A TSP account is a retirement savings account for federal employees and military members

TSP stands for Thrift Savings Plan. It is a retirement account offered only to people who work for the federal government or serve in the military. Think of it as similar to a 401(k) that a private company might offer — you set aside money from your paycheck before taxes, the money grows over time through investments, and you withdraw it after you retire.

The federal government does not force you to open a TSP account. It is optional. But if you are a federal employee or military member, you have access to one, and many people use it because the government will match some of the money you contribute — meaning they add information programs to your account.

You can only open a TSP account if you work for a federal agency, the U.S. Postal Service, or serve in the military. If you work for a state or local government, or for a private company, you cannot use a TSP account. Your employer would offer a different retirement plan instead.

Key Takeaways

  • A TSP account is a retirement savings account available only to federal employees and military members, not to private-sector workers.
  • You contribute money from your paycheck before taxes are taken out, and the federal government will match a portion of what you contribute.
  • Your money is invested in funds you choose, and you do not pay taxes on the growth until you withdraw the money in retirement.
  • You control when and how much you contribute, and you decide how your money is invested among the available fund options.

How contributions and government matching work

When you enroll in a TSP account, you decide what percentage of your paycheck goes into the account. This money is taken out before your income taxes are calculated, which lowers the amount of tax you owe that year. For example, if you earn $50,000 and contribute $5,000 to your TSP, you only pay income tax on $45,000.

The federal government will match part of what you contribute. The exact match depends on your agency and how long you have worked there, but a common match is: the government contributes 1% of your salary automatically, and then matches dollar-for-dollar up to 4% of what you contribute. This means if you contribute 4% of your salary, the government adds another 4%. This matching money is free — you do not have to earn it back or repay it.

You can change how much you contribute whenever you want. You can increase it, decrease it, or pause contributions entirely. The government match only applies to money you actually contribute, so if you stop contributing, the matching stops too.

How your money is invested

Once money is in your TSP account, it does not sit in cash. You choose how to invest it among five main fund options. Each fund invests in different types of securities — stocks, bonds, or a mix of both. The funds are named by letter: the C Fund (stocks), the S Fund (stocks), the I Fund (international stocks), the F Fund (bonds), and the G Fund (government bonds).

You decide how to split your money among these funds. Some people put all their money in one fund. Others split it across several. The fund you choose affects how much risk you take and how much your money might grow. A fund with more stocks tends to grow faster but can lose value in a down market. A fund with more bonds grows slower but is more stable.

You can change how your money is invested as often as you want, at no cost. Many people adjust their investments as they get closer to retirement — moving money from riskier stock funds to safer bond funds.

When you can withdraw your money

You cannot withdraw money from your TSP account whenever you want. The account is designed for retirement. If you withdraw money before you reach age 59½, you usually have to pay a 10% penalty on top of income taxes. There are a few exceptions — for instance, if you are experiencing severe financial hardship, you may be able to withdraw without the penalty — but these are narrow.

Once you reach age 59½, you can withdraw money without the penalty. You will still owe income taxes on the withdrawal, but not the extra 10%. You do not have to withdraw anything at that age; you can leave the money invested and keep it growing.

At age 73, the government requires you to start taking withdrawals, whether you need the money or not. These are called required minimum distributions. The amount you must withdraw each year is calculated based on your age and account balance.

The difference between a traditional TSP and a Roth TSP

When you open a TSP account, you choose whether to use a traditional TSP or a Roth TSP. The difference is when you pay taxes.

In a traditional TSP, you contribute money before taxes, so you do not pay income tax on that money in the year you contribute it. When you withdraw in retirement, you pay income tax on the full amount you withdraw. This is useful if you expect to be in a lower tax bracket in retirement than you are now.

In a Roth TSP, you contribute money after taxes — meaning you pay income tax on it in the year you contribute it. But when you withdraw in retirement, you do not pay any income tax on the withdrawal. This is useful if you expect to be in a higher tax bracket in retirement, or if you straightforward want to know that your withdrawals will not be taxed.

You can have both a traditional TSP and a Roth TSP at the same time, and split your contributions between them. The government match goes into your traditional TSP only, not your Roth.

What happens to your TSP when you leave your job

If you leave federal employment or the military, your TSP account stays open. The money remains invested and continues to grow. You do not have to do anything when ready.

You have options for what to do with the account. You can leave it where it is and keep it invested in the TSP funds. You can roll it over into an Individual Retirement Account (IRA) at a bank or brokerage firm, which gives you more investment choices. You can roll it into a new employer's retirement plan if your new job offers one. Or you can withdraw the money, though you will owe taxes and possibly a penalty if you are under 59½.

The choice depends on your situation and how much control you want over your investments. Many people leave the money in the TSP because the fees are low and the funds are straightforward.

TSP fees and costs

One reason people keep money in a TSP after leaving federal employment is that the fees are very low. The TSP charges an annual administrative fee — currently a small flat amount per year — and each fund charges an expense ratio, which is a percentage of the money in that fund. These ratios are typically less than 0.05% per year, which is much lower than what you would pay at most banks or investment firms.

You do not pay a fee to open a TSP account, to make contributions, to change your investments, or to withdraw money. The only costs are the annual administrative fee and the fund expense ratios, which are deducted automatically from your account.

Frequently Asked Questions

Can I contribute to a TSP if I am part-time or a contractor?

It depends on your status. Some part-time federal employees can contribute to a TSP. Contractors typically cannot. Check with your agency's human resources office to find out whether you are covered under the TSP plan.

What happens to my TSP if I die before I retire?

Your TSP account becomes part of your estate and passes to whoever you named as your beneficiary. If you did not name a beneficiary, the money goes to your spouse, then your children, then your parents, depending on who survives you. You can change your beneficiary at any time through the TSP website.

Can I borrow money from my TSP account?

Yes. You can take a loan from your TSP account and repay it over time. The interest rate is set by the TSP and is typically lower than a bank loan. However, if you leave federal employment before you repay the loan, the unpaid balance is treated as a withdrawal and you owe taxes and penalties on it.

Is a TSP account the same as Social Security?

No. A TSP account is a retirement savings account you control. Social Security is a separate federal benefit that federal employees receive based on their work history. Most federal employees receive both a TSP account and Social Security in retirement.

What if I do not want to contribute to a TSP?

You do not have to. Contributing is optional. However, if you do not contribute, you lose the government match, which is information programs. Most financial advisors recommend contributing at least enough to get the full match.