSP investment basics

The Thrift Savings Plan began offering two new investment funds on May 1 — the first additions since TSP began more than 13 years ago.

The new investment options are the I Fund—the International Stock Index Investment Fund—and the S Fund—the Small Capitalization Stock Index Investment Fund.

The I Fund tracks the performance of large companies in Europe and Asia and mirrors the Morgan Stanley Capital International EAFE (Europe, Australasia and Far East) index. The S Fund tracks the forms of smaller domestic companies that make up the Wilshire 4500 index, which is an index of U.S. stocks not in the S&P 500 index. The Thrift Savings Plan's C Fund tracks the S&P index.

Although the S fund is characterized as a "small stock" fund, that's somewhat misleading. The companies in the Wilshire 4500 index are smaller than those in the S&P 500 index, but many would more accurately be labeled as midcap stocks rather than small-cap stock.

What's interesting is that if you invest in both the C fund and the S fund, your investment will virtually track the performance of all U.S. stocks. Keep in mind that included in this universe are foreign companies that trade on the New York Stock Exchange.

TSP participants may file an election to redirect future payroll contributions to the new funds on the TSP Web site (www.tsp.gov), through the ThriftLine automated telephone service (504-255-8777) or by mailing Form TSP-50 to the TSP recordkeeper. You can now change the way your payroll contributions are being invested in the five funds at any time, instead of only during a TSP open season.

Other changes you should know about: Effective this month, contri.bution limits for Civil Service Retirement System em.ployees will be raised to 6 percent, and contribution limits for Federal Employees Retirement System employees will be raised to 11 percent. All participants who want to increase their contributions may submit requests during the open season that ends July 31.

Effective Jan. 1, 2002, the contribution limits will increase by 1 percent each year until January 2006, at which time the limit will be eliminated completely. The IRS annual deferral limit ($10,500 for 2001) remains in effect. However, the recently passed tax legislation increases the annual deferral limit to $15,000 over a period of years.

Now, direct rollovers from qualified retirement plans established by your previous (private-sector) employer are allowed. These plans are limited to pension, profit-sharing and stock bonus plans, and include 401(k) plans. The new law also allows rollovers from "conduit IRAs" that were set up to accept rollover distributions from qualified retirement plans. However, you cannot roll over money from a regular IRA, mutual fund or savings account.

Zall is a retired federal employee who since 1987 has written the Bureaucratus column for Federal Computer Week. He can be reached at miltzall@starpower.net.

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