The Thrift Savings Plan (TSP), a retirement plan for federal employees and uniformed service members, is the nation's largest defined contribution plan, with seven million participants and over $845 billion in assets. Whether you're a long-standing service member or a new federal employee, understanding the TSP can significantly impact your financial future.
What Is a Thrift Savings Plan?
The Thrift Savings Plan is a defined contribution plan for federal government employees and uniformed service members, including the Ready Reserve. The TSP was established in the Federal Employees Retirement System Act of 1986 by Congress. Today, it offers the same savings and tax benefits that many private companies offer employees under 401(k) plans.
Like the 401(k), you contribute to your account during your working years with earnings accumulating over time. The purpose of the TSP is to give service members and government employees long-term retirement savings. If you’re covered by the Federal Employees’ Retirement System (FERS), the TSP is one part of a three-part retirement package that also includes Social Security and your FERS annuity. If you’re a member of the uniformed services or covered by the Civil Service Retirement System (CSRS), the TSP supplements your military retired pay or CSRS.
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Who can use Thrift Savings Plans?
Most full- or part-time employees of the U.S. government are eligible to participate in the TSP, including federal employees, those working for executive branch agencies, Congress and the Postal Service, members of the Uniformed Services, including active duty or Ready Reserve, Public Health Service employees, and civilians and active employees in certain other categories of government service.
Making contributions
If you are a FERS employee, you are automatically enrolled in the TSP, and 5% of your base salary is deducted from your paycheck and deposited into your TSP account for each pay period (if you were hired on or after October 1, 2020). If you became a federal employee between August 1, 2010, and September 30, 2020, you were automatically enrolled at 3%. You will receive Agency/Service matching contributions on the first 5% you contribute.
The first 3% is matched dollar-for-dollar by your agency or service; the next 2% is matched at 50 cents on the dollar. So, when you contribute 5% of your basic pay, your agency contributes an amount equal to 4%. With the Agency/Service Automatic (1%) contribution, your agency/service puts in a total of 5%.
If you stop contributing to your TSP, your agency matching contributions will also stop. However, the automatic (1%) contribution will continue to be added to your account. You can contribute more than 5%, but your agency only matches the first 5% you contribute. Blended Retirement Service (BRS) members who started service on or after January 1, 2018, will begin receiving matching contributions after two years of service. CSRS and non-BRS uniformed services participants do not receive matching contributions.
Thrift Savings Plan Contribution Limits - 2025
Contributing to your TSP automatically from your paycheck before taxes lets your money grow tax-deferred until you withdraw it. You can also opt to make Roth contributions in a Roth TSP. Much like with a Roth IRA or Roth 401(k), a Roth TSP won't give you a tax break now, but you can withdraw the funds tax-free in retirement.
In 2025, contribution limits are $23,500, (up from $23,000 in 2024). The catch-up contribution limit is $7,500, the same as in 2024, making the total contribution limit $31,00 for service members and government employees 50 and over. Also, new in 2025, TSP participants aged 60, 61, 62, and 63 who are eligible for catch-up contributions will have a higher catch-up limit of $11,250 instead of $7,500. After that, the so-called super catch-up limit will revert back to the regular catch-up limit amount.
Thrift Savings Plan Contribution Limits - 2024
In 2024, TSP contribution limits were $23,000, with a catch-up contribution limit of $7,500. Including the catch-up contribution, the total is $30,500. This limit applies to the combined total of traditional and Roth contributions. For uniformed service members, this does not apply to traditional contributions from combat-zone pay.
Pros and Cons of a Thrift Savings Plan
A Thrift Savings Plan is a great way for government employees and military service members to invest for retirement. And while there are many benefits, they do come with some drawbacks.
Pros of a TSP
- Low administrative costs: The administrative cost of TSP plans are generally lower than some other retirement plans by industry standards
- Tax-exempt benefits (in some cases): Military service members who contribute to their TSP while deployed can make contributions with tax-exempt income.
- Automatic contributions: Federal employees who belong to the Federal Employees Retirement System (FERS) and were hired after July 31, 2010, are automatically enrolled in the TSP.
- Benefits are tax-deferred: The TSP is a tax-deferred retirement plan.
- Withdraw contributions tax-free: Contributions to your TSP can be withdrawn tax-free, and are tracked on your TSP balance sheet.
- Maximum matching: Civilian employees enrolled in FERS can make additional contributions of at least 5% (of their basic pay) to receive full agency matching contributions.
- Investing options: Military members can invest some or all of their special duty pay and bonuses to their TSP up to the annual contribution limit.
- Flexibility and portability: Change contribution amounts and roll over money from your TSP to IRAs and other tax-deferred investments after you separate from the military or federal employee service.
- TSP loans: Like some 401(k)s, active TSP participants can borrow money from their TSP account.
Cons of a TSP
- Contribution limits: In 2025, the TSP contribution limit is $23,500, with a catch-up limit of $7,500 and a super catch-up limit of $11,250 for people ages 60-63.
- Limited investment options: The TSP offers only six investment fund choices.
- Penalty for some early withdrawals: If you separate and withdraw money from your TSP before age 55, you will owe a 10% early withdrawal penalty on your traditional TSP withdrawals plus the regular federal income tax that is due.
- Contributions are limited to current service: When your military or civilian service ends, you can no longer contribute to your TSP.
TSP investment options
These three ways to invest in your TSP can help you meet your retirement goals.
- Lifecycle Funds (L Funds): L Funds, life-cycle or target date funds, allow you to invest your entire portfolio in a single L Fund to get the best return on your money and with the amount of risk you're most comfortable with.
- Individual TSP funds: Choose a mix of investments from individual TSP investment funds — G, F, C, S, — and I Funds, which may include short-term U.S. Treasury securities, stocks and bonds.
- Mutual funds: Through the mutual fund window, you can invest a portion of your TSP savings in your choice of available mutual funds. However, you must meet certain eligibility requirements and pay the necessary fees.
What is the Difference Between a 401(k) and a Thrift Savings Plan?
The TSP was modeled after the 401(k), so the two plans have many similarities. But they also have key differences worth noting.
- 401(k) retirement plans are offered by private employers while the Thrift Savings Plan (TSP) is available to uniformed and civilian employees of the federal government.
- The TSP offers fewer fund options (six) than a typical 401(k).
- The TSP has the same contribution limits in 2025 as a 401(k); $23,500 with a $7,500 catch-up contribution and a super catch-up limit of $11,250 for people ages 60-63.
- Both plans have early withdrawal penalties.
- Both plans require you to take "required minimum distributions" or “RMDs.
- Both plans allow you to roll over all or part of eligible withdrawals and distributions to a traditional IRA, a Roth IRA, or an eligible employer plan.
- With a 401(k), you can avoid the 10% penalty for qualified hardship distributions. You can make a hardship withdrawal from a TSP (if you meet certain criteria), but you will still incur the 10% penalty, plus applicable taxes.
- 401(k)s typically have fewer options for withdrawing funds when you retire. whereas TSP plans offer greater flexibility when it comes to accessing your retirement money
Bottom Line
The TSP is a defined contribution plan for federal employees and uniformed service members that sets aside money for retirement from each pay period. TSPs typically have low or no administrative fees, employer matching, and diversified investment options. A TSP can be rolled into another retirement account when an employee leaves federal employment. TSPs also offer multiple withdrawal options, which allow participants to have a steady income stream during retirement. To learn more, check out https://www.tsp.gov/.
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