The Ins and Outs of the Thrift Savings Plan (TSP): Investment Opportunities and Benefits

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The Thrift Savings Plan (TSP) is a defined contribution plan that is available only to military service members and federal employees. It is similar to the 401(k) plans offered by many private-sector employers.

Here’s what you need to know about the benefits of the Thrift Savings Plan.

What Is the Thrift Savings Plan (TSP)?

TSP is a way for uniformed service members and federal employees to save for retirement, in much the same way that those who work in the private sector use an employer-sponsored 401(k). It’s a defined contribution plan, which means that the employee specifies how much they want to save, and the employer — in this case, the government — may contribute based on the employee’s contribution.

The money is invested and, when the employee retires, the amount in their account is the result of their contributions plus any earnings. In short, the amount that is contributed is defined, and the investment returns are dictated by the performance of the chosen investments.

Defined Benefit Plans

In contrast, some retirement plans are defined benefit plans, often known as pensions. These plans provide an income stream in retirement that is typically calculated based on the length of service of the employee and their salary at retirement. In these types of plans, it’s the benefit — payout — that is defined.

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Types of TSP Accounts

For your TSP account, you can choose a traditional account or a Roth account. You can split your contributions between traditional and Roth TSP accounts if you choose.

Depending on your retirement system and when you began your federal service, you may have been automatically enrolled in the TSP. You can stop, start or change your contributions through your service’s or agency’s electronic payroll system.

Traditional Thrift Savings Plan

In a traditional account, you have your contributions withheld from your paycheck before they are taxed. This reduces your taxable income by the amount of your contributions. For example, if you earn $100,000 per year and contribute $10,000 to a traditional TSP account, you will be taxed on $90,000 of income for that year.

When you withdraw the money in retirement, you will be taxed on all of it — contributions and earnings — at your regular income tax rate. Since your income is usually less in retirement than when you are working, your tax rate will likely be lower. Plus, your earnings have grown tax-deferred during your career.

Roth Thrift Savings Plan

If you choose a Roth TSP account, you contribute after-tax dollars. So, in the previous example, you earn $100,000 per year and pay taxes on that $100,000. You then contribute $10,000 to your Roth TSP. That money is invested and grows during your career, and when you withdraw it in retirement, it is tax-free. That means you have already paid the taxes on your contributions, and your earnings are all free of taxes.

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Contribution Limits

There is a limit to the amount of money you can contribute to your TSP account each year. In 2023, you can defer up to $22,500 from your pay to be deposited into your TSP account. If you are 50 or over, you can make an additional $7,500 contribution, for a total of $30,000.

Some members of the uniformed services can exceed this amount, up to a total of $66,000, with excess contributions coming from tax-exempt pay that was earned in a combat zone.

Employer Matching Contributions

If you are a member of the Federal Employees Retirement System (FERS) or the Blended Retirement System (BRS), you may receive a matching contribution.

For the first 3% of your pay that you contribute, your agency or service will match that amount, dollar for dollar. The next 2% you contribute is matched at 50 cents on the dollar. So, if you contribute 5% of your pay, you receive another 4% of your pay in matching contributions.

TSP Investment Options

You have control over how your TSP account contributions — including matching contributions — are invested. There are three different options, each of which has multiple funds to select from.

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Lifecycle Funds

Lifecycle Funds, sometimes referred to as L Funds, are a diversified mix of funds that are allocated based on your expected retirement date. So, if you plan to retire in 2035, you can choose the L 2035 fund.

Today, this fund is invested in a mix of funds that is appropriate for someone who will begin to withdraw money in 12 years. Each quarter, the mix of funds is rebalanced, and the allocation is adjusted to become less risky as you get closer to retirement.

Individual Funds

Individual funds offer broad diversification. There are five funds: the Government Securities Investment Fund (G Fund), the Fixed Income Index Investment Fund (F Fund), the Common Stock Index Investment Fund (C Fund), the Small Cap Stock Index Investment Fund (S Fund) and the International Stock Index Investment Fund (I Fund).

You can choose which funds to invest in and the percentage you want to invest in each fund.

Mutual Fund Window

Some TSP participants have the ability to invest in the mutual fund window. This is a separate investment account that allows you to buy and sell any of the available mutual funds.

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Additional fees apply, and you must be eligible to use this option — your first contribution must be at least $10,000 but can’t be over 25% of your entire TSP. This means you have to have at least $40,000 in your TSP before you can open a mutual fund window.


The Thrift Savings Plan is a significant benefit for eligible employees, so it’s important to understand how it works, and how it can help you plan for a comfortable retirement. For information on specific benefits available to you, and how to take advantage of them, consult the TSP representative for your agency or service.


  • What is the difference between a Thrift Savings Plan and a 401(k)?
    • The initial difference between a TSP and a 401(k) is that a TSP is for military members and federal employees, while a 401(k) is offered by private-sector employers. The investment options also vary, depending on which plan you have.
  • What does the Thrift Savings Plan do?
    • The TSP is a retirement savings plan for federal employees and members of the military – it is intended to provide you with income after you retire.
  • What is the best fund to put your TSP in?
    • The G Fund is the safest investment fund for your TSP, because it invests in government securities. However, the best option for you depends on your risk tolerance and target retirement date, so it's a good idea to consult with a financial advisor.
  • When can I withdraw from my TSP without penalty?
    • You must be at least 59 1/2 or older to withdraw from your TSP without paying a penalty.
    • Hardship withdrawals are an option for those who need emergency access to the funds before that age, but they might incur a 10% penalty and must meet certain requirements.
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Information is accurate as of May 31, 2023.

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