Thrift Savings Plan (TSP)
The Thrift Savings Plan (TSP) is a defined contribution retirement savings plan for federal government employees and members of the uniformed services, administered by the Federal Retirement Thrift Investment Board and offering investment options similar to a 401(k) with notably low expense ratios.
The TSP was established by the Federal Employees' Retirement System Act of 1986 and is one of the largest defined contribution plans in the world by assets under management. It serves as the savings component of the Federal Employees Retirement System (FERS) and is also available to employees covered by the older Civil Service Retirement System (CSRS). Military service members enrolled in the Blended Retirement System (BRS) also participate in the TSP.
The contribution limits for the TSP mirror those of private-sector 401(k) plans, as they are governed by the same IRC sections. For 2024, the elective deferral limit is $23,000 with a $7,500 catch-up for those 50 and older. FERS employees who contribute at least 5% of their salary to the TSP receive the full employer contribution: an automatic 1% of salary (regardless of whether the employee contributes) plus a dollar-for-dollar match on the first 3% of the employee's contribution and a 50-cent match on the next 2%. CSRS employees and military members covered by the legacy retirement system do not receive an employer match.
The TSP offers a limited but well-designed menu of five core index funds: the G Fund (government securities with short-term interest rate guarantees), F Fund (broad bond index), C Fund (S&P 500 index), S Fund (small and mid-cap equity index), and I Fund (international equity index). The funds are managed at extremely low costs compared to retail mutual funds, with expense ratios typically in the range of 0.042% to 0.075% per year. Lifecycle (L) funds, which are target-date funds that automatically shift allocation over time, are also available and use the five core funds as building blocks.
TSP participants can choose between traditional (pre-tax) and Roth (after-tax) contribution designations, with the employer match always going into the traditional portion of the account. The TSP also offers participant loans and in-service withdrawals under specified circumstances, including age-based withdrawals beginning at age 59½ and hardship withdrawals. Upon separation from federal service, participants can leave funds in the TSP, roll them over to an IRA or another employer plan, or take distributions.
The TSP Modernization Act of 2017 significantly expanded the withdrawal flexibility available to participants, allowing multiple partial withdrawals in retirement and eliminating the restriction that limited participants to only one age-based in-service withdrawal. These changes brought the TSP's distribution options closer in line with the flexibility offered by private-sector 401(k) plans.