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The Thrift Savings Plan (TSP) is a retirement savings plan for U.S. government employees and members of uniformed services. It’s a defined contribution plan, similar to a 401(k). Like a 401(k), it provides participants a tax-advantaged way to save for retirement.
The Thrift Savings Plan (TSP) enables federal employees to save and invest part of their income for retirement. Eligible federal employees can receive matching contributions from their employers, enabling them to maximize their retirement savings. Contributions to a traditional TSP are tax-deductible, enabling participants to reduce their current taxes. Meanwhile, investment income and gains are tax-deferred until the participant withdraws their funds from a traditional TSP or are completely tax-free in a Roth TSP.
TSPs provide federal employees the same retirement savings and tax advantages of 401(k) plans offered by many private sector companies to their employees. The TSP is a defined contribution plan like a 401(k) plan. The retirement income TSP participants receive varies, depending on how much they contribute to the plan (including any matching contributions from their federal employer) and their accumulated investment earnings.
Eligible TSP participants have three ways to contribute to their plan:
TSP participants can set up a traditional TSP and make tax-deferred contributions where future withdrawals get taxed in retirement. They can also set up a Roth TSP and make after-tax contributions where future withdrawals are tax-free.
TSPs have an annual contribution limit. For 2023, the annual limit is $22,500. However, employees 50 and older can also make additional catch-up contributions of as much as $7,500.
Thrift Savings Plans offer eligible participants three investing approaches to help them achieve retirement goals:
A recent college graduate got their first job with a government agency. They immediately sign up for a Roth TSP, setting an automatic contribution of $100 per pay period. That makes them eligible for a matching contribution from their employer. They opt to allocate the entire contribution into the L 2065 fund since they don’t expect to retire until after 2063. The fund will provide them with a higher level of growth in the early years to help them reach their retirement target. By choosing a Roth TSP, the participant won’t have to pay taxes on future retirement withdrawals.
