Thrift Savings Plan - TSP

DEFINITION of 'Thrift Savings Plan - TSP'

A retirement savings plan created by the Federal Employee's Retirement System Act of 1986 for current or retired employees of the federal civil service. The thrift savings plan is a defined-contribution plan designed to give federal employees the same retirement savings related benefits that workers in the private sector enjoy with 401(k) plans. Contributions to the plan are automatically deducted from each paycheck.

BREAKING DOWN 'Thrift Savings Plan - TSP'

The thrift savings plan offers six different funds (government security fund, fixed-income fund, common stock fund, small cap stock fund, international stock fund and a life cycle fund) in which employees can invest.

Benefits include agency matching contributions, agency automatic contributions, catch up contributions and low expense ratios. Because the thrift savings plan is based on tax-deferred contributions, any contributions made into it will not be taxed until the money is withdrawn, which can be deferred until retirement.

Similar to standard retirement plans, employees can easily move non-government related IRAs and 401(k) plans into the thrift savings plan and vice versa upon employment changes.

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