The Thrift Savings Plan is a retirement savings and investment plan for U.S. government employees. The purpose of the TSP is to provide retirement income. It offers the same type of savings and tax benefits that many private corporations offer their employees under so-called “401(k)” retirement plans.

The TSP is a voluntary defined contribution (DC) plan. The retirement income that you receive from your TSP account will depend on how much you (and your agency, if you receive matching contributions) have contributed to your account during your employment, and the earnings on these contributions. The TSP provides a very simple and cost efficient method for investing. Your plan assets are invested in any of the 15 available TSP funds.

The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP and contracts with separate organizations to serve as the TSP record keeper, handle day-to-day maintenance and account administration, process requests for benefits, and provide call center support.

TSP Features and Benefits

The TSP offers the following major features:

  • Pre-tax savings: the money you contribute to the TSP is taken out of your pay before income taxes are calculated. You defer (postpone) paying taxes on the money you contribute until you withdraw these funds from your TSP account — usually when you retire, when your tax bracket may be lower.
  • Tax-deferred investment earnings: you do not pay income taxes on your TSP account earnings until you receive the money — keeping more money invested and working for you. The longer your money is invested, the greater will be the benefit of tax-deferred earnings.
  • High annual contribution limits: you can make an annual tax-deferred contribution of up to $19,500 (as of 2020), and this amount will be adjusted upward in the future. This makes the TSP a superior savings vehicle compared to a traditional IRA.
  • Matching agency contributions: the government will make automatic and matching contributions, based on the employee's contributions, for certain civilian employees in the Federal Employee Retirement System (FERS).
  • A choice of investment in different funds: The TSP allows you to invest in any of the available TSP funds, covering the basic asset classes: domestic and international stock and bond index funds.
  • Low administrative and investment expenses: the annual expense ratio of the TSP funds is extremely low, many times lower than practically all commercially available mutual funds and ETFs.
  • TSP Loans: under certain circumstances, you may be eligible to borrow from your own TSP contributions and earnings.
  • In-service withdrawals: under certain circumstances, you may be eligible to access your TSP savings while you are still employed by the U.S. Government.
  • Interfund Transfers (IFT): subject to certain monthly limits, you may move all or part of the money in your account from one TSP fund to any other fund, without any tax implications. The TSP provides a very simple internet option to get this done within 24 hours.

TSP Disadvantages

While there are many great things to say about the TSP, the plan has a few shortcomings too.

  • The most common complaint is that there are too few investment choices (5 individual TSP funds and 10 target retirement date "asset mixes" of those funds). Depending on your point of view, this is either a benefit (i.e., simplicity) or a drawback. In addition to the available TSP domestic and international stock funds and U.S. bond funds, many TSP participants would like to expand the investment choices into other asset classes: Real Estate (REIT), inflation-protected bonds such as Treasury Inflation Protected Securities (TIPS), Emerging Markets stocks, international investment grade bonds, high yield bonds, or even commodities and precious metals. Sophisticated investors realize that some of these asset classes should only be used for a small part of your retirement portfolio, but it's important to have that choice.
  • Only civilian employees are entitled to matching agency contributions. So if you're in the military service, there may be better alternatives to invest first. For example, every year you could first contribute the maximum allowable amount to your Roth IRA before making any contributions to your TSP.
  • You can no longer contribute to the TSP after your government service ends. You have the option to leave your funds in the TSP, or you can roll them over into a different retirement plan such as a corporate 401(k) or traditional IRA.