Thrift Savings Plan (TSP): What It Is and How It Works

What Is a Thrift Savings Plan?

A thrift savings plan (TSP) is a retirement investment program that is open only to federal employees and uniformed service members, including the Ready Reserve. It is a defined-contribution plan that offers federal employees many of the same benefits that are available to workers in the private sector.

A TSP closely resembles a 401(k) plan offered by private employers.

How a Thrift Savings Plan Works

A TSP offers savers an upfront tax deduction on their contributions and tax-deferred investing. There are several ways to invest in a Thrift Savings Plan. These can include:

• Automatic payroll contributions
• Agency matching contributions
• Tax-deferred contributions in a traditional TSP (withdrawals are taxed in retirement)
• After-tax investments in a Roth TSP (withdrawals are untaxed in retirement)

No matter the type of TSP or contribution structure you choose, the contribution limit is $23,000 for 2024 and $23,500 for 2025. Employees aged 50 or older can also make catch-up contributions of $7,500 in both years.

Starting in 2025, a higher catch-up contribution limit is available to workers aged 60, 61, 62, and 63. This amount is $11,250.

Employees who are new to federal employment can roll over 401(k) and individual retirement account (IRA) assets into a TSP. Rollovers can also go in the opposite direction if federal employees move to the private sector.

TSP Investment Options

The TSP offers a choice of six funds and a mutual fund option:

• The Government Securities Investment (G) Fund
• The Fixed-Income Index Investment (F) Fund
• The Common-Stock Index Investment (C) Fund
• The Small-Capitalization Stock Index Investment (S) Fund
• The International-Stock Index Investment (I) Fund
• Specific Lifecycle (L) funds
• Mutual Fund Window

The F, S, C, and I funds in the TSP are index funds currently managed by the BlackRock Institutional Trust Company under contract by the Federal Retirement Thrift Investment Board (FRTIB).

This independent government agency administers the TSP and acts as a fiduciary that is legally liable to manage the TSP prudently and in the best interests of participants and their beneficiaries.

Index funds in the TSP are designed to match the return characteristics of the corresponding benchmark index. For example, the C Fund is invested in a fund that replicates the S&P 500 Index, which is made up of the stocks of 500 large- to medium-sized U.S. companies.

L funds are invested in the five individual TSP funds, and their asset allocations are based on the individual investor’s time horizon.

The mutual fund window is for TSP participants who want more flexibility in their retirement investments. You can invest a portion of your TSP savings through the TSP mutual fund window into available mutual funds you choose.

However, there are certain requirements for participating in the mutual fund window, such as having at least $40,000 in your TSP account and not investing more than 25% of your account balance in mutual funds using the window.

TSP vs. IRA

Investing in the TSP versus an IRA is not an either/or proposition—you can have both a TSP and an IRA at the same time. One primary difference between them is their respective contribution limits.

Contributions

As mentioned above, for 2024, the annual employee contribution limit is $23,000 for a TSP, with a catch-up contribution of $7,500 for those over 50. That makes the total limit on your contribution $30,500. For 2025, the annual limit is $23,500, with the same catch-up contribution. That makes the total limit $31,000.

For 2024 and 2025, the annual contribution limit for an IRA is much less—$7,000, or $8,000 with a $1,000 catch-up contribution if you are over 50. (If you have multiple IRAs, this is the total amount that you may contribute.)

Thus, a TSP allows you to build your retirement funds faster than an IRA. But if you have the extra money, investing in both a TSP and an IRA gives you a great savings opportunity.

Employer Matching

Another big difference is in the employer match. The federal government provides a sliding percentage scale of matching contributions for your TSP. Even if you contribute nothing, it will contribute 1% of your annual salary to your TSP.

The scale tops out at a 5% government match if you contribute 5% of your salary to your TSP, thus doubling the amount of money invested.

Because an IRA is something you set up for yourself, with no employer involved, there are no employer contributions. (The exception: SEP IRAs and SIMPLE IRAs.)

Fees and Expenses

Investment fees also differ. TSP fees are pretty low, usually around 0.05%, and transparent. In the private sector, IRA investment fees can range from 0.5% to 2.5%, depending on the kind of fund, and it can sometimes be difficult to know exactly how much they are in aggregate.

Withdrawals

Some final differences between TSPs and IRAs have to do with withdrawals. Traditional IRAs and TSPs, as well as Roth TSPs, have required minimum distributions (RMDs) that start at age 73. With an IRA, you are allowed to take any withdrawal amount you like, without a penalty, starting at age 59½.

TSPs only allow you to withdraw monthly, quarterly, or annually. You can request that the payment be a specific dollar amount or an amount based on your life expectancy and account balance that is recomputed annually.

IRAs also have an early withdrawal penalty of 10% for any money taken out when you are younger than 59½. However, if you retire at age 55 or older, TSPs will waive the 10% penalty.

Even better, if you qualify under Federal Employees Retirement System (FERS) special provisions, this age drops to 50.

Contact TSP Administrators

You can call their toll-free Thriftline at 877-968-3778, Monday through Friday, from 7 a.m. to 9 p.m. ET. There is also an international phone line at 404-233-4400 that is not a toll-free line. The 711 TTS Relay is available for people with hearing or speech disabilities by dialing 711. You can also use AVA, the TSP virtual assistant, from your TSP account page.

The Message Center allows you to send and receive messages if you have an online account. Response time is two business days.

The Bottom Line

The Thrift Savings Plan is a retirement plan for federal employees and service members. It is similar to private sector plans like the 401(k). The TSP is not necessarily better or worse than other retirement plans. If you have questions about your plan, contact your TSP administrator.