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The Federal Employees' Retirement Security Act of 1986 established the Thrift Savings Plan, or TSP. It is a qualified retirement plan made available to current and retired federal government and agency employees. The Thrift Savings Plan is a defined contribution plan that is quite similar to a 401(k) plan seen at companies in the private sector. As with other qualified retirement plans, employees contribute money to the account through payroll deductions, and the employer makes 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 include six funds: Life-Cycle Funds that allocate investments based on a proposed retirement date; the G-fund that 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, a small-cap stock index fund; and 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 also 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 like other qualified retirement plans, it does offer a low-cost way for government workers to save efficiently for retirement.

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