What Is a Thrift Savings Plan?

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What is a Thrift Savings Plan (TSP), and how is it different than a 401(k) or IRA?

To start, money expert Clark Howard calls a Thrift Savings Plan “the best retirement plan in America.”

In this article, I’ll explain why it’s so beneficial, who is eligible to participate, how TSPs work, the 2022 contribution limits and withdrawal and tax rules.

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What Is a Thrift Savings Plan and Who Is Eligible To Participate?

A Thrift Savings Plan is the equivalent of a 401(k) for workers in the public sector. In other words, it’s a tax-advantaged retirement plan for government employees.

As of Dec. 31, 2020, more than 6 million people were participating in TSPs, with more than $735 billion in assets under management.

The rules are identical or nearly identical to 401(k) plans in terms of the amount of money you and your employer can contribute and when the government requires you to withdraw and pay taxes on the money. However, the fees you pay in a Thrift Savings Plan are tiny, “usually around 0.05%,” according to Investopedia.

“What’s so fantastic about the Thrift Savings Plan is that you have these teensy tiny, almost invisible management costs. So every penny you put in is going to be working for you, not for some fund manager,” money expert Clark Howard said on a recent podcast

“Put in the highest percentage of your pay that you can possibly stand, even up to the max each year.”

The following groups are eligible to participate in a TSP:

How Does a TSP Work?

If you’re eligible for a Thrift Savings Plan, your employer will often tell you about it during your job orientation.

Do you plan to contribute to a workplace TSP? You have a few choices to make:

  • What percentage of your pay are you going to contribute?
  • Are you going to contribute to a traditional or Roth TSP? (The differences are the same as they are for IRAs and 401(k) plans.)
  • How are you going to invest your money within your TSP? (There are six options.)

There are two vital things to understand about TSP plans:

  1. Many companies offer a “match.” If you put your money into their TSP, they’ll put company funds into your retirement account as well. The maximum match for a TSP is typically 5% of your salary.
  2. Thrift Savings Plans offer huge tax advantages. You can reduce your taxable income, or you can pay taxes upfront and withdraw tax-free in retirement. Either way, you won’t owe taxes on your investments as they grow.

What Is a Thrift Savings Plan? Additional Nuances

Civilian employees can contribute only from their regular pay to their TSP (as opposed to bonus or overtime pay). Uniformed service members can contribute from regular pay or bonus or overtime pay.

If you’re a FERS employee, you’ll automatically get 1% of your salary put into a TSP whether you contribute or not. It will take three years for these funds to vest. In other words, the free retirement funds go away unless you stay on the job for three years. So it’s a retention strategy.

Some employees get automatically enrolled into making TSP contributions. The money typically gets invested in a life-cycle fund. This surprises some people, who sometimes aren’t aware some of their salary is getting diverted into a retirement account. So if you work in the public sector, that’s something to look into.

You can roll over a 401(k) or an IRA into a TSP if you move from the private sector to the public sector. You can also do the same thing in reverse if you move from a government job to working for a private company.

Typically, you won’t have access to a 401(k) and a TSP at the same time. But you can contribute to a TSP and an IRA simultaneously.

What Are the TSP Contribution Limits for 2022?

Thrift Savings Plan Contribution Limits2022
Maximum employee contributions (under age 50)$20,500
Employee catch-up contributions (age 50+)$6,500
Contribution limit, all sources (under age 50)$61,000
Contribution limit, all sources (age 50+)$67,500

The Thrift Savings Plan contribution limits are essentially a carbon copy of the 401(k) contribution limits for 2022.

If you will be younger than 50 years old on Dec. 31, 2022, you can contribute up to $20,500 to your TSP plan this year. That remains the case even if you’re splitting your contributions between traditional and Roth TSP plans.

Those 50 and older are allowed an additional $6,500 in “catch-up” contributions. If your employer allows it, you can also make after-tax contributions that go beyond the base contribution limits.

Including your contributions and any money your company contributes to your TSP, the IRS allows you to put up to $61,000 in new money into your TSP in 2022. (That number rises to $67,500 for those 50+.)

Thrift Savings Plan Investment Options

You Have just six investment options available inside your TSP. That expands to 15 if you count the 10 different “life-cycle” funds, which is the target date fund equivalent.


Here are your choices:

  1. Government Securities Investment (G) Fund: Based on U.S. Treasuries.
  2. Fixed-Income Investment (F) Fund: Tracks a specific index fund that holds U.S. government bonds.
  3. Common-Stock Index Investment (C) Fund: Replicates the S&P 500.
  4. Small-Cap Stock Index Investment (S) Fund: Tracks a specific Dow Jones index comprised of small- and mid-cap companies.
  5. International-Stock Investment (I) Fund: Holdings consist of stock in non-U.S. companies.
  6. Life-cycle funds: Available in five-year increments that represent your expected retirement date, these funds include a mixture of each of the five other funds, balanced to an appropriate level of risk based on how close you are to retirement.

The risk level is supposed to increase from 1 to 5, with the G and F Funds representing the least amount of risk.

BlackRock manages the F, C, S and I funds, which are all index funds. BlackRock has a contract with the Federal Retirement Thrift Investment Board (FRTIB), an independent agency that serves as a fiduciary.

The TSP investment options are much more restrictive than a typical 401(k).

Clark calls target date funds “the easy button” of retirement in a typical 401(k). He advocates for the target date equivalent — the life-cycle fund — for most people. Just pick the date closest to when you think you’ll retire and put all your TSP money into that fund.

Withdrawal Tax Rules and Required Minimum Distributions

Perhaps the most complicated aspect of any tax-advantaged retirement plan is, well, taxes.

The government structures retirement plans to benefit you, so hopefully you can support yourself in retirement. However, the IRS wants its cut of your income at some point.

In order to encourage you to let your investments grow for a long time, you usually can’t withdraw money scot-free from a TSP until age 59½. However, if you’re 55+ and retired, or if you’re 50+ and you qualify under a special FERS provision, the IRS won’t slap you with a 10% early withdrawal penalty.

Also, if you’re at least 72 years old but still working, you can delay your withdrawals until the year after you stop working.

You can’t leave your money in your TSP forever. In order to get its cut of your funds, the IRS mandates that you start withdrawing a certain amount every year once you turn 72 years old. These are called Required Minimum Distributions (RMDs).


Withdrawing Money from a Thrift Savings Plan Can Be a Hassle

It’s not as easy to withdraw money from a Thrift Savings Plan as it is from an IRA or even a 401(k).

The initial process can take up to eight weeks. You have to send the TSP Service Office several forms. Depending on how old you are, that can include an Employee Data Record from your office that indicates you have separated as an employee.

You can withdraw only monthly, quarterly or annually. Contrast that to IRAs, which have no limits on withdrawals in retirement (timing or amount).

With a Thrift Savings Plan, you can request a payout of a specific dollar amount. Or you can ask for an amount that’s based on your life expectancy and account balance (to meet your RMDs).

If you want a complete withdrawal, you get a choice between a lump sum payout or a monthly payment (via an annuity lifetime payment). You can also split your payout between those two options.

You have less control if you leave a job with $200 or less in your TSP.

Usually, you can borrow up to $50,000 from your TSP.

If you die, the Thrift Savings Plan Service Office will pay out the funds to your beneficiary. You can note your beneficiary on a written designation form. If you die without filling out the form, your funds will go to the first available option on this list:

  • Widow(er)
  • Child(ren) or descendants of dead children
  • Surviving parent(s)
  • Executor of the estate
  • Any other next of kin entitled under the law of the state where you lived when you died

Final Thoughts

TSPs don’t get as much attention as 401(k) plans.

But if you have access to a TSP for your workplace retirement savings, congratulations. You have a well-regarded, tax-advantaged, low-cost program to invest for your retirement.


Your investment options will be limited. Your withdrawal process probably will be finicky. But those are minor drawbacks alongside the high contribution limits, microscopic fees and potential for a nice government contribution match.

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