The Thrift Savings Plan (TSP) is a retirement savings and investment plan for federal employees and members of the uniformed services. It shares some similarities with a 401(k) plan, but it is not technically a 401(k). The TSP is administered by the Federal Retirement Thrift Investment Board (FRTIB), and it offers a variety of investment options, including traditional and Roth accounts. Like a 401(k), the TSP allows participants to contribute a portion of their salary on a pre-tax basis, which can reduce their current income taxes. Additionally, employers may make matching contributions to their employees’ TSP accounts.
Similarities between TSP and 401(k) Plans
The Thrift Savings Plan (TSP) and 401(k) plans are both retirement savings plans that offer tax benefits. They have several similarities, including:
- Employer Contributions: Both TSP and 401(k) plans allow employers to make contributions on behalf of their employees.
- Tax Deferral: Contributions to both plans are made pre-tax, reducing your taxable income in the year of the contribution. Earnings on these contributions grow tax-deferred until withdrawn.
- Contribution Limits: Both plans have annual contribution limits. For 2023, the TSP limit is $22,500 ($30,000 for those age 50 or older), and the 401(k) limit is $22,500 ($30,000 for those age 50 or older).
- Investment Options: Both plans offer a range of investment options, including stock funds, bond funds, and target-date funds.
- Early Withdrawal Penalties: Withdrawals from both plans before age 59½ are subject to a 10% early withdrawal penalty, with some exceptions.
- Required Minimum Distributions (RMDs): Both plans require you to start taking withdrawals at age 73 (75 for those born after June 30, 1949).
| Feature | TSP | 401(k) |
|---|---|---|
| Employer Contributions | Yes | Yes |
| Tax Deferral | Yes | Yes |
| Contribution Limits | $22,500 ($30,000 for age 50+) | $22,500 ($30,000 for age 50+) |
| Investment Options | Range of funds, including stock, bond, and target-date | Range of funds, including stock, bond, and target-date |
| Early Withdrawal Penalties | 10% before age 59½ | 10% before age 59½ |
| Required Minimum Distributions | Age 73 | Age 73 (75 for those born after June 30, 1949) |
Comparing the Thrift Savings Plan (TSP) and 401(k) Plans
The Thrift Savings Plan (TSP) is a retirement savings plan offered to federal employees and members of the uniformed services. It is similar to a 401(k) plan in many ways, but there are some key differences.
Differences between TSP and 401(k) Plans
- Eligibility: TSPs are only available to federal employees and members of the uniformed services, while 401(k) plans are available to employees of private companies.
- Employer contributions: TSPs receive automatic employer contributions, while 401(k) plans do not always.
- Investment options: TSPs offer a limited number of investment options, while 401(k) plans typically offer a wider range of options.
- Fees: TSPs have lower fees than 401(k) plans.
The following table summarizes the key differences between TSPs and 401(k) plans:
| Feature | TSP | 401(k) |
|---|---|---|
| Eligibility | Federal employees and members of the uniformed services | Employees of private companies |
| Employer contributions | Automatic | Not always |
| Investment options | Limited | Wider range |
| Fees | Lower | Higher |
Eligibility for the Thrift Savings Plan
The Thrift Savings Plan (TSP) is a retirement savings plan offered to federal employees and members of the uniformed services. It is similar to a 401(k) plan, but there are some key differences. One of the most important differences is that the TSP is only available to federal employees and members of the uniformed services. To be eligible for the TSP, you must be:
- A federal employee
- A member of the uniformed services
- A former federal employee or member of the uniformed services who is receiving a retirement annuity
If you meet these requirements, you can open a TSP account. You can contribute up to 100% of your basic pay to your TSP account, up to the annual contribution limit. For 2023, the annual contribution limit is $22,500. If you are age 50 or older, you can make catch-up contributions of up to $7,500.
The TSP offers a variety of investment options, including:
- The G Fund: A government securities fund that invests in U.S. Treasury bonds.
- The C Fund: A stock index fund that invests in the S&P 500 index.
- The S Fund: A bond index fund that invests in U.S. Treasury Inflation-Protected Securities (TIPS).
- The I Fund: An international stock index fund that invests in the FTSE International Developed Index.
- The L Fund: A lifecycle fund that automatically adjusts your asset allocation as you get closer to retirement.
You can choose to invest in any of these funds, or you can create a custom investment portfolio. The TSP also offers a variety of tools and resources to help you manage your account.
| Type of TSP | Eligibility | Contribution Limits | Investment Options |
|---|---|---|---|
| Traditional TSP | Federal employees and members of the uniformed services | Up to 100% of basic pay, up to the annual contribution limit ($22,500 for 2023) | G Fund, C Fund, S Fund, I Fund, and L Fund |
| Roth TSP | Federal employees and members of the uniformed services who meet income limits | Up to 100% of basic pay, up to the annual contribution limit ($22,500 for 2023) | G Fund, C Fund, S Fund, I Fund, and L Fund |
Comparison of Thrift Savings Plan and 401(k)s
While the Thrift Savings Plan (TSP) shares similarities with 401(k) plans, there are key distinctions between the two.
Investment Options within the TSP
The TSP offers a range of investment options, including:
- Government Securities Investment (G Fund): A low-risk investment in U.S. Treasury securities
- Fixed Income Index Investment (F Fund): A bond index fund tracking U.S. Treasury bonds
- Common Stock Index Investment (C Fund): A stock index fund tracking the S&P 500
- Small Capitalization Stock Index Investment (S Fund): A stock index fund tracking small-cap U.S. stocks
- International Stock Index Investment (I Fund): A stock index fund tracking non-U.S. developed stocks
- Lifecycle Funds (L Funds): Target-date funds that automatically adjust asset allocation based on age
Comparison of TSP and 401(k) Investment Options
| Investment Option | TSP | 401(k) |
|---|---|---|
| Government Securities | Yes | Not usually |
| Bond Index Funds | Yes | Yes |
| Stock Index Funds (Large Cap) | Yes | Yes |
| Stock Index Funds (Small Cap) | Yes | Not always |
| International Stock Index Funds | Yes | Not always |
| Target-Date Funds | Yes (L Funds) | Yes |
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