Thrift Savings Plan
If you are a civil service employee, the Thrift Savings Plan (TSP) can provide you with tax advantages as you invest and save for retirement. The plan offers a mix of investment options and tax and savings benefits that are similar to 401(k) plans that many private corporations offer their employees.
- Written By Thomas J. Brock, CFA®, CPA
Thomas J. Brock, CFA®, CPA
Thomas Brock, CFA®, CPA, is a financial professional with over 20 years of experience in investments, corporate finance and accounting. He currently oversees the investment operation for a $4 billion super-regional insurance carrier.Read More
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- Reviewed ByRubina K. Hossain, CFP®
Rubina K. Hossain, CFP®
Certified Financial Planner™ Professional
Certified Financial Planner Rubina K. Hossain is chair of the CFP Board's Council of Examinations and past president of the Financial Planning Association. She specializes in preparing and presenting sound holistic financial plans to ensure her clients achieve their goals.Read More
- Updated: December 5, 2022
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What Is the Thrift Savings Plan?
The Thrift Savings Plan (TSP) is a defined contribution retirement plan offered by the United States government to civil service employees, including members of the uniformed services. It was established by the Federal Employees’ Retirement System Act of 1986, and the plan is administered by the Federal Retirement Thrift Investment Board.
The TSP offers federal employees the same savings and tax benefits that many private-sector employees receive with their 401(k) plans. As a defined contribution plan, the TSP is funded by employee payroll contributions and partial, matching contributions from the United States government. For select employees, the government will contribute an amount equal to 1% of base pay each period, regardless of the individual contribution amount.
Like a 401(k), the primary advantages of the TSP are tax-deductible contributions and tax-deferred growth, which means you don’t pay taxes on your earnings or contributions until you withdraw funds or start receiving payments. These features allow your account to grow much faster, which is important when it comes to building a financial portfolio that will last you throughout your retirement.
TSP Investment Options
The TSP offers several funds to meet the various investment objectives and risk tolerance levels of its participants. All of the TSP funds are highly diversified (both high and low risk), professionally managed and low-cost.
As you might expect, TSP funds with the potential for higher returns also carry higher levels of risk, while funds with lower returns carry lower levels of risk. The lower risk options are better for conservative investors, while the higher risk options are more suitable for aggressive investors.
- Government Securities Fund (G Fund)
- Consists of short-term U.S. debt securities, which are stable in value and relatively low-yielding
- Fixed Income Fund (F Fund)
- Tracks the performance of the Bloomberg Barclays U.S. Aggregate Bond Index (Barclays Agg), which has exposure to U.S. government bonds, municipal bonds, mortgage-backed securities and high-quality, corporate bonds
- Common Stock Fund (C Fund)
- Tracks the performance of the Standard & Poor's 500 Composite Stock Price Index (S&P 500), which has exposure to large, domestic stocks and is more volatile than the Barclays Agg
- Small Cap Stock Fund (S Fund)
- Tracks the performance of the Dow Jones U.S. Completion Total Stock Market Index, which has exposure to small, domestic stocks and is more volatile than the S&P 500
- International Stock Fund (I Fund)
- Tracks the performance of the MSCI EAFE (Europe, Australasia, Far East) Index, which has exposure to international stocks and is more volatile than all of the benchmarks listed above
If you have a TSP account, you can invest in any of the previously mentioned funds in whatever proportions you desire. To simplify the decision process, the TSP platform also includes Lifecycle (L) funds, a free offering that gives you the ability to select a custom fund based on your planned retirement date. Once you select your retirement date, the administration of your investments happens automatically and the mix of stable, income-oriented bonds and growth-oriented stocks is adjusted dynamically as you age.
TSP Installment Payments
Generally speaking, you can start withdrawing funds from your TSP account at age 59 ½. If you withdraw before age 59 ½, you’ll likely be subject to a 10% early withdrawal penalty. Regardless, all withdrawals, commonly referred to as TSP installment payments, are taxable.
- A fixed amount
- An amount based on the IRS life expectancy table
You can change the amount of your payments whenever you wish, and you can choose to stop the payments at any time. If desired, you also have the option to cash out your plan and take a single payment of your remaining account balance.