Yes, a Thrift Savings Plan (TSP) is a retirement account, but only if you work for the federal government or are military

A Thrift Savings Plan is a retirement savings account run by the federal government for its own employees and service members. It works similarly to a 401(k) — you contribute money from your paycheck, the account grows tax-deferred, and you withdraw it in retirement. But TSP is not available to the general public. You can only open one if you are a federal civilian employee, a member of the uniformed services, or a former employee who still has money in the account.

If you work in the private sector or are self-employed, you cannot use a TSP. You would instead use an IRA, a 401(k) through your employer, or another retirement vehicle. TSP is exclusive to federal workers, which is why many people have never heard of it.

Key Takeaways

  • TSP is a retirement account available only to federal employees, military members, and former federal workers with existing TSP balances.
  • You contribute pre-tax dollars from your paycheck, and the money grows tax-deferred until you withdraw it in retirement.
  • TSP has lower fees than most 401(k) plans and offers a choice of investment funds, including a target-date fund that adjusts automatically as you age.
  • Federal employees under the Federal Employees Retirement System (FERS) often receive an employer match on TSP contributions, similar to a 401(k) match.
  • You can roll a TSP balance into an IRA or another retirement account if you leave federal employment, but the rules depend on your employment status and the type of TSP account.

How TSP contributions and employer match work

When you are a federal employee, you can contribute a portion of your salary to your TSP account before taxes are taken out. This reduces your taxable income for the year. The money you contribute is yours immediately — you own it from the moment it enters the account.

If you are a federal civilian employee under FERS, your agency will match a portion of your contributions. The match formula is: your agency contributes 1 percent of your salary automatically, then matches dollar-for-dollar up to 3 percent of your salary, and then matches 50 cents on the dollar for the next 2 percent. This means if you contribute at least 5 percent of your salary, you receive the full match. Military members and federal employees under the Civil Service Retirement System (CSRS) have different match rules or no match at all.

The annual contribution limit for TSP is the same as for 401(k) plans — it changes each year and is set by the IRS. In 2024, the limit was $23,500 for employees under 50, and $31,000 for employees 50 and older (the extra $7,500 is called a catch-up contribution). These limits apply to your combined contributions across all TSP accounts and employer 401(k) plans.

Investment options and fund choices in TSP

TSP offers a smaller menu of investment funds compared to most 401(k) plans. You can choose from five core index funds that track different parts of the market: a U.S. stock fund, an international stock fund, a bond fund, a Treasury securities fund, and a money market fund. You can also invest in a target-date fund, which automatically shifts your money from stocks to bonds as you approach retirement.

The fees charged by TSP are significantly lower than the average 401(k) plan. TSP expense ratios typically range from 0.02 to 0.04 percent per year, meaning you pay very little for the cost of managing your account. This low-cost structure is one of the major advantages of TSP compared to private-sector retirement plans.

You can change your fund choices as often as you want, and you can split your contributions among multiple funds. Many federal employees use the target-date fund as a set-it-and-forget-it option, while others actively manage their allocation.

Withdrawal rules and what happens when you leave federal employment

You cannot withdraw money from your TSP before age 59½ without penalty, with limited exceptions. If you withdraw before that age, you pay income tax on the amount withdrawn plus a 10 percent early withdrawal penalty. The exceptions include substantially equal periodic payments, withdrawals due to disability, and withdrawals made after you separate from service if you are age 55 or older.

When you leave federal employment, you have several options for your TSP balance. You can leave the money in TSP and continue to manage it, withdraw it as a lump sum, roll it into an IRA, or roll it into a 401(k) at a new employer if that plan accepts rollovers. The rules for rollovers depend on whether your TSP account is a traditional (pre-tax) account or a Roth account, and whether you are retiring or simply changing jobs.

If you separate from federal service before age 55, you generally cannot access your TSP without penalty until age 59½. If you separate at age 55 or older, you can withdraw money without the 10 percent early withdrawal penalty, though you still owe income tax. This rule applies only to TSP — it is different from the 401(k) rule, which requires age 55 and separation in the year you turn 55.

TSP versus a traditional or Roth IRA

TSP and IRAs are both retirement accounts, but they work differently and have different rules. An IRA is available to anyone with earned income, regardless of employer. A TSP is only for federal workers. IRAs have lower annual contribution limits ($7,000 in 2024, or $8,000 if you are 50 or older), while TSP has the same limit as a 401(k). IRAs do not offer employer matching, but TSP does for federal employees under FERS.

TSP has stricter early withdrawal rules — you generally cannot touch the money before 59½ without penalty. IRAs allow you to withdraw contributions (but not earnings) at any time without penalty, and they offer more flexibility for certain hardships. However, TSP has much lower fees than most IRAs, especially if your IRA is invested in actively managed mutual funds.

If you are a federal employee, you can have both a TSP and an IRA. Many federal workers max out their TSP first to capture the employer match, then contribute to an IRA for additional tax-deferred savings. The contribution limits are separate — maxing out your TSP does not reduce how much you can contribute to an IRA.

Roth TSP: the after-tax option

In addition to the traditional pre-tax TSP, federal employees can also contribute to a Roth TSP. With Roth TSP, you contribute money that has already been taxed, and the money grows tax-free. When you withdraw in retirement, you pay no income tax on the earnings.

Roth TSP is useful if you expect to be in a higher tax bracket in retirement, or if you want tax-free income in retirement. The contribution limits are the same as for traditional TSP — the $23,500 annual limit applies to your combined traditional and Roth contributions, not to each separately. Employer matching goes into your traditional TSP account, not your Roth account.

The withdrawal rules for Roth TSP are slightly different from traditional TSP. You must have had the account open for at least five years before you can withdraw earnings tax-free, and you must be age 59½. If you withdraw before meeting both conditions, the earnings portion is taxed and may be subject to the 10 percent penalty.

How TSP compares to a private-sector 401(k)

Both TSP and a 401(k) are employer-sponsored retirement accounts with similar contribution limits and tax treatment. The main differences are cost, investment options, and portability. TSP has much lower fees — typically 0.02 to 0.04 percent — while 401(k) plans often charge 0.5 to 1.5 percent or more. Over decades, this difference compounds significantly.

TSP offers a limited but well-designed menu of low-cost index funds. A 401(k) typically offers dozens of funds, which can make choosing harder and may include higher-cost options. TSP's target-date funds are particularly popular because they automatically rebalance as you approach retirement.

If you leave federal employment and move to a private-sector job with a 401(k), you can roll your TSP balance into the new 401(k) if the plan accepts rollovers. You can also roll it into an IRA. This portability makes it easier to consolidate your retirement savings if your career path changes.

Frequently Asked Questions

Can I open a TSP if I work for a contractor to the federal government?

No. TSP is only for direct federal employees, military members, and certain other federal workers. Contractors, even those working on federal projects, cannot open a TSP. You would need to use an IRA or a 401(k) through your contractor employer instead.

What happens to my TSP if I die before retirement?

Your TSP balance passes to your designated beneficiary. You name a beneficiary when you open the account, and you can change it at any time. If you do not name a beneficiary, the money goes to your estate and may be subject to probate. Your beneficiary can withdraw the money, roll it into an IRA, or leave it in TSP to continue growing.

Can I borrow from my TSP like I can from a 401(k)?

Yes, TSP allows loans. You can borrow up to 50 percent of your account balance, with a minimum loan of $1,000 and a maximum of $50,000. You repay the loan through payroll deductions, and the interest you pay goes back into your own account. If you leave federal employment, you typically must repay the loan within 90 days or it is treated as a withdrawal and taxed.

Do I have to take required minimum distributions from TSP?

Yes, but the age depends on when you were born. If you were born before July 1, 1951, required minimum distributions begin at age 70½. If you were born July 1, 1951 or later, they begin at age 73. You can delay distributions beyond the required age if you are still working. Once you retire, you must begin taking distributions according to IRS rules.

Can I roll my IRA into TSP?

Generally, no. TSP does not accept rollovers from IRAs or other retirement accounts. You can roll TSP into an IRA, but not the other way around. This is one reason to prioritize TSP contributions if you are a federal employee — once the money is in TSP, you have the option to move it later, but you cannot move money in.