The Thrift Savings Plan, or TSP, is the equivalent of the 401(k) for federal government employees. My intention here is to cover the main highlights of this fantastic retirement benefit. Much more detail is found on the TSP website at tsp.gov.
As in a 401(k), you contribute pre-tax money into a Thrift Savings Plan. Earnings in the account are tax-deferred. You are taxed only when you withdraw funds in retirement. If you work long enough, consistently contribute to your plan, and invest appropriately, you can potentially retire comfortably.
Military and Non-Military Accounts
This post is for non-military TSP retirement participants. The TSP offered to those in the military is different. Elsewhere I discuss the benefits of a Thrift Savings Plan as a High-3 and BRS (Blended Retirement System) participant.
FERS — the Federal Employees Retirement System
If you are a federal civilian employee hired on or after January 1, 1987, you are automatically a FERS participant. As a covered FERS employee, your Thrift Savings Plan is one part of a retirement three-legged stool. The other two legs are your FERS basic annuity and your Social Security benefits.
Thrift Savings Plan Matching
Make sure you contribute up to the employer match! Under FERS, your federal agency matches up to 5% when you contribute into your TSP. Here’s how it breaks down:
First 3% match: The federal government matches the first 3% of your voluntary contributions dollar-for-dollar.
Next 2% match: The next 2% of your salary deferrals are matched at 50 cents on the dollar.
Agency automatic contribution: On top of the match, you receive an agency automatic contribution of 1% of base pay regardless of whether you personally contribute. This is subject to vesting, but it is free money if you work long enough in the system.
Bottom line: When you defer 5% of your salary into the TSP, the government contributes another 5% — 4% in matching contributions plus 1% automatic. Together, employer contributions double your contribution power. Leveraging this match is an absolute must.
Roth Thrift Savings Plan
There is a Roth TSP option. With the Roth option, you contribute after-tax dollars into your retirement account. These accumulate tax-deferred — and best of all, all retirement distributions are tax-free. The Roth TSP has no income phase-out, so any federal employee can use it regardless of income. Under SECURE 2.0 (effective 2024), the Roth TSP now has no required minimum distributions during the account owner’s lifetime — just like a Roth IRA. This makes the Roth TSP an especially powerful long-term wealth accumulation tool.
Know What You Have
The federal government offers some great benefits to FERS employees. Navigating what is available to you and making a plan for your retirement is much of the battle. Take matters into your own hands by learning how FERS employees can effectively plan for retirement. If you’ve been with the government for a long time, you’ll find these two blog posts useful: Retire at 60? and You Want to Retire. But Retire to What?
