A thrift saving plan is a type of retirement investment program for federal employees. It is a defined-contribution plan that offers similar benefits that are available to workers in the private sector. Basically, TSP closely resembles 401 (k) plans. When you want to switch to the private sector, you can roll over to 401 (k).

Under the federal employee retirement system thrift savings plan, many agencies automatically enroll new joiners in a TSP. It’s worth talking to your plan administrator to make sure you know where your money is going; it will help you make an informed choice in your investment.

How a thrift saving plan works

TSP is designed to help you save for retirement. You won’t pay taxes on the contribution or earnings in traditional TSP until you begin withdrawing distributions, which you can start once you turn 59. However, you can roll over the distribution into another type of retirement account and further delay your tax liability.

There are a few exceptions under which you can withdraw your distributions early in certain circumstances without any penalty, such as permanent disability or death. However, in some circumstances, you have to pay a 10% penalty in addition to taxes.

Is thrift savings plan the same as a 401 (k)?

TSP and 401 (K) are similar but not exactly the same. The federal government offers TSP instead of 401(k), which the private sector offers. It is possible to get both if you have worked for both government and private. However, the total contribution to these retirements can’t exceed the annual contribution limit set by the internal revenue code.

What is the difference between traditional and Roth TSP?

Under Roth TSP, your contribution goes into TSP after withholding tax, which means you pay tax on your contribution at your current income tax rate. You won’t have to pay taxes later when you take out contributions and any qualified earnings.

Under traditional TSP, your contribution goes into TSP before tax withholding. You’ll have to pay taxes on your contributions and earnings at the current income tax rate of the year you make while withdrawing.

The Bottom Line

Understanding a thrift saving plan is not a big deal; you just need to get aware of a few basic questions. Hopefully, the above list of commonly asked questions can clear your doubts. If you want to know about federal retirement plans further, subscribe to our federal employee retirement newsletter.


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