What Is a Thrift Savings Plan?
The Thrift Savings Plan (TSP) was established by the Federal Employees’ Retirement Security Act of 1986 as a qualified retirement plan for federal employees and uniformed service members. It operates as a defined contribution plan, similar to a 401(k) offered by private sector companies.
Understanding a Thrift Savings Plan
The Thrift Savings Plan (TSP) was established by the Federal Employees’ Retirement Security Act of 1986 as a qualified retirement plan for federal employees and uniformed service members. It operates as a defined contribution plan, similar to a 401(k) offered by private sector companies.
If you are a member of the Federal Employee Retirement System (FERS) or the Blended Retirement System (BRS), your agency may match your contributions to the Thrift Savings Plan (TSP). Typically, agencies automatically contribute 1% of your salary to the TSP, and an additional 4% after you have completed two years of service.
Investing in a TSP
The Thrift Savings Plan allows participants to transfer funds from previous retirement plans, such as an old 401(k) or IRA. If a participant leaves their job and joins the private sector, they have the option to keep their Thrift Savings Plan account or roll it over into their new employer’s plan or a traditional IRA.
While the Thrift Savings Plan has a limited selection of investment options, it provides government workers with a cost-effective means of saving for retirement. Like other qualified retirement plans, participants have the freedom to allocate any percentage of their assets into the funds of their choice.
The available funds are below.10
Individual Funds
- The G fund, which invests in government securities, such as Treasuries
- The F fund, which invests in corporate and government bonds
- The C fund, an index fund representing the S&P 500
- The S fund, which is a small-cap stock index fund—riskier than the C fund, with higher potential gains
- The I fund, an international stock index fund that mirrors the MSCI EAFE Index—the riskiest individual fund, with the highest potential assets
Lifecycle Funds
An additional option is the Lifecycle Fund, which comprises a mix of all five individual funds. As the Lifecycle Fund approaches its maturity date, the portfolio is adjusted to hold a higher proportion of less risky assets.
What Is the Contribution Limit for the Thrift Savings Plan?
The Thrift Savings Plan has an annual contribution limit of $20,500 for 2022 and $22,500 for 2023. For individuals aged 50 and older, an additional catch-up contribution of $6,500 for 2022 and $7,500 for 2023 is allowed.
What Is the Difference Between a Thrift Savings Plan and a 401(k)?
The Thrift Savings Plan is a qualified retirement plan designed for federal employees and members of the uniformed services. Thrift Savings Plan. “About Us.”
On the other hand, a 401(k) plan is a qualified retirement plan tailored for the private sector. While both plans share the same contribution limits and have similar structures, there are some distinctions between them.
What Happens to My Thrift Savings Plan if I Quit My Job?
If you decide to leave your job, your Thrift Savings Plan will remain active if the balance is $200 or more, and it will continue to earn returns. While you will still have control over the account and can make adjustments to your investments, please note that you won’t be able to make any further contributions to the plan.
The Bottom Line
The Thrift Savings Plan is a significant benefit for federal government employees and armed services personnel. It offers a tax-advantaged way to save for retirement, and the government provides matching contributions to assist employees in building their retirement savings. As with any retirement plan, starting early is crucial for maximizing benefits.
