What Is a Thrift Savings Plan (TSP)?

A thrift savings plan (TSP) is a type of retirement investment program open to federal employees and members of the uniformed services, including the Ready Reserve.

The TSP is a defined-contribution plan that offers federal employees many of the same benefits that are available to workers in the private sector. It closely resembles a 401(k) plan.

Key Takeaways

  • A thrift savings plan is similar to a 401(k) plan but is open only to federal employees and uniformed services personnel.
  • Participants in a TSP can get an immediate tax break for their savings or invest in a Roth for freedom from taxes after retirement.
  • Participants can put their money into any of six investing options.

How a TSP Works

TSP benefits can include automatic payroll contributions and agency matching contributions.

Participants can choose to make tax-deferred contributions into a traditional TSP, which means the money that flows into the account will not be taxed until it is withdrawn.

However, participants may also choose to invest in a Roth TSP. This option allows employees to make after-tax contributions into their plans so that they'll owe nothing in taxes when they withdraw the money after retiring.

Employees new to federal employment can roll over 401(K) and individual retirement account (IRA) assets into a TSP and vice versa if they move to the private sector.

A thrift savings plan (TSP) is a defined-contribution retirement plan that has many of the advantages of private-sector plans.

Investing Options

The TSP offers a choice of six funds to invest in. These options are the Government Securities Investment (G) Fund, the Fixed-Income Index Investment (F) Fund, the Common-Stock Index Investment (C) Fund, the Small-Capitalization Stock Index Investment (S) Fund, the International-Stock Index Investment (I) Fund, as well as specific life-cycle (L) funds designed to include a mix of securities held in each of the individual funds.

The F, S, C, and I funds in the TSP are index funds currently managed by BlackRock Institutional Trust Company under contract by the Federal Retirement Thrift Investment Board (FRTIB). This independent government agency administers the TSP and acts as a fiduciary legally liable to manage the TSP prudently and in the best interests of participants and their beneficiaries.

Index funds in the TSP are designed to mimic the return characteristics of the corresponding benchmark index. For example, the C Fund is invested in a stock index fund replicating the Standard and Poor’s 500 Index, which is made up of the stocks of 500 large to medium-sized U.S. companies. L funds are invested in the five individual TSP funds, and their asset allocations are based on the individual investor's time horizon.