Updated: Sep 05, 2023

What is Federal Thrift Savings Retirement Plan (TSP) & How it Works?

Find out how the Thrift Savings Plan (TSP) works to help federal and government employees save for retirement without access to a 401(k).
Today's Rates
Super boost your savings with highest rates.
Savings Accounts up to:
5.35% APY

Many Americans have access to employer-sponsored 401(k) plans.

They allow you to directly participate in your retirement planning by making contributions to the plan, and in many cases, even managing your investments within the plan.


These 401(k) plans are typically offered by for-profit companies.

If you're employed by the federal government, or you’re a member of the military, there is no 401(k) plan available.

Rather, the federal government offers a 401(k) equivalent in the Thrift Savings Plan.

What is it, and how does it work?

What is the Thrift Savings Plan?

The Thrift Savings Plan, more commonly known simply as the TSP, is a retirement program created in 1986 for the benefit of federal employees, as well as members of the uniform services, including the Ready Reserve.

The TSP is a defined contribution plan, which means the amount you can contribute is known, but the actual benefits you'll receive from the plan will depend entirely upon both the contribution amounts and the investment results generated.


It works much like a 401(k) plan, except it's limited to federal workers and members of the military.

The TSP can be used in conjunction with the Federal Employees Retirement System (FERS), in a retirement package that also includes Social Security and FERS basic annuity.

If you’re covered by the Civil Service Retirement System (CSRS) or are a member of the military, the TSP can supplement either your CSRS annuity, or your military retirement pay.

The assets of the TSP are held in trust in the Thrift Savings Fund, which is managed by the Federal Retirement Thrift Investment Board (FRTIB). The FRTIB is an independent government agency that's managed by five presidentially appointed board members and an executive director, who are required to manage the plan prudently and solely in the interest of the participants and their beneficiaries.

How It Works

Much like any other defined contribution retirement plan, there are certain rules and regulations that govern the TSP.

Participant eligibility

Most federal employees are eligible to participate in the plan if they are:

  • FERS employees (hired after January 1, 1984)
  • CSRS employees (hired before January 1, 1984, and did NOT convert to FERS)
  • A member of the uniformed services
  • A civilian in certain categories of government service

You must also be actively employed, in pay status (to make contributions), and working either full-time or part-time.

Employee contributions

These are set up similar to 401(k) plans.

You can contribute up to $19,500, plus a catch-up contribution of $6,500 if you are 50 or older for 2021.

If you are a member of the military, you can contribute anywhere from 1% to 100% of any incentive pay, special pay, or bonus pay, in addition to contributions from your basic pay.

Employee contributions are immediately vested.

Employer matching contributions

These come in two types.

The first is Agency/Service Automatic Contributions, which are equal to 1% of your base pay each year.

The 1% contribution is vested after three years of federal service for most employees.

However, you are considered automatically vested if you die before the three-year vesting term.

The second employer matching contribution is the Agency/Service Matching Contribution.

This contribution has three tiers:

1. A 100% match of your contributions up to 3% of your pay.
2. 3.5% match on a contribution by you of up to 4% of your pay.
3. A 4% matching contribution if you contribute 5% or more of your pay.

For example, if you contribute 3% of your pay, you'll get the 1% Automatic contribution, plus another 3% for the Matching contribution, for a total of 7%.

If you contribute 4% of your pay, you'll get the 1% Automatic contribution, plus another 3.5% for the Matching contribution, for a total of 8.5%.

If you contribute 5% of your pay, you'll get the 1% Automatic contribution, plus another 4% for the Matching contribution, for a total of 10%.


Matching contributions are NOT subject to vesting requirements.

Roth TSP

Regular contributions to a TSP are tax deductible.

But you can also choose a Roth TSP option.

If you do, contributions will not be tax deductible when made, but withdrawals can be taken free from federal income tax once you reach age 59 ½., and you have participated in the Roth plan for at least 5 years.

TSP beneficiaries

If you have a TSP account, and die, your spouse will have a TSP account set up in their own name if their share of the account is $200 or more.

Investment Options

A TSP can be invested in one of six funds:

  • G Fund. This fund is invested in a non-marketable US Treasury security that is guaranteed, and will not lose money.

The next four funds are index funds and are managed by BlackRock Institutional Trust Company, N.A.:

  • F Fund. An index fund of government, corporate, and mortgage-backed bonds.
  • C Fund. An index fund designed to match the S&P 500 index.
  • S Fund. An index fund comprised of stocks of small to medium size US companies, not included in the C Fund.
  • I Fund. An index fund comprised the international stocks of more than 20 developed countries. In other words, an international stock fund.
  • L Fund. Basically, this is a target date fund, comprised of various allocations in the G, F, C, S and I funds. The specific allocation makeup is determined by your time horizon, between now and your expected retirement date. The fund will favor equity investments when you are younger, but shift to more conservative investments as you move toward retirement.

The TSP gives you investments similar to what you would have in a 401(k) plan. The difference is that you have a single fund for each asset class.

Your management options then would be limited to either determining which funds your plan will hold, and what percentage of your plan will be allocated to each fund.

The Best Way to Manage the Thrift Savings Plan

If you’re covered by either the FERS or CSRS plan, you’ll already have a traditional pension plan in place.

The TSP represents additional retirement savings, that are defined contribution, and give you a large measure of control over how the funds will be invested.

Since you're already covered by a government pension, your reliance on the TSP won't be as great as someone who works for a private sector employer but no pension plan, and must rely entirely on the 401(k) plan for retirement.

That being the case:

You should carefully evaluate what your expected retirement income will be from both your FERS or CSRS plan, as well as from Social Security.

You can then determine if additional income will be needed to finance the type of retirement you expect to have.

You can then base your contributions to the TSP on covering any expected shortfall in the income you expect to have.

There are, of course, two major benefits to contributions that you make:

1. Your contributions will be tax deductible (unless you choose the Roth option).
2. The potential for employer matching contributions totaling 5%.

If you make a 5% contribution from your own funds, your total contribution will be 10% when both employer matching contributions are included.

Deciding on an investment mix

You should also base your investment asset allocation on your expected retirement needs.

For example, if you expect the TSP to provide a significant amount of your retirement income, you may want to be more aggressive with your portfolio.

This will include concentrating your money in equity funds, such as the C, S and I funds.

On the other hand, if you're closer to retirement, or you're not comfortable taking on the risk that comes with equity investing, you can allocate more of your plan to the G and F funds.

They’ll provide more stability, as well as more predictable investment returns.

If you're not exactly sure how to allocate your plan between the various funds, you can always choose the L Fund.

In that way, your asset allocation will be determined for you and adjusted as you get closer to your retirement age.

Should You Sign Up?

Since retirement holds so many variables, it's always better to overestimate how much savings and income you'll need once you reach retirement age.

That would make a strong case for participating in the TSP, even if you expect to have generous pension and Social Security benefits.

The employer matching contributions are another very important factor in determining both participation, and the degree of your contributions.

Since you can get a 5% employer match for making a 5% contribution on your own, you should plan to contribute at least that much.


The employer contribution is effectively free money.

By making a contribution out of your own funds of at least 5%, you'll be getting another 5% of that “free money”.

For example, if you earn $50,000 per year, and you begin contributing 5% to the TSP at age 30 – or just $2,500 per year – your plan will grow to more than $717,000 by the time you’re 65, with the 5% employer match included.

That’s an impressive amount of money for a relatively modest out-of-pocket contribution.

Find the Best Savings Account Rates - Compare Now

Unlock exclusive savings rates and gain access to top-tier banking benefits.