A Thrift Savings Plan is a retirement account, but only if you work for the federal government or military

A Thrift Savings Plan (TSP) is a retirement savings account that works much like a 401(k) — you contribute money from your paycheck, it grows tax-deferred, and you withdraw it in retirement. But unlike a 401(k), you cannot open one on your own. You can only have a TSP if you are a federal employee, a member of the military, or a former employee of either group who still has an account balance.

If you work in the private sector, you cannot use a TSP. You would instead look at a 401(k) through your employer, an IRA, or both. If you are a federal employee or service member, a TSP is usually the main retirement account available to you through your job.

The TSP is run by the Federal Retirement Thrift Investment Board, a government agency. It is not a commercial product — there is no sales pitch, no advisor trying to sell you something, and the fees are among the lowest in the country. That simplicity is by design.

Key Takeaways

  • A TSP is a retirement account only for federal employees, military members, and former members who still have balances in their accounts.
  • You contribute pre-tax money from your paycheck, and the account grows tax-deferred until you withdraw in retirement, the same way a 401(k) works.
  • The TSP offers five basic investment funds and a self-directed brokerage option, with fees that are significantly lower than most 401(k) plans.
  • If you leave federal service, you can keep your TSP account open, roll it into an IRA, or roll it into a new employer's 401(k), depending on your situation.
  • Federal employees can also contribute to an IRA in addition to their TSP, which gives them two separate retirement savings accounts.

How a TSP works if you are a federal employee

When you start a federal job, you become TSP-may be able to access when ready. Your agency will enroll you automatically in the TSP unless you decline. You choose how much to contribute from each paycheck — the money comes out before taxes are calculated, which lowers your taxable income for that year.

Your agency may also match a portion of your contributions. The match rules vary by whether you are under the Federal Employees Retirement System (FERS) or the Civil Service Retirement System (CSRS), so check with your human resources office for the exact amount your agency will match. This match is information programs for retirement, so contributing enough to get the full match is usually the first priority.

The money you contribute buys shares in one of five investment funds: the Government Securities Fund (G Fund), the Fixed Income Fund (F Fund), the Common Stock Index Fund (C Fund), the Small Cap Stock Index Fund (S Fund), and the International Stock Index Fund (I Fund). You can split your contributions among these funds however you want, and you can change your allocation at any time.

How a TSP works if you are military

Military members have access to the TSP through the Blended Retirement System (BRS), which started in 2018. Under BRS, you contribute to your TSP, and the Department of Defense matches a portion of those contributions. The match is automatic — you do not have to do anything to receive it.

The contribution and investment options work the same way as they do for federal civilians: you choose how much to contribute, pick which funds to invest in, and can change your allocation whenever you want. The main difference is the match formula, which is set by military law rather than by individual agencies.

If you are a military member under the older retirement system (before 2018), you may not have a TSP available through your service, though some branches have made it available as an additional savings option. Check with your branch's personnel office to confirm whether you have access.

What happens to your TSP when you leave federal service

Your TSP account belongs to you, not to your employer. When you leave a federal job or retire from the military, you have several choices about what to do with the money.

You can leave the account where it is and let it keep growing. The TSP will continue to accept your contributions if you return to federal service later, and you can withdraw money once you reach age 59½ (with some exceptions for early withdrawal). Many people choose this option because the TSP fees remain low even after they leave.

You can also roll the balance into an Individual Retirement Account (IRA) at a bank or brokerage firm. This gives you more investment choices and more flexibility about when and how to withdraw. A rollover does not trigger taxes or penalties — the money moves directly from the TSP to the IRA.

If you move to a new job with an employer that offers a 401(k), you can roll your TSP balance into that 401(k) instead. Again, this is a direct transfer with no tax consequence. Some employers allow this and some do not, so check with your new employer's benefits office first.

TSP versus a traditional or Roth IRA

A TSP and an IRA are both retirement accounts, but they work differently and have different rules. The main differences are who can open them, how much you can contribute, and what happens when you leave your job.

An IRA is open to anyone with earned income — you do not need to work for the federal government. You can open one at a bank, credit union, or brokerage firm. A TSP is only for federal employees and military members. If you are a federal employee, you can have both a TSP and an IRA at the same time, which means you can save more for retirement than someone who only has an IRA.

The contribution limits are different. For 2024, you can contribute up to $7,000 per year to an IRA (or $8,000 if you are 50 or older). TSP contribution limits are much higher — $23,500 per year for most people, or $31,000 if you are 50 or older. This higher limit is one reason federal employees often prioritize the TSP: you can set aside more money before taxes.

When you leave a job, an IRA stays with you no matter what — there is nothing to do. A TSP stays with you too, but you have the option to move it elsewhere. Both accounts grow tax-deferred, and both have rules about when you can withdraw without penalty.

Understanding TSP investment funds and fees

The TSP offers five index funds that track broad market segments, plus a self-directed brokerage option if you want to pick individual stocks or bonds. The five main funds are straightforward and low-cost: each one tracks a specific market index, and you pay a tiny annual fee (usually well under 0.05%) to own shares.

Compare this to many 401(k) plans offered by private employers, where fees can run 0.5% to 1.5% or higher per year. Over decades, that difference compounds significantly. A federal employee saving for 30 years in a TSP will pay far less in fees than a private-sector worker saving in a typical 401(k).

You do not have to pick just one fund. Most people spread their contributions across multiple funds to balance growth and stability. The TSP website offers sample portfolios based on your age and risk tolerance, which can help you decide how to split your money.

Can you withdraw from a TSP before retirement?

The general rule is that you cannot withdraw from a TSP before age 59½ without paying a 10% penalty on top of income taxes. However, there are narrow exceptions. If you leave federal service after age 55, you can withdraw without the early penalty (though you still owe income tax). If you have a genuine financial hardship, you may be able to take a loan against your TSP balance instead of withdrawing, which lets you repay the money and keep it growing.

These rules are strict, and the TSP does not make exceptions lightly. Before you consider an early withdrawal, talk to a tax professional or your agency's benefits counselor about whether your situation qualifies and what the tax impact will be.

Frequently Asked Questions

Can I open a TSP if I work for a state or local government?

No. A TSP is only for federal employees and military members. State and local government employees have access to different retirement plans, often called 457 plans or 403(b) plans. Your employer's human resources office can tell you which plan you are in.

What if I am a federal contractor — can I use the TSP?

No. Contractors are not federal employees, so they do not have access to the TSP. You would instead open an IRA or a Solo 401(k) if you are self-employed. Some contracting companies offer their own 401(k) plans, so check with your employer.

If I roll my TSP into an IRA, can I roll it back later?

You can roll an IRA back into a TSP only if you return to federal service or military duty. Once you have left, the TSP will not accept a rollover from an outside IRA. Plan your rollover carefully, and consider keeping your TSP where it is if you think you might return to federal work.

Do I have to start withdrawing from my TSP at a certain age?

Yes. Like other retirement accounts, you must begin taking withdrawals from your TSP at age 73 (as of 2023; this age may change). The amount you must withdraw each year is calculated based on your age and account balance. If you do not take the required amount, you owe a penalty.

Can I contribute to both a TSP and an IRA in the same year?

Yes. Federal employees can contribute to a TSP and an IRA in the same year. However, there are income limits on whether you can deduct an IRA contribution from your taxes if you also have a TSP. Your tax professional can help you figure out the right strategy for your situation.