What is a Thrift Savings Plan (TSP)?
If you're a federal employee, military member, or former government worker, you likely have a Thrift Savings Plan (TSP), the federal government's version of a 401(k). You contribute money from your paycheck, your contributions grow through investments, and you can access the funds in retirement.
Thrift Savings Plan (TSP) Participation and Limits
Understanding how your TSP works can help you make better decisions about your retirement savings, especially if you're considering leaving federal service or have already transitioned to the private sector.
The Thrift Savings Plan (TSP) is available to most federal employees and military members, including FERS, CSRS, and uniformed service members. When you participate, a portion of your paycheck is automatically contributed to your account, up to annual limits that guide how much you can save.
Contribution Limits
For 2025:
- $23,500 standard limit
- $7,500 catch-up if age 50+ (total $31,000)
- $11,250 special catch-up if age 60–63 (total $34,750)
Contribution Types
- Traditional TSP: Pre-tax dollars; lowers taxable income now, taxed on withdrawal.
- Roth TSP: After-tax dollars; no upfront deduction, tax-free qualified withdrawals.
Government Contributions
- Automatic (1%): FERS/BRS get 1% of pay each period (subject to vesting).
- Matching: Dollar-for-dollar on first 3%, 50% on next 2% (up to 5% total).
Note: All agency/matching contributions go into the Traditional TSP, even if you contribute Roth.
Special Rules
- Uniformed service members: Can contribute from basic, incentive, special, or bonus pay (not housing or subsistence). Tax-exempt pay contributions stay tax-exempt.
- CSRS & legacy uniformed services: No matching, only your own contributions apply.
Investment Options
When it comes to investing, the TSP is straightforward compared to many workplace plans. Instead of sifting through hundreds of fund options, you’ll see just a handful of low-cost index funds, each with a clear purpose. Here are the core options:
- G Fund: U.S. government securities. Very low risk, steady returns.
- F Fund: Bonds. Moderate risk and returns.
- C Fund: Large U.S. companies. Higher risk, higher growth potential.
- S Fund: Small- and mid-sized U.S. companies. Higher risk, higher growth.
- I Fund: International developed markets. Adds diversification, moderate to higher risk.
- L Funds: Target-date funds that automatically adjust over time to become more conservative as you near retirement.
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Get startedWithdrawals and Accessing Your Money
So, what happens when you’re ready to use your TSP savings? You can usually start taking money out at age 59½ without a penalty. If you withdraw funds earlier, you may face a 10% early withdrawal penalty, plus regular federal income taxes. By default, the government withholds 20% of the taxable portion of any lump-sum withdrawal, unless you roll it over into an IRA or another eligible retirement plan.
Roth TSP withdrawals work a bit differently. Your contributions can be taken out tax and penalty-free anytime, and earnings are tax-free if you’re at least 59½ and have held the account for at least five years.
With TSPs, you don’t have to take all your money at once. You can take partial withdrawals or set up regular monthly payments, which can help manage taxes and cash flow. Keep in mind that Traditional TSP accounts Require Minimum Withdrawals (RMDs) starting at age 73, and some states may charge income tax in addition to the federal portion. Certain exceptions, like separation from service after age 55 or disability, can allow penalty-free early withdrawals.
Why the TSP Stands Out
Saving for retirement through the Thrift Savings Plan (TSP) comes with a bunch of advantages designed to make your money work harder for you:
- Automatic savings: Contributions come straight out of your paycheck, so you’re saving without even thinking about it.
- Low costs: Administrative and investment fees are low, which means more of your money stays invested and growing for you.
- Simple, smart investment options: You can pick from a six individual funds, professionally designed lifecycle funds that adjust based on your retirement date, or even use the mutual fund window for extra flexibility.
- Tax choices that fit your situation: Choose Traditional contributions (pre-tax, with tax-deferred growth) or Roth contributions (after-tax, with tax-free growth at retirement if you meet IRS requirements). You can even split between the two.
- Matching contributions: If you’re covered by FERS or the uniformed services’ BRS, your agency or service adds extra money to your Traditional TSP account, boosting your savings.
- Keep it after you leave: If you leave federal service or retire from the military, you don’t lose your TSP. You can keep it (as long as you have a vested balance of $200 or more), cash out, roll it into another account, or even roll other retirement accounts into it if you want to consolidate.
- Access to your money: Under certain circumstances, you may be able to access your funds while still working for the federal government.
- Retirement flexibility: When the time comes, you have a variety of distribution options to fit your retirement needs.
- Protection for your loved ones: Death benefits can provide financial security for your spouse if something happens to you.
What Happens When You Leave Federal Service?
When you separate from government employment, you have several options for your TSP:
- Keep it with the TSP (if balance is $200+)
- Roll it over to an IRA or a new employer's 401(k)
- Take a withdrawal (not typically recommended)
Many former federal employees choose to roll over their TSP to gain more investment options and consolidate their retirement accounts.
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Information contained herein has been obtained from sources considered reliable, but its accuracy and completeness are not guaranteed. It is not intended as the primary basis for financial planning or investment decisions and should not be construed as advice meeting the particular investment needs of any investor. This material has been prepared for information purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Past performance is no guarantee of future results.
