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Thrift Savings Plan (TSP)

Thrift Savings Plan (TSP)

What is a TSP (Thrift Savings Plan)?

A TSP is a type of pension investment program open only to federal employees and uniformed military personnel, including Ready Reserve. It is a defined contribution plan that offers federal employees many of the same benefits as those offered to federal employee workers in the private sector. A TSP is very similar to a 401(k) plan.

How a TSP works

The benefits of the thrift savings plan can include automatic employee contributions and agency correspondence contributions. Participants in a thrift savings plan can choose to make tax-deferred contributions to a traditional Thrift Savings Plan, which means that the money in the account will not be taxed before retirement. They can also choose to invest in a Roth Thrift Savings Plan. This option enables employees to make after-tax contributions to their plans so that they owe nothing in taxes when they withdraw the funds after retirement.

Newly hired federal employees can transfer 401(k) assets and Individual Retirement Account (IRA) to a TSP and vice versa if they move into the private sector.

A Thrift Savings Plan is a defined contribution pension plan that has many advantages over the private sector plans.

Investment Options

TSP offers the possibility of investing in six funds: 

  • Specific lifecycle (L) funds designed to include a mix of securities held in each of the other five individual funds

  • The Common-Stock Index Investment (C) Fund

  • The Fixed-Income Index Investment (F) Fund

  • The International-Stock Index Investment (I) Fund

  • The Small-Capitalization Stock Index Investment (S) Fund

  • The Government Securities Investment (G) Fund

TSP's F, S, C, and I funds are index funds currently managed by BlackRock Institutional Trust Company under contract with the FRITIB (Federal Retirement Thrift Investment Board). This independent government body administers the TSP and acts as a legally responsible administrator to administer the Thrift Savings Plan prudently and in the best interests of both the participants and their beneficiaries.

Thrift Savings Plan index funds are designed to mimic the performance characteristics of the corresponding benchmark index. For example, Fund C is invested in an equity fund that tracks the S&P 500 Index, which includes stocks of 500 large and mid-sized companies in the United States. The funds are invested in TSP's five individual funds, and their asset allocation is based on the individual investor's time horizon.

IRAs vs. TSP 

This is not a proposition or another, as you can have a Thrift Savings Plan and an IRA at the same time. One of the major differences between them is in the respective contribution limits. For the 2021 tax year, the annual limit is $19,500 for a TSP ($20,500 for 2022); for an IRA, it's much less: $6,000 ($7,000 if you are over 50 years of age), and that's a combined total if you have multiple IRAs. Therefore, a TSP allows you to build up your pension fund at a faster rate than an IRA.

Another big difference is the compatibility with the employer. The federal government provides a variable percentage scale of appropriate contributions to TSPs. Even if you do not pay anything, you will pay 1% of your annual salary to TSP. The scale reaches a maximum of 5% government compatibility if you pay 5% of your salary to your Thrift Savings Plan, thus doubling the amount of money invested. Because an IRA is something you create for yourself without any employer, there are no corresponding contributions.

Investment rates also differ. TSP rates are quite low, typically around 0.05% and transparent. In the private sector, IRA investment rates can range from 0.5% to 2.5%, depending on the type of fund, and it can sometimes be hard to say exactly how much they are in aggregate. However, Individual Retirement Accounts offer a greater variety of investment opportunities than Thrift Savings Plans, which are limited to the six funds listed above. This allows the holder of the IRA to be more aggressive in his investment strategies than the holder of the TSP.

Some final differences relate to withdrawals. Traditional IRAs and TSPs, and Roth TSPs have a required minimum distribution (RMD) from age 72 (only Roth IRAs are not subject to RMD). With an IRA, you can make any withdrawals you want, without penalty, from age 59 and a half. TSPs allow you to make monthly, quarterly, or annual withdrawals only. You can appeal that the payment be a certain dollar amount or an amount based on account balance and life expectancy, which is recalculated each year.

IRAs have a 10% prepayment penalty for any money withdrawn when you are under 59 and a half. However, if you retire at 55 years of age or over, TSPs will waive the 10% penalty, with that age reduced to 50.

Is a Thrift Savings Plan the same as a 401(k)?

Not exactly, although they are similar in structure and have the same contribution limits. A Thrift Savings Plan is what the federal government offers in place of a 401(k), which is similar to private employers.


Is a TSP better than an IRA?

Most likely, the answer is no. With a Thrift Savings Plan, you can contribute significantly more each year, expect matching contributions from the federal government, and pay less investment tax. However, you have more control over your investment with an IRA, and there is no limit on pension withdrawals, while you can only withdraw a fixed monthly, quarterly, or annual amount from a TSP. However, you will likely have more money in a TSP than in an IRA when you retire. Also, you can have both at the same time.

How can I contact the TSP administrators?

If you have an online account, a message center allows you to send and receive messages. The response time is two working days. Finally, individual mailboxes and/or email addresses are listed on the TSP website for certain categories of claims (loans, death benefits, court orders, federal taxes, press releases, etc.).


  • A Thrift Savings Plan (TSP) is similar to a 401(k) plan but is only open to federal employees and military personnel in uniform.

  • Plan members can invest their money in one of six investment options.

  • TSP participants can earn tax-free savings immediately or invest in a Roth to be tax-exempt after retirement.



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