Thrift Savings Plan (TSP): Retirement Guide For TSP Accounts

TSP Retirement Account

Retirement is what everybody looks forward to after some time of working. You want to spend your golden years in the best way possible without too many worries.

Many different types of savings accounts boost your retirement funds. And there are several ways out there to grow your investment funds. However, you need to have a proper investment strategy when choosing the type of savings account.

Many people rely on social security and pension plans to live comfortably in the future; however, it is not always enough to enjoy your retirement luxuriously or the way you want to.

While Social Security does provide many benefits, you can only acquire it after you reach a certain age and can't enjoy early retirement.

What is TSP?

TSP stands for Thrift Savings Plan. It is a type of savings account that provides many benefits to achieve your retirement investment goals. TSP is an employer-sponsored plan aimed at individuals that work for the federal service. It is a plan best suited for the civilian employees of the United States government. Additionally, it contains automatic payroll contributions alongside agency contributions.

TSP is a defined contribution plan ideal for those working for the government or in the federal sector. This can include those as well. TSP is similar to 401k as it also offers employer contributions, but in this case, the employer is the government, and the employee has duties of the federal service.

TSP is remarkable for saving thousands of dollars, providing tax advantages, and boosting your savings growth.

How Does a TSP Work?

How a TSP works for retirement

TSP is an account that is pretty similar to a 401k. The similarities exist as TSP also supports matching agency contributions, in this case from the federal government. It is a contribution plan in which the government, your employer, will contribute a certain amount to your retirement savings account to increase your TSP funds.

The contributions made depend on certain conditions which have to be fulfilled first.

Like a 401k account, the contributions you decide to make in a TSP are deducted from your paycheck.

However, the great part about a TSP is that even if you decide not to contribute to a TSP account, the government will add some money for your retirement savings. Automatic enrollment contributions take place to accumulate your savings for retirement.

Hence, guaranteed retirement income is one of the perks of a TSP account.

Suppose you plan on leaving your current federal job and want to work privately. You do not have to worry about your savings in the TSP account. You can conveniently transfer your balances from either of the two accounts to any other individual retirement account. Hence, despite no longer being a member of the federal government, you can still take advantage of your savings.

A TSP participant's post-separation withdrawal can be in a monthly payment, annuity, or a single payment. The monthly payments can be calculated based on your life expectancy.

You will be required to pay a 10% penalty in case of early withdrawal before 59 and a half. Nevertheless, you can still opt for in-service withdrawals. These are allowed in cases of financial troubles. And you can also take age-based in-service withdrawals.

The only drawback of the TSP contribution plan is that you do not have many investment choices. There are a limited number of investment options you can choose between. Some of these include government bonds, equity, and international stock. And these, too, can be invested only if they are of the public corporations. So the chances of a diverse investment portfolio are slightly low.

You can save in a TSP even if you are covered by the FERS(Federal Employees Retirement System) and enjoy the benefits of both. Suppose you fall under the Civil Service Retirement System or are a part of the military service. In that case, TSP will act as a supplement to the annuity plan by CSRS and the retirement pay of the military.

TSP is a remarkable choice for retirement benefits for those working in government.

Types of TSP Accounts

TSP account types for retirement

There are two different types of TSP that you can access as a federal employee. One type is the Roth type, and the other is a traditional TSP. The two accounts differ in the kind of contributions you make. You can either have traditional contributions or "Non-Roth" contributions. However, both have their tax benefits. Both accounts will help you grow your TSP funds.

Traditional TSP

In a traditional TSP, any contributions you decide to make in your account are pretax dollars. This means that the traditional balance that is added has not been cut for income tax. This reduces your income tax for the time. Hence, tax-deferred contributions are supported. However, when you plan to withdraw the money from this account, you will be required to pay taxes.

This can be an advantage because when you retire, you might fall into a lower tax bracket; hence, traditional contributions will reduce the amount you will have to pay for taxes. Traditional TSP also provides you with a tax break.

Roth TSP

Unlike the Traditional Thrift Savings Plan account, you do not have to worry about paying taxes in your retirement or any income tax-related withdrawal fee. For a Roth TSP account, the contributions made are after-tax. This means that the income tax is cut when you contribute to the account before being added. Previously, you could only make one partial withdrawal in a single payment; however, that has changed. The withdrawal matters of TSP have become more flexible and hassle-free.

Contribution Limits

For both types of TSP, there are certain contribution limits that you need to abide by, which tell you how much you can contribute within a year.

In 2022, the annual contribution limit for TSP is $20,500 for an individual under 50 years. This amount is the same as 401k's. If you are an individual over 50 years, the annual limit is $20,500. However, you can also make catch-up contributions of $6500.

Benefits of TSP

Benefits of a TSP retirement account

Tax Advantages

TSP provides TSP participants with tax advantages. You can either make contributions with a tax cut from your payroll deductions or without.

Management Fees are Low

Once you signup to create a TSP, you are not required to pay high management fees as it has lower admin fees. Hence, it does not add any burden on you to open a retirement account. TSP is a low-cost beneficial plan.

Higher Contributions

One of the best parts about a TSP is that the contributions are extremely generous. Hence, as a TSP participant, even if you decide not to contribute any money to the account, the government will. The government will contribute about 1% of your paycheck to the savings account. If you make any contribution, the government will match it up to 5% of what you earn. This is according to how much you have contributed. This way, you will be able to increase your savings and boost your investment fund easily. Higher limits also enhance matching contributions.


TSP is a great way for those working in the federal public sector to acquire a guaranteed monthly income to save retirement funds and increase their TSP account balance.

Post-employment withdrawal can be through a single payment, multiple monthly payments, or an annuity.

Seamless Transfer of TSP Investment Fund

If you plan to leave the federal sector, you can still easily transfer your TSP funds from a TSP to any other IRA or Roth IRA account. Moreover, if you switch from the private sector to the public sector, you can still easily transfer your TSP investment funds. You need to ensure that there is an eligible employer plan where you can transfer your TSP balance.

Other Alternatives: 401k and TSP

401k and TSP are too similar due to the concept of agency contributions and employer-sponsored plans. Both plans have the same annual contribution limit. The main difference is that while 401k is a plan for private employees, TSP caters to federal employees regulated by the federal agency. It is important to note that you can only access one type of plan at one time.

Wrapping Up

TSPs are ideal for those in the federal sector as they support automatic contributions and are a great benefits plan to secure your investment funds. It is a type of retirement savings plan that can help you accumulate wealth over the years that you work for the government.

TSP is quite similar to a 401k and is a great option to gain financial benefits. It is a government employer-sponsored retirement plan that is tax-advantaged and a good option for those a part of civilian service.

As you start thinking about your retirement, you should also think of an investment plan that will help you enjoy a comfortable retirement. We hope you can devise a retirement plan for yourself that will be beneficial once you retire!

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