The Thrift Savings Plan is a retirement savings account, but only for federal employees, military members, and certain other government workers

The Thrift Savings Plan (TSP) works like a 401(k) for people who work for the federal government or serve in the military. You contribute money from your paycheck, the money grows tax-deferred, and you withdraw it in retirement. If you are a federal employee or active-duty or retired military member, TSP is your primary retirement savings vehicle — not an IRA.

If you do not work for the federal government or military, you cannot open a TSP account. You would use an IRA, a 401(k) through your employer, or another retirement account instead. The TSP exists only within the federal system and is run by the Federal Retirement Thrift Investment Board, a government agency.

TSP is not a choice you make alongside an IRA. It is the account your employer (the federal government) offers you. You can have both a TSP and an IRA, but they are separate accounts with separate contribution limits and separate rules.

Key Takeaways

  • TSP is a retirement account available only to federal employees, military members, and certain other government workers — not to private-sector employees.
  • You contribute pre-tax money from your paycheck, and the account grows tax-deferred until you withdraw in retirement, similar to a 401(k).
  • The federal government may match a portion of your contributions if you are a federal employee, though military matching rules differ.
  • You can have both a TSP and an IRA at the same time, but they have separate contribution limits and withdrawal rules.
  • Withdrawals before age 59½ usually trigger a 10 percent penalty plus income tax, with limited exceptions for federal employees who separate from service.

How TSP contributions and matching work

You contribute to TSP through payroll deductions — money comes out of your paycheck before taxes are calculated. For federal employees, the government matches a portion of what you contribute, up to a maximum. The exact match depends on how much you put in: if you contribute 5 percent of your salary, the government contributes 5 percent. If you contribute less, the match is smaller. If you contribute more than 5 percent, the government still only matches up to 5 percent.

Military members do not receive matching contributions. Instead, the military automatically contributes 1 percent of your basic pay to your TSP account, regardless of whether you contribute yourself. If you do contribute, you do not receive additional matching.

For 2024, the contribution limit is $23,500 per year if you are under age 50, and $31,000 if you are 50 or older (the extra $7,500 is called a catch-up contribution). These limits change annually and are set by the IRS. The matching contribution does not count toward your personal limit — it is separate.

Investment options within TSP

TSP offers a limited menu of investment funds, not the thousands of options you might find in a brokerage IRA. You can choose from five individual funds (Government Securities Fund, Fixed Income Fund, Common Stock Index Fund, International Stock Index Fund, and Small Capitalization Stock Index Fund) or use a Lifecycle Fund, which automatically adjusts its mix of stocks and bonds as you approach retirement.

The funds are low-cost — expense ratios are typically under 0.05 percent, which is much cheaper than most mutual funds or IRAs. You can move money between funds as often as you want without penalty or tax consequence, though TSP does not allow day trading or frequent trading patterns.

You manage your TSP account through the TSP website or by phone. You can change your contribution amount, adjust your fund allocation, or view your balance anytime.

Withdrawal rules and penalties

You can withdraw money from TSP starting at age 59½ without penalty. If you withdraw before that age, you generally owe a 10 percent early withdrawal penalty plus income tax on the amount withdrawn. However, federal employees who separate from service (resign, retire, or are laid off) at age 55 or older can withdraw without the 10 percent penalty, though they still owe income tax.

Military members have a different rule: if you separate from service before age 59½, you can withdraw without the 10 percent penalty only if you are a may have access to reservist or meet other narrow exceptions. Otherwise, the 10 percent penalty applies.

You are not required to take withdrawals at any specific age — there is no required minimum distribution (RMD) for TSP accounts. You can leave the money invested as long as you want, even after you stop working. When you do withdraw, you can take a lump sum, set up monthly payments, purchase an annuity, or use a combination of these methods.

TSP versus an IRA: which account matters more

If you are a federal employee or military member, TSP is your primary retirement account. The government match (for federal employees) and the low fees make it the best place to save first. You should contribute enough to get the full match before putting money into an IRA.

After you have maximized the TSP match, you can open an IRA and contribute to both accounts. An IRA gives you more investment choices and more flexibility in how you manage the account. You can also roll over a TSP into an IRA when you leave federal service, though you cannot move an IRA into a TSP.

If you are not a federal employee or military member, TSP does not apply to you at all. You would use an IRA, a 401(k) through your employer, or both.

What happens to TSP when you leave federal service

When you separate from federal employment or military service, your TSP account stays open. You do not have to withdraw the money immediately. You can leave it invested, continue to manage it, and withdraw whenever you choose (subject to the age and penalty rules above).

You also have the option to roll your TSP balance into an IRA or into a 401(k) at a new employer. A rollover moves the money tax-free from one account to another. This is useful if you want more investment options or if you prefer to consolidate your retirement accounts in one place. Once you roll TSP into an IRA, you cannot move it back into TSP.

If you do not touch your TSP account and you are a federal employee, you become may be able to access for a federal pension based on your years of service. The pension and TSP work together as your retirement income — they are not mutually exclusive.

Frequently Asked Questions

Can I open a TSP account if I work for a private company?

No. TSP is available only to federal employees, military members, and certain other government workers. If you work in the private sector, you would use an IRA or a 401(k) offered by your employer. Some private employers offer 401(k) plans that function similarly to TSP, but they are not TSP accounts.

What is the difference between TSP and a 401(k)?

TSP is a 401(k)-style plan run by the federal government for its employees. The main differences are that TSP has lower fees, a smaller selection of investment funds, and different matching rules. A 401(k) is offered by a private employer and typically has higher fees and more investment options. The contribution limits and withdrawal rules are similar.

Can I have both a TSP and an IRA at the same time?

Yes. You can contribute to both a TSP and an IRA in the same year, as long as you stay within the separate contribution limits for each account. However, if you have a workplace retirement plan like TSP, your ability to deduct IRA contributions on your taxes may be limited depending on your income.

What happens to my TSP if I die before retirement?

Your TSP balance passes to your designated beneficiary. If you have not named a beneficiary, the money goes to your spouse, or if you have no spouse, to your children or estate according to federal law. Your beneficiary can withdraw the money as a lump sum, roll it into an inherited IRA, or take monthly payments.

Do I have to withdraw my TSP when I turn 72?

No. Unlike traditional IRAs, TSP does not have a required minimum distribution age. You can leave your money invested in TSP as long as you want. However, once you do start withdrawing, you can choose how much to take and when, or you can set up automatic monthly payments.