A TSP account is a retirement savings plan for federal employees, similar to a 401(k) for private-sector workers

The Thrift Savings Plan (TSP) is a retirement investment account run by the federal government for people who work for the federal government or the military. You contribute money from your paycheck, the government may match some of it, and your money grows in investment funds you choose. When you leave federal service or reach retirement age, you can withdraw the money or leave it invested.

TSP is not Social Security. It is a separate account that belongs to you. The money you put in stays yours, and you decide how much to contribute each year (within federal limits). The federal government does not take it back if you leave your job early, though there are rules about when you can withdraw without penalty.

If you are a federal employee, a postal worker, a member of the military, or work for certain other government agencies, you are likely may be able to access to open a TSP account. Some people are automatically enrolled; others must choose to join.

Key Takeaways

  • TSP is a retirement account for federal employees and military members, funded by your own contributions and sometimes matched by the government.
  • You choose how much to contribute each pay period, up to annual federal limits that change yearly.
  • The government may match part of your contribution if you are a federal civilian employee, but military members receive a different benefit structure.
  • Your money is invested in funds you select, and you can change your investment choices at any time.
  • You can withdraw money after you leave federal service or reach age 59½, though early withdrawal before age 59½ may result in taxes and penalties.

How contributions work and what the government matches

You decide what percentage of your paycheck goes into your TSP account, from 1% to 100% (though you cannot exceed the annual dollar limit set by the IRS, which changes each year). The money is taken out before taxes, which lowers your taxable income for that year.

If you are a federal civilian employee, the government will match part of what you contribute. The standard match is: the government contributes 1% of your salary automatically, then matches dollar-for-dollar up to 3% of your salary, then matches 50 cents on the dollar for the next 2%. In plain terms: if you contribute at least 5% of your salary, the government will add 5% on top. If you contribute less, you get a smaller match. If you contribute nothing, you get only the automatic 1%.

If you are military, the match structure is different. You receive a Blended Retirement System (BRS) contribution that is not tied to how much you contribute yourself. Ask your military finance office for your specific match percentage.

You can change your contribution amount whenever you want through your agency's payroll system or the TSP website. Changes take effect on your next pay period.

The investment funds available in TSP

TSP offers five core investment funds: the Government Securities Fund (G Fund), the Fixed Income Fund (F Fund), the Common Stock Index Fund (C Fund), the Small Cap Stock Index Fund (S Fund), and the International Stock Index Fund (I Fund). Each fund invests in different types of securities, so they carry different levels of risk and potential return.

You can also invest in Lifecycle Funds, which automatically adjust the mix of these five core funds as you get closer to retirement. You pick the fund based on your expected retirement year, and the fund rebalances itself over time.

You can move money between funds as often as you want, and you can change where new contributions go. There is no fee to move money or change your investment choices.

When you can withdraw money and what happens if you withdraw early

You can withdraw money from your TSP account after you leave federal service, regardless of your age. You can also withdraw after you turn 59½, even if you are still working. If you withdraw before age 59½ and you are no longer a federal employee, you will owe income tax on the withdrawal plus a 10% early withdrawal penalty.

There are a few exceptions to the early withdrawal penalty: if you are disabled, if you are withdrawing substantially equal periodic payments, or if you are withdrawing under the Substantially Equal Periodic Payment (SEPP) rule. These exceptions have specific requirements, so check the TSP website or call the TSP Service Office if you think one applies to you.

You do not have to withdraw all your money at once. You can take a partial withdrawal, leave the rest invested, and withdraw more later. You can also leave your money in TSP after you retire and let it keep growing.

Withdrawal options: lump sum, installments, or annuity

When you are ready to take money out, you have four main choices. You can take a single lump-sum payment of your entire balance. You can take monthly installments in an amount you choose, and the TSP calculates how long the money will last based on your life expectancy. You can buy an annuity, which means an insurance company pays you a fixed amount each month for the rest of your life. Or you can combine options—for example, take a lump sum now and leave the rest as an annuity.

Each option has tax consequences. A lump sum is taxed all at once. Installments are taxed as you withdraw them. An annuity is taxed as you receive payments. You can also roll your TSP balance into an Individual Retirement Account (IRA) or another retirement plan, which may give you more withdrawal options and lower fees.

Once you leave federal service, you have a limited time to decide. The TSP will contact you with your options, but you should not wait until the last moment to choose.

TSP loans and hardship withdrawals

You can borrow from your own TSP account if you need money before retirement. The loan must be repaid within five years (or up to 15 years if you are borrowing to buy a home). You pay interest to yourself, not to a bank. If you leave federal service before the loan is repaid, you must pay back the full balance or it becomes a taxable withdrawal.

You can also request a hardship withdrawal if you face a serious financial need—such as medical expenses, preventing eviction, or paying for education. The TSP has a specific list of what counts as a hardship. If approved, you can withdraw up to the amount of your own contributions (not the government match or investment gains). Hardship withdrawals are taxed as income and may be subject to the 10% early withdrawal penalty if you are under 59½.

How TSP differs from a 401(k) and other retirement accounts

TSP is similar to a 401(k) in that both are employer-sponsored retirement plans where you contribute pre-tax money and the employer may match. The main differences are cost and investment options. TSP has very low fees—often less than 0.05% per year—because it is run by the government and does not need to make a profit. A typical 401(k) charges 0.5% to 1% or more. TSP also offers fewer investment choices (five core funds plus Lifecycle Funds), while a 401(k) may offer dozens of mutual funds.

TSP is not the same as the Federal Employees Retirement System (FERS) or the Civil Service Retirement System (CSRS). Those are pension plans that pay you a monthly benefit based on your salary and years of service. TSP is separate from those pensions and is an additional retirement savings tool.

If you are self-employed or work for a private company, you cannot open a TSP account. You would use a Solo 401(k), a SEP IRA, or a regular IRA instead.

Frequently Asked Questions

What happens to my TSP if I leave my federal job?

Your TSP account stays open and your money keeps growing. You can leave it invested, withdraw it, or roll it into an IRA. You do not have to touch it right away. If you are rehired by the federal government later, you can contribute to the same account again.

Can I contribute to TSP and an IRA at the same time?

Yes. You can contribute to both in the same year. However, if you have a TSP account, your ability to deduct IRA contributions on your taxes may be limited depending on your income. Check the IRS rules or ask a tax professional.

What if I die before I withdraw my TSP money?

Your TSP balance goes to your designated beneficiary. If you have not named a beneficiary, the money goes to your spouse, then your children, then your parents, then your estate, depending on who survives you. You can change your beneficiary at any time through the TSP website.

Do I have to start withdrawing at a certain age?

If you are still a federal employee, you do not have to withdraw until you leave your job. If you have left federal service, you must start withdrawals by April 1 of the year after you turn 73 (this age changed in 2023). If you do not withdraw the required amount, you owe a 25% penalty on the shortfall.

Can I move money from my TSP to another retirement account?

Yes. You can roll your TSP balance into a traditional IRA, a Roth IRA, or another employer retirement plan. A rollover does not count as a withdrawal, so you do not owe taxes or penalties. The TSP can help you set up a rollover, or you can do it yourself by contacting the receiving institution.