What Is the Thrift Savings Plan?

January 6, 2023

What Is the Thrift Savings Plan?

January 6, 2023

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You may have heard of a 401(k), traditional IRA, and Roth IRA—they’re all retirement plans that allow you to save and invest for retirement. A lesser-known plan is the federal government’s retirement savings plan, the Thrift Savings Plan (TSP). According to the Congressional Research Service Federal Workforce Statistics Sources: OPM and OMB report, the federal government had approximately 2.19 million workers in 2021.1 This makes it the largest employer in the U.S., with Walmart and Amazon trailing slightly behind. It would stand to reason that the largest employer in the U.S. would also have the largest retirement savings plan in the U.S. There are approximately 6.4 million participants in the TSP, which holds over $800 billion in assets2—making it the fourth-largest retirement fund in the world.3

This article explains what the Thrift Savings Plan is, how it works, the investment options available, and how the distribution process works.

What Is the TSP?

If you’re a federal government employee or a uniformed service member, you can qualify to enroll in the TSP, a tax-deferred retirement and savings plan specifically designed for federal workers. The TSP offers similar savings, investment, and tax benefits as retirement plans offered by many private businesses and public corporations.

How Does the TSP Work?

You contribute to the TSP in several ways:

  • Automatic payroll deductions
  • Agency-matching contributions
  • Tax-deferred contributions to a traditional TSP (taxes are required upon withdrawals in retirement)
  • Contributions to a Roth TSP (after-tax dollars are invested and withdrawals and growth are not taxed in retirement)

Per TSP.gov, you can contribute up to $22,500 in 2023. Employees 50+ can make catch-up contributions of up to an additional $7,500, bringing the total amount that you can contribute to a combined total of $30,000. You can also opt into a Roth TSP instead of or in addition to a traditional TSP. Similar to a Roth 401(k), a Roth TSP allows you to make after-tax contributions, which allows your money to grow tax-free; you can also withdraw your money tax-free in retirement. The advantage of the Roth TSP over a Roth IRA is that with a Roth TSP, the annual contribution limit is the same as the traditional TSP. As of 2022, you can contribute up to $20,500 to a Roth TSP, while you can only contribute up to $6000 with a Roth IRA. If you choose to split your contributions between a traditional and Roth TSP, your agency-matching contributions will always go into your traditional TSP and cannot be converted into a Roth. Also, keep in mind that the limits listed above apply to the combined total between traditional and Roth contributions.

The uniformed services may have both a blended retirement plan: a civilian TSP and a uniformed services account. You can read more about the specifics here.

TSP Investment Options

The TSP has six funds one can elect to invest in:

  1. Government Securities Investment (G) Fund – invested in government securities such as notes and bonds
  2. Fixed-Income Index Investment (F) Fund – attempts to mirror the performance of the Bloomberg U.S. Aggregate Bond Index, a broad index representing the U.S. bond market
  3. The Common-Stock Index Investment (C) Fund – attempts to match the performance of the S&P 500
  4. The Small-Capitalization Stock Index Investment (S) Fund – attempts to match the performance of the Dow Jones U.S. Completion Total Stock Market (TSM) Index, a broad market index made up of stocks of U.S. companies not included in the S&P 500
  5. The International-Stock Index Investment (I) Fund – invested in the stocks of companies outside of the U.S.
  6. The Specific Lifecycle (L) Fund – includes a mix of securities held in the other five individual funds

A drawback of the Thrift Savings Plan is that your investment is limited only to the funds discussed above. Unlike a 401(k) or IRA, you have a more limited selection of investment options and are unable to invest in any security or asset class not listed above. Although you’re limited in what you can invest in, the six funds that are available can offer exposure to many asset classes. Also, the TSP fees you pay to invest in the funds are low, ranging from 0% to 0.059%.

Distribution Options

According to tsp.gov, you must be 59 ½ or older to withdraw from your TSP without penalty. You are allowed to withdraw monthly, quarterly, or annually, and you can request that the payment be a specific dollar amount; however, each withdrawal must be at least $1,000 and can only come from your vested funds. You’ll also be subjected to a 20% federal income tax on the taxable portion of the withdrawal unless you’re rolling it over into an IRA or other eligible employer retirement plan. The TSP does offer financial hardship in-service withdrawals for some qualifying financial needs. Visit here to read more about which situations may qualify.

If you’re 72 or older, you must take your required minimum distributions (RMDs) from your TSP. A RMD is the amount of money that must be withdrawn from employer-sponsored retirement plans, such as TSP, 401(k), SEP, and traditional IRA. There’s a penalty if you don’t start withdrawing money at age 72.


A TSP can help you save and invest money for retirement if you’re a federal government employee or a uniformed services member with many of the same savings and tax benefits as retirement accounts sponsored by the private sector. The downside of the TSP is you’re limited to investing in only six funds. Depending on your investment and financial goals, you may want to contribute to a traditional TSP, Roth TSP, a combination of both, and/or a traditional or Roth IRA (if you’re eligible). No matter what you choose, one key to growing your wealth is contributing consistently to your retirement accounts over time. Need help sorting through all your options as a government employee? A financial professional can help.

1 https://sgp.fas.org/crs/misc/R43590.pdf

2 https://www.frtib.gov/pdf/minutes/2021/Nov/MM-2021Nov-Att1.pdf

3 https://www.pionline.com/special-report-megafunds/worlds-largest-retirement-funds-2022

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Congressional Research Service. (June 28, 2022). Federal Workforce Statistics Sources: OPM and OMB. https://sgp.fas.org/crs/misc/R43590.pdf

Federal Retirement Thrift Investment Board. (October 2021). Thrift Savings Fund Statistics. https://www.frtib.gov/pdf/minutes/2021/Nov/MM-2021Nov-Att1.pdf

Guina, Ryan. (September 16, 2022). Roth TSP Guide – Benefits of Investing in the Roth Thrift Savings Plan Account. The Miliary Wallet. https://themilitarywallet.com/roth-tsp-thrift-savings-plan/

IRS. (n.d.). IRS announces changes to retirement plans for 2022. https://www.irs.gov/newsroom/irs-announces-changes-to-retirement-plans-for-2022

Kagan, Julia. (June 22, 2022). Thrift Savings Plan (TSP): What It Is, How It Works, Investments. Investopedia. https://www.investopedia.com/terms/t/thrift_savings_plan.asp

O’Connell, Brian. (July 19, 2022). What Is the Thrift Savings Plan? U.S. News. https://money.usnews.com/money/retirement/401ks/articles/what-is-the-thrift-savings-plan

Pensions & Investments. (September 5, 2022). The world’s largest retirement funds: 2022. https://www.pionline.com/special-report-megafunds/worlds-largest-retirement-funds-2022

Thrift Savings Plan. (n.d.). About the Thrift Savings Plan (TSP). https://www.tsp.gov/about-the-thrift-savings-plan-tsp/

Thrift Savings Plan. (n.d.). Contribution limits. https://www.tsp.gov/making-contributions/contribution-limits/

Thrift Savings Plan. (May 2022). Fund Information. https://www.tsp.gov/publications/tsplf14.pdf

Thrift Savings Plan. (n.d.). Administrative and investment expenses. https://www.tsp.gov/tsp-basics/administrative-and-investment-expenses/

Thrift Savings Plan. (n.d.). Before you take distributions. https://www.tsp.gov/living-in-retirement/Before-you-take-distributions/

Thrift Savings Plan. (n.d.). In-service withdrawal types and terms. https://www.tsp.gov/in-service-withdrawal-basics/in-service-withdrawal-types-and-terms/

Walmart. (n.d.) How many people work at Walmart? https://corporate.walmart.com/askwalmart/how-many-people-work-at-walmart