Thrift Savings Plans: Retirement Investing While Serving Your Country

Are you a member of the military or a federal employee? Here’s what you should know about Thrift Savings Plans: investment, loan, and withdrawal options. thrift savings retirement plans for military and federal employees
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Key Takeaways

  • Thrift Savings Plans (TSP)s 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 options are limited

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

A 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 the 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 age 50 or older. The maximum contribution limit for 2018 is $18,500 for regular contributions, plus $6,000 for the catch-up contribution.

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) automatically receive a 1% contribution from the agency where they work, or as service members. If the participant contributes 5% of their pay each pay period, they’ll receive a matching 4%, according to the TSP website. Between the two matches, a participant can potentially double his or her savings amount. Participants have the option 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.

Dara Luber, senior manager, retirement at TD Ameritrade, says one of the benefits of these savings plans is a fee that’s only 3.3 basis points on average.

Investment and Loan Options in a TSP

Investment options 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.

And like 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 Thrift Savings Plan 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 Thrift Savings Plan 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.

Leaving Government Service? Understand Your Options 

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 out. But as with any investment decision, each person needs to figure out their needs.

“You have to take into account many of the same things you would with a 401(k) rollover," Luber says. “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 the the associated investment options by visiting

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


Key Takeaways

  • Thrift Savings Plans (TSP)s 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 options are limited
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