What the TSP Is
The Thrift Savings Plan (TSP) is a defined-contribution retirement savings plan for federal civilian employees and some uniformed service members. Your balance belongs to you, and it is invested according to your choices among the available funds.
Unlike a pension, the TSP does not promise a specific monthly amount. The final balance depends on contributions, investment performance, fees, and withdrawals.
Contributions
Employees may contribute a percentage of pay through payroll. Contributions can be made to a traditional account, which is generally taxed when withdrawn, or to a Roth account, which is taxed when contributed where Roth options are offered. FERS employees typically receive an automatic 1 percent agency contribution and a matching contribution on the employee's own contributions up to a set level.
Investment Funds
The TSP offers a set of core funds, including government securities, common stock, fixed income, and international stock funds, along with target-date options called Lifecycle funds. Each fund has its own risk profile. Choosing among them is a personal decision, and understanding how each fund behaves over time is part of planning.
Withdrawal Options
Withdrawal rules depend on whether you are still employed and on your age. Generally, the following options are described in official materials:
- Installment payments: Regular payments drawn from the account over a set period.
- Single lump-sum payment: The full balance paid at one time, which may have significant tax consequences.
- Partial withdrawals: Taking part of the balance while leaving the rest invested.
- Annuity purchase: Using the balance to purchase an annuity, which provides lifetime payments.
- Leaving the balance in the plan: Continued investment, subject to plan rules and required distribution timing.
Required distributions must begin at ages set by federal tax law. Withdrawals may be subject to income tax and, in some situations, additional taxes.
Planning Considerations
- Review your asset mix at least once a year.
- Consider how TSP withdrawals will combine with your FERS or CSRS annuity and Social Security.
- Keep your beneficiary designation current.
- Consult a qualified tax professional before choosing a withdrawal type.
For official account information and forms, visit the Thrift Savings Plan website. A related article, Thrift Savings Plan Withdrawal Options: An Overview, expands on the options above.
The Core Funds in Plain Language
- G Fund: Invests in special U.S. Treasury securities, with a focus on stability.
- F Fund: Tracks a broad index of U.S. bonds.
- C Fund: Tracks a large-company U.S. stock index.
- S Fund: Tracks U.S. small and mid-sized company stocks.
- I Fund: Tracks stocks of companies in developed markets outside the United States.
- Lifecycle (L) Funds: Mixes of the five core funds that shift toward more conservative holdings as the target date approaches.
Stock and bond funds can rise and fall in value. The right mix depends on your time horizon and comfort with risk.
How the FERS Match Works
FERS employees generally receive an automatic agency contribution of 1 percent of pay, even if they contribute nothing themselves. The agency also matches employee contributions: dollar for dollar on the first 3 percent of pay and 50 cents per dollar on the next 2 percent. An employee who contributes 5 percent of pay therefore receives a total agency contribution of 5 percent (1 percent automatic plus 4 percent in matching). For an employee earning $80,000, that is $4,000 of their own money and $4,000 from the agency each year. Because the rules are set by law and can change, confirm current rules on the TSP website.
Traditional or Roth?
Traditional contributions reduce your taxable pay now and are generally taxed when you withdraw them. Roth contributions are made from pay that has already been taxed, and qualified withdrawals can be tax-free. Agency contributions are traditional, even if your own contributions are Roth. The right mix depends on your current tax situation and your expected tax situation in retirement, so consider asking a tax professional.
Using Your TSP Before and After You Leave
While you are still employed, the TSP allows loans in some circumstances, and employees who are at least 59½ can take in-service withdrawals. After you separate from service, you can take multiple partial withdrawals, installment payments, a single payment, or an annuity, and you can also leave the balance invested. Tax rules matter here. For example, an early withdrawal may be subject to an additional tax, and special rules can apply if you separate in or after the year you turn 55. Payments you receive directly may be subject to tax withholding, and you can generally move money to an IRA or another eligible plan by transfer or rollover.
Common Mistakes to Avoid
- Not contributing enough to receive the full agency match.
- Leaving the account in a default allocation for years without reviewing it.
- Taking a lump-sum withdrawal without understanding the tax in that year.
- Forgetting to update the beneficiary designation after a marriage, divorce or death in the family.
- Overlooking required minimum distributions once you reach the required age.
Frequently Asked Questions
Is the TSP the same as a 401(k)?
It works in a similar way, as an individual tax-advantaged account, but it is a plan for federal employees and uniformed service members with its own funds and rules.
Does my TSP money belong to me if I leave federal service?
Your own contributions and their earnings are always yours. Agency contributions generally become yours after a vesting period, which is generally 3 years for FERS employees, so check where you stand.
Do I have to take money out when I retire?
No. You can leave your money in the TSP, subject to required minimum distributions starting at the age set by federal tax law, which depends on your birth year.
Where do I make changes to my account?
Through your account at tsp.gov. For withdrawals, read the TSP booklet on withdrawing after you leave federal service before you apply.