The Federal Employees' Retirement Security Act of 1986 established the Thrift Savings Plan, or TSP. It is a qualified retirement plan for federal employees and members of the uniformed services. The Thrift Savings Plan is a defined contribution plan similar to a 401(k) plan offered by companies in the private sector.

Key Takeaways

  • Thrift Savings Plans are retirement plans for federal employees and members of the uniformed services.
  • They are similar to 401(k) plans, in that contributions are pre-tax and may receive matching contributions.
  • Savers have the option of choosing among five core funds, or a target-date fund that combines percentages of the five core funds.

Investing in a TSP

As with other qualified retirement plans, employees contribute money to the account through payroll deductions, and the employer may make matching contributions up to a certain limit as defined by the plan. Contributions are tax-deferred until retirement as are earnings within the account.

The investment choices available within the Thrift Savings Plan are:

  • Lifecycle Funds, which is plan's version of a target-date fund
  • The G fund, which invests in government securities
  • The F fund, which is a fixed income index fund
  • The C fund, a common stock index fund
  • The S fund, which is a small-cap stock index fund
  • The I fund, an international stock index fund

As with other qualified retirement plans, the participant is able to choose and allocate any percentage into each desired fund.

The Thrift Savings Plan accepts rollovers from previous retirement plans such as an old 401(k) or IRA. Likewise, if a participant terminates employment and goes to work in the private sector, the Thrift Savings Plan account can either remain intact or be rolled over into the new employer's plan or to a traditional IRA.

Though the Thrift Savings Plan is limited in its available investment options, it does offer a low-cost way for government workers to save efficiently for retirement.