A Thrift Savings Plan is a retirement account for federal employees and military members

A Thrift Savings Plan (TSP) is a retirement savings account run by the federal government, similar to a 401(k) that a private company might offer its workers. You do not put money into it the way you would a regular savings account at a bank. Instead, you contribute a portion of your paycheck before taxes are taken out, and the money grows over time through investments you choose. The account belongs to you — if you leave your job, the money stays yours.

TSP is only open to people in specific groups: federal civilian employees, members of the military, and people who work for the Peace Corps or certain other government agencies. If you work for a private company or are self-employed, you cannot open a TSP. The account is designed to help you save for retirement, not for everyday expenses or emergencies.

Key Takeaways

  • A Thrift Savings Plan is a retirement account available only to federal employees, military members, and certain government workers — not to the general public.
  • You contribute money through automatic payroll deductions before taxes, which lowers your taxable income for the year.
  • The federal government may match part of your contribution if you are a federal civilian employee, similar to an employer match at a private company.
  • Your money is invested in funds you select, and you cannot withdraw it penalty-free until you reach age 59½ or meet other specific conditions.

How contributions work and what the government matches

When you enroll in TSP, you choose a percentage of your paycheck to contribute — typically between 1% and 75% of your salary. That money comes out before your taxes are calculated, which means you pay less in federal income tax that year. For example, if you earn $40,000 and contribute $200 per month, your taxable income drops to $37,600.

If you are a federal civilian employee, the government will match part of what you contribute, but only if you contribute at least 5% of your salary. The match works like this: the government contributes 1% of your salary automatically, then matches dollar-for-dollar up to 4% more if you contribute that much. So if you contribute 5%, the government adds 5% on top. If you contribute 3%, the government adds only 4% (the automatic 1% plus a 3% match). Military members do not receive a match, though they can still contribute.

The money you contribute and the government's match both go into the same account. You decide how that combined money is invested among several fund options.

The investment funds you choose from

TSP offers five main investment funds, each with a different level of risk and potential return. The Government Securities Investment Fund (G Fund) is the safest — it invests in U.S. Treasury bonds and does not lose value, but the returns are small. The Fixed Income Index Fund (F Fund) invests in bonds and is also relatively safe. The Common Stock Index Fund (C Fund) and Small Cap Stock Index Fund (S Fund) invest in stocks and have higher potential returns but more ups and downs. The International Stock Index Fund (I Fund) invests in stocks outside the United States.

You can also choose a Lifecycle Fund, which automatically adjusts the mix of these five funds as you get closer to retirement. For example, a Lifecycle Fund for someone retiring in 2050 starts with more stock funds when you are young and shifts toward safer funds as you approach that year. This removes the need to rebalance your account yourself.

You can change how your money is divided among these funds as often as you want, and you can change your contribution amount during open enrollment or when your life circumstances change.

When you can take money out and what happens if you withdraw early

TSP is designed for retirement, and the rules reflect that. You cannot withdraw money penalty-free until you reach age 59½, with a few exceptions. If you leave your federal job before that age, you can leave the money in your TSP account and let it grow, or you can roll it into an Individual Retirement Account (IRA) at a bank or brokerage firm. You cannot straightforward cash it out without consequences.

If you withdraw money before age 59½ and you are no longer a federal employee, you will owe income tax on the amount you withdraw plus a 10% early withdrawal penalty. For example, if you withdraw $5,000, you pay income tax on that $5,000 and an additional $500 penalty. The only exceptions are if you are disabled, facing a serious financial hardship that meets TSP's definition, or if you take substantially equal periodic payments over your lifetime.

Once you reach age 59½, you can withdraw money without the 10% penalty, though you still owe income tax. You must begin taking money out by age 73 (this age changes periodically based on federal law), even if you do not need it.

How TSP differs from a regular savings account

A TSP is not a place to keep money for emergencies or near-term goals. Regular savings accounts at banks are liquid, meaning you can withdraw money whenever you need it without penalty. TSP locks your money away until retirement — that is the trade-off for the tax advantages and the government match. If you need money for an emergency, you should have a separate emergency fund in a regular savings account.

TSP also invests your money in the stock market or bonds, which means the value goes up and down. A regular savings account at a bank is insured by the FDIC and does not change in value. With TSP, if the stock market drops, your account balance drops too — though it also grows when markets rise.

What happens to your TSP if you leave your federal job

Your TSP account is yours to keep. If you leave your job, you have several choices: leave the money in TSP and let it grow, roll it into an IRA at a bank or brokerage, or roll it into a new employer's retirement plan if that employer offers one. You do not have to decide when ready — you can leave it in TSP for years while you work elsewhere.

If you leave federal service and want to withdraw money before age 59½, you will face the 10% early withdrawal penalty mentioned above. The exception is if you roll the money into an IRA — once it is in an IRA, the rules are slightly different, and you may have more options for penalty-free withdrawals in specific situations.

Frequently Asked Questions

Can I contribute to a TSP and a regular IRA at the same time?

Yes, you can contribute to both in the same year. However, there are annual limits on how much you can contribute across all retirement accounts combined. For 2024, the limit is $7,000 for an IRA and $23,500 for a TSP (these numbers change yearly). If you contribute to both, the total cannot exceed the combined limit.

What if I do not want to invest in the stock market?

You can put all your money in the G Fund, which is backed by U.S. Treasury bonds and does not fluctuate. Your returns will be lower than stock funds, but your balance will not drop when markets fall. You can also choose a mix — for example, 50% in the G Fund and 50% in the C Fund.

Do I lose the government match if I leave my job?

No. Once the government deposits a match into your account, it is yours. If you leave your job, the match stays in your TSP account and continues to grow. You only lose future matches because you are no longer a federal employee receiving a paycheck.

Can I borrow from my TSP?

Yes, TSP allows loans, but they are not the same as a bank loan. You borrow from your own account and pay yourself back with interest. The interest rate is set by TSP and changes quarterly. If you leave your job before repaying the loan, you must repay it within a set time or it counts as a withdrawal, triggering taxes and penalties.