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What Is a Thrift Savings Plan?

Thrift Savings Plan
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Updated April 9, 2024

The Thrift Savings Plan (TSP) is a defined-contribution plan that federal employees and military members can use as one leg of their retirement “stool.” The TSP was established by the Federal Employees' Retirement System (FERS) Act of 1986. In terms of how it functions, it is similar to a 401(k).

Contributing to the TSP can offer some advantages, including the ability to choose your investments and qualify for an employer match. Here's a closer look at the TSP and who can use it to fund their retirement.

How Does the TSP Work?

The TSP allows eligible employees to contribute to their retirement accounts through automatic payroll deductions. Employers also have the option to make matching contributions on behalf of each eligible employee, as with a 401(k).

As the TSP is a defined-contribution plan, the amount of money you're able to withdraw when you retire depends on three things:

  • How much you contribute during your working years.
  • The earnings on those contributions.
  • What amount of contributions, if any, your employer matches.

Once you retire you can draw down your original contributions, earnings, and any matching contributions you received.

The TSP is one part of a retirement package that federal employees can use to save for the future. Workers who are covered by the Federal Employees’ Retirement System (FERS) have access to the TSP, the FERS basic annuity, and Social Security. Individuals who are covered by the Civil Service Retirement System (CSRS) or are a member of the uniformed services can use the TSP to supplement their CSRS annuity or military retired pay.

Who is eligible for the TSP?

The TSP is designed specifically for individuals who are employed by the federal government. In general, you're eligible to participate in the plan if you are:

  • Covered by the FERS and were hired on or after Jan. 1, 1984.
  • Covered by the CSRS, were hired before Jan. 1, 1984, and did not convert to the FERS.
  • An active duty or Ready Reserve member of the uniformed services.
  • A civilian in certain other categories of government service, which can include congressional or judicial positions.

You must be actively employed and working full or part time with a pay status in order to make contributions. If you're unsure whether you're eligible for the TSP, you can check with your personnel or benefits office to verify your status.

Pros and cons of the TSP

The TSP offers both advantages and drawbacks to federal employees when it comes to retirement savings. These include:

Pros:

  • High annual contribution limits, with catch-up contributions allowed for savers 50 and older
  • Automatic payroll deductions and automatic enrollment for most employees
  • Choice between making traditional and Roth IRA contributions
  • Employer matching contributions permitted up to a certain amount, providing free money for retirement
  • Ability for employees to roll over money into their TSP from other retirement accounts
  • In-service withdrawals and loans are allowed, under certain conditions

Cons:

  • Ability to make the full annual contribution can depend on your income
  • Need to allocate at least 5% of your pay to receive the full employer matching contribution
  • Investment options possibly less robust compared with a 401(k) plan
  • Loans and in-service withdrawals only available in limited circumstances
  • Early distributions can trigger tax penalties.

Advantages of the TSP

There are many good reasons to consider contributing to the TSP if you're eligible to do so. Similar to a 401(k), a TSP can yield tax benefits as well as flexibility when it comes to accessing your retirement savings. And employer matching contributions provide free money.

Traditional or Roth options

The TSP allows you to choose between making traditional or Roth contributions. If you choose a traditional TSP, your salary deferrals go into your account before tax withholding. This will lower your income tax rate, but you'll be responsible for paying regular income tax on any withdrawals you make in retirement.

If you opt to make Roth TSP contributions, you'll receive no up-front tax benefit. However, you'll be able to make qualified withdrawals tax free when you retire. It's also possible to split contributions. Note that any matching contributions made by your agency are automatically counted toward your traditional TSP balance.

High annual contribution limits

The Internal Revenue Service (IRS) imposes limits on annual contributions to a TSP. For 2024 that limit is $23,000. There's an additional $7,500 catch-up contribution limit allowed for savers who are age 50 or older. The limit on annual additions, which includes employee contributions and agency contributions, is $69,000. You could potentially set aside a substantial amount of money for retirement if you're able to max out the annual contribution limit each year.

Agency contributions

A TSP allows for two types of employer contributions: agency/service automatic contributions and agency/service matching contributions.

If you're covered by the FERS or the Blended Retirement System (BRS) for uniformed service members, your agency or service automatically contributes 1% of your basic pay to your TSP each pay period. You don't need to make any contributions yourself to receive these contributions.

You can also receive matching contributions on the first 5% of your pay from your agency or service each pay period. The first 3% is matched on a dollar-for-dollar basis, with the remaining 2% matched at 50 cents on the dollar. Thus, if you put in 5% of your pay, your agency can match 4% of that amount, in addition to the 1% automatic contribution.

Loans

If you need cash, it's possible to borrow against your TSP balance. You can get a TSP loan to buy a home or for general purposes. You'll pay a one-time fee for a loan ($50 for a general purpose loan and $100 for a home loan) and interest on the balance. However, interest rates are low and remain fixed for the life of the loan. Repayment terms for general-purpose loans range from 12 to 60 months, while primary residence loans can be repaid over 61 to 180 months.

Rollovers

If you have money saved in other retirement accounts, you can roll over those funds into your TSP account. Eligible accounts include 401(k) plans, 403(b) plans, and traditional IRAs. Rollovers don't count against your annual contribution limit, and you can choose how you want to invest those funds once the rollover is complete.

TSP Considerations

While there's a lot to like about a TSP, it's important to understand its limitations. They center mostly on how you can access your funds.

Loan eligibility is limited

A TSP does allow loans but only when certain conditions are met. To qualify for a loan, you must:

  • Have at least $1,000 of your own contributions and associated earnings in your account.
  • Be currently employed by the federal government, either as a civilian or a member of the uniformed services.
  • Be in pay status in order for loan payments to be deducted from your earnings.
  • Have not repaid any type of TSP loan in full within the previous 30 business days.

There are additional requirements if you're getting a TSP loan to build or buy a primary residence.

Loans are repaid through automatic payroll deductions, and you can continue making regular payments if you separate from service. If, however, you fail to repay a TSP loan. any taxable portion of the balance and accrued interest is treated as a taxable distribution by the IRS.

Hardship withdrawals may be taxable

In addition to getting a TSP loan, you may also be able to make in-service withdrawals in the case of financial hardship. You may withdraw your own contributions and any earnings on those contributions, with a minimum withdrawal of $1,000. To qualify for these withdrawals, you must be able to demonstrate a financial hardship, which can include:

  • A recurring negative monthly cash flow.
  • Medical expenses not covered by insurance.
  • Personal casualty losses not covered by insurance.
  • Legal expenses related to a separation or divorce.
  • Disaster losses.

Hardship withdrawals are taxable at your ordinary income tax rate. If you're under age 59½ at the time you take a hardship withdrawal, you'll also be subject to a 10% early withdrawal penalty. Only tax-exempt Roth contributions and qualified Roth earnings are exempt.

Minimum distributions are required

The IRS requires TSP savers to take minimum distributions from their plan beginning at age 73 (75 for those born after Dec. 31, 1959). Starting in 2024 required minimum distributions (RMDs) apply to traditional TSP balances only; Roth balances are exempt.

Understanding RMD rules is important, as failing to take these distributions on time can result in a steep tax penalty. The IRS can charge a penalty that's equivalent to 50% of the amount you were required to withdraw.

How are TSP funds invested?

TSP funds are invested according to the selections you make. The TSP offers a number of investment options, but it's ultimately up to savers to decide where they'd like to keep their money.

How you choose to invest can depend on your time frame, goals, and risk tolerance. You may choose a more conservative approach if you'd prefer to minimize risk or have a shorter window until you retire. On the other hand, if retirement is decades away or you can stomach more risk, you might take a more aggressive approach.

If you'd like to change your investment mix, you can do so by updating your investment election for new contributions, reallocating existing funds in your account, or transferring money between funds. The TSP allows you to update your investment selections monthly, within certain limits.

TSP investment options

The TSP offers three approaches to investing for retirement. Savers can choose from:

  • Lifecycle funds. These funds adjust their asset allocation to manage risk based on when you'll need to access your retirement savings.
  • Individual TSP funds. Individual TSP funds can offer exposure to a variety of investments, including short-term U.S. Treasurys and index funds composed of stocks and bonds.
  • Mutual fund window. The mutual fund window offers access to a selection of available funds, which may invest in stocks, bonds, and short-term debt. Fees and eligibility requirements apply.

You won't be able to invest in individual securities; all TSP investments are packaged within a mutual fund. Each fund has its own expense ratio and fees to consider, along with different risk and performance profiles. The prospectus for each fund is available for review online.

TSPs vs. IRAs

An individual retirement account (IRA) is also a tax-advantaged way to save and invest. While theTSP is an employer-sponsored retirement plan, an IRA is not. Instead, you can open an IRA at a brokerage, bank, or credit union.

In terms of investment selection, IRAs can also offer access to a range of different mutual funds and index funds. An IRA may, however, allow you to invest in other vehicles, depending on the brokerage that offers it.

You can open a traditional or Roth IRA, both of which follow the same tax rules for contributions and withdrawals as the TSP. Traditional IRAs have RMDs; Roth IRAs do not.

Note that the contributions you are allowed to make to an IRA are considerably lower than for the TSP. The annual contribution limit for all IRAs is $6,500 in 2023 and $7,000 in 2024, with an additional $1,000 catch-up contribution limit for savers 50 and older.

The good news: If you have the funds, you can contribute to both an IRA and a TSP. You just need to follow the restrictions about whether your income lets you contribute to a Roth IRA and how having a TSP affects the deductibility of your annual contribution to a traditional IRA.

TSP vs. 401(k)

The TSP is essentially the equivalent of a 401(k) for federal workers. Both have the same annual contribution limits and allow for traditional or Roth contributions.

Where they differ: Matching contributions for 401(k) plans are not mandatory. Employers can decide whether to match employee contributions or not and, if they choose to do so, in what amount.

A 401(k) plan can also offer a different variety of investment options, which may include target-date funds, traditional mutual funds, index funds, and exchange-traded funds (ETFs).

Should you open a TSP?

TSP enrollment is automatic for most employees, so there's nothing to open. Here's how it works.

  • If you're a FERS, CSRS, or BRS participant who began or rejoined federal employment on or after Oct. 1, 2020, you're automatically enrolled with a 5% salary deferral rate.
  • If you're a FERS or CSRS participant who began or rejoined federal service between Aug.1, 2010, and Sept. 30, 2020, or a BRS member who began or rejoined service between Jan. 1, 2018, and Sept. 30, 2020, you're automatically enrolled at a 3% deferral rate.
  • If you're a FERS employee who was hired before Aug. 1, 2010, or a BRS "opt-in" member and are not making any contributions to your account, you'll still receive the automatic 1% agency/service contribution.

If none of those situations apply to you, you can contact your agency or service to establish and contribute to the TSP.

There's really no reason not to contribute at least the minimum amount to the TSP, as you can grow retirement savings on a tax-advantaged basis. The automatic match and employer match can help you pile up even more money for the future without having to make additional contributions above 5% of your pay.

You can change your election rate at any time if needed or even halt contributions temporarily. However, doing so could mean missing out on the potential to earn more compounding interest on the money you'd ordinarily contribute.

How do I contact TSP administrators?

If you need to get in touch with TSP administrators, you can call ThriftLine at (877) 968-3778. You’ll need your six-digit ThriftLine PIN to access your account. You can also direct general inquiries to thriftline@tsp.gov.

Phone support is available Monday through Friday from 7 a.m. to 9 p.m. EST. If you're outside the U.S., you can call (404) 233-4400 instead. If you have a hearing or speech disability, you can dial 711 from any phone to connect with TSP administrators.

TIME Stamp: The TSP can help federal employees build a secure retirement

If you have access to a TSP, you have a valuable tool for retirement savings. Understanding the various fund options offered—and calculating how much of your pay you can afford to contribute—can help you create your savings strategy.

Frequently asked questions (FAQs)

Is a TSP a good alternative to a 401(k)?

The TSP is like a 401(k), but they aren't the same thing. The TSP is a good alternative to a 401(k) if you're a federal employee or member of the uniformed services, which offer this retirement plan instead of a 401(k). TSPs can offer several tax advantages, along with the same high annual contribution limits as a 401(k), plus employer-matching contributions.

Is a TSP better than an IRA?

A TSP might be better than an IRA with regard to annual contributions, as you can put more money into the plan each year. A TSP also affords an opportunity to earn automatic and matching contributions from your employer, whereas an IRA does not.

What happens to my TSP if I quit my job?

Your TSP doesn't go away just because you change jobs. It'll stay where it is until you either withdraw the funds or roll them over to another eligible retirement account. For example, if you start a job with a new employer that offers a 401(k) that permits rollovers, you could roll your TSP money into that plan.

The information presented here is created independently from the TIME editorial staff. To learn more, see our About page.

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