Thrift Savings Plans: An Overview ... and What’s Ahead in 2023

Are you a member of the military or a federal employee? Here’s what you should know about Thrift Savings Plans. thrift savings retirement plans for military and federal employees
21 min read
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Key Takeaways

  • Thrift Savings Plans (TSP) are available for active military personnel and federal employees
  • In general, a TSP works like an employer-sponsored plan, such as a 401(k)
  • A TSP can have low investment fees, but investment choices are limited
  • Inflation-adjusted contribution levels will jump in 2023

Are you a member of the military or a federal employee and looking into savings strategies? Have you thought about a Thrift Savings Plan (TSP)?

The TSP is a retirement savings and investment vehicle created in 1986 by Congress for federal employees and military personnel, including the Ready Reserve. TSPs offer the same types of savings and tax benefits as 401(k) plans that many companies offer their employees.

Just like a 401(k), a TSP is a defined contribution plan, so the retirement income you get from the account depends on how much you (and your agency, if you’re eligible to receive agency contributions) put into your account during your working years, plus the earnings accumulated over that time.

Thrift Savings Plans: How They Work

There are two ways you can fund a TSP. One is through regular employee contributions, and the other is through catch-up contributions for participants 50 or older. For 2023, the maximum contribution limit for qualified investors under age 50 will be $22,500, up $2,000 from 2022 levels, due to inflation adjustments. The new catch-up contribution limit will be $7,500, up $1,000 from last year, making it possible to stash away up to $30,000 in a TSP.

Members of the Federal Employee Retirement System or the Blended Retirement System (where members can choose a pension, TSP, or both—military personnel are automatically enrolled in this system) receive a 1% contribution from the agency where they work or as service members. Participants who contribute 5% each pay period will receive a matching 4%, according to the TSP website. The first 3% of pay you contribute will be matched dollar-for-dollar; the next 2% will be matched at 50 cents on the dollar. Between the two matches, participants can potentially double their savings amount. Participants have the choice to open a traditional TSP and a Roth TSP, subject to the contribution limits. The Roth TSP acts like a Roth 401(k), in which the participant pays taxes up front, but withdrawals in retirement are tax free at the federal level.

Low fees can be one of the benefits of these savings plans.

Investment and Loan Choices in a TSP

Investment selections in a TSP are limited but cover most types of basic investments people use. Members have a choice of “lifecycle funds,” which are similar to target date funds (funds that allow investors to pick a portfolio matched to the year they plan to retire, starting with more aggressive investments but getting more conservative over time), plus a G Fund, which invests in government securities. The F Fund is a fixed income fund that aims to match the performance of the Bloomberg Barclays U.S. Aggregate Bond Index. There are three equity funds:

  • The C Fund:This is the Common Stock Index Fund, which seeks to match the performance of the S&P 500 index.
  • The S Fund:This is the Small Capitalization Stock Index Fund, which invests in small and midsize U.S. companies and seeks to match the performance of the Dow Jones U.S. Completion Total Stock Market Index.
  • The I Fund: This is the International Stock Index Fund, which seeks to match the performance of the MSCI EAFE Index.
  • In May 2022, TSP added a new feature called the mutual fund window. It’s designed for eligible TSP participants who want greater investment flexibility through a selection of available mutual funds. More information is available here.

And as with a 401(k), participants can take loans out of their TSPs. But as usual, the loan is subject to taxes and a possible 10% penalty. A TSP loan can be general purpose, which must be paid back in one to five years, or the loan can be used to buy a home, in which case the loan needs to be repaid in one to 15 years.

Participants who are active military can make an in-service TSP withdrawal, but that has special rules. You can’t return or repay the money you remove from your TSP account, and you still need to pay taxes and a penalty.

TSP Withdrawal Rules, September 2022

In 2017, the TSP Modernization Act was signed into law, with the intended purpose of adding flexibility to TSP account withdrawals. These rules went into effect September 15, 2019. A full rundown can be found on the website, but here are a few highlights:

  • Before the changes, participants were limited to one lifetime “partial withdrawal.” Now, you can take up to four per year while you’re still in federal service, and after you separate service, there’s no limit.
  • Participants can stop, start, or make changes to installment payments at any time.
  • Previously, participants with both traditional and Roth balances were required to take withdrawals on a pro rata basis (meaning the amounts taken from each were commensurate with the balance held in each account on a percentage basis). Now, you can choose to pull from your Roth or just from your traditional balance. 
  • Before the changes, a full withdrawal was required as soon as you turned 70 1/2. If you didn’t, your account was deemed “abandoned.” The new law did away with abandonments, so you can keep your money in the TSP account—but subject to required minimum distribution (RMD) rules, of course. If you had an account that was previously abandoned, you can now get it reinstated without having to take a full withdrawal.

Leaving Government Service? Understand Your Choices

Ready to join civilian life? Similar to a 401(k), you can leave your account with the TSP, roll it into an eligible employer plan, roll it into an IRA, or cash it out. But as with any investment decision, each person needs to figure out their own needs.

You have to take into account many of the same things you would with a 401(k) rollover. Before you decide to roll over a TSP, be sure to do your research and talk to a qualified tax advisor to make sure that it’s the right decision for you.

You can learn more about Thrift Savings Plans and the associated investment choices by visiting

All investments, including investments in a TSP account, involve risk, including loss of principal. 

Read the Q&A and Fact Sheet from the TSP website

Download PDF


Key Takeaways

  • Thrift Savings Plans (TSP) are available for active military personnel and federal employees
  • In general, a TSP works like an employer-sponsored plan, such as a 401(k)
  • A TSP can have low investment fees, but investment choices are limited
  • Inflation-adjusted contribution levels will jump in 2023
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