Thrift Savings Plans: Benefits for Military Personnel & Federal Employees

Written by
Lindsey Crossmier
Lindsey Crossmier
Financial Writer
Lindsey Crossmier is an accomplished writer with experience working for The Florida Review and Bookstar PR. As a financial writer, she covers Medicare, life insurance and dental insurance topics for RetireGuide. Research-based data drives her work.
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Edited By
Lamia Chowdhury
Lamia Chowdhury
Financial Editor
Lamia Chowdhury is a financial content editor for RetireGuide and has over three years of marketing experience in the finance industry. She has written copy for both digital and print pieces ranging from blogs, radio scripts and search ads to billboards, brochures, mailers and more.
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Reviewed By
Stephen Kates, CFP®
Stephen Kates, CFP®
Principal Financial Analyst for RetireGuide.com
Stephen Kates is a Certified Financial Planner™ professional and personal finance expert with over a decade of experience working with individuals and families who need help with their finances. With experience as a financial advisor for two of the largest financial firms in the country, Stephen has worked with hundreds of clients to build comprehensive financial plans to grow and protect their wealth.
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Published: April 6, 2023
Updated: June 23, 2023
8 min read time
This page features 12 Cited Research Articles

Key Takeaways

A TSP is a low-cost and tax-advantaged investment option for federal employees, members of the military and the Ready Reserve service members.
Your TSP plan can have traditional (pre-tax) contributions with tax-deferred earnings or Roth (after-tax) contributions with tax-free earnings.
TSP plans have multiple investing options: 10 Lifecycle Funds (L Funds) and five types of individual funds. You can also opt for a mutual fund window.
Consider strategies, such as contributing the maximum amount early on, to maximize savings benefits from your TSP plan.

What Is a Thrift Savings Plan?

A Thrift Savings Plan (TSP) is a retirement and investment plan specifically designed for federal government employees and uniformed services members, which includes the Ready Reserve. Low fees and tax breaks make TSPs appealing for qualifying adults nearing retirement.

TSPs offer similar benefits to 401(k) plans, with additional perks like continued benefits for your spouse if you were to pass away.

How much growth your TSP plan acquires depends on how much money you put into your account, the percent you choose to contribute and the investment option you select. You also have the option to roll over funds from your 401(k) or traditional IRA to your existing TSP account to minimize your taxes.

Thrift Savings Plan Features

Agency Contributions: Even if you don’t make a contribution yourself, the agency will contribute 1% of your basic pay each period to your TSP account. You can maximize earnings by adding an extra 5%.
Investment Opportunities: Diversified investment options include 10 Lifecycle Funds (L Funds) and five types of individual funds. You can also opt for a mutual fund window, which offers greater investment flexibility.
Rollover Options: Eligible rollover distributions of your traditional balance may be rolled over to a traditional IRA or a Roth IRA.
Required Minimum Distributions (RMDs): You must begin receiving required minimum distributions (RMDs) once you have separated from service and reached a specific age.
Tax Advantages: Traditional (pre-tax) contributions with tax-deferred earnings or Roth (after-tax) contributions with tax-free earnings.
Contribution Limits: The TSP contribution limit is $22,500 in 2023. If you’re over 50 years old, you can also make a catch-up contribution of $7,500.
Death Benefits: If you die and your partner is entitled to a portion of your account, the agency will create a beneficiary participant account, with mostly the same investment options as your account.

Who Is Eligible for a Thrift Savings Plan?

Most actively employed full-time or part-time federal government employees or uniformed service members with a current pay status for TSP contributions are eligible for a Thrift Savings Plan.

You’re eligible for a Thrift Savings Plan if you’re a:

Federal Employees Retirement System (FERS) employee.
Civil Service Retirement System (CSRS) employee.
Member of the uniformed services (active duty or Ready Reserve).
Civilian in certain other categories of government service.

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Investment Options for a Thrift Savings Plan

The TSP investment options include five individual funds, 10 Lifecycle Funds (L Funds) and a mutual fund window. Each option has different levels of risk and flexibility to consider before adding it to your retirement plan.

Individual Funds

The five individual funds allow you to diversify your investment with different features like short-term U.S. treasury security and matching performance to the S&P 500 index.

Below is a list breaking down the retirement goals of the five individual funds. They are ordered from minimal risk to high risk. So, if you’re looking for a low-risk option, consider the G Fund.

Retirement Goals of Each TSP Individual Fund Option

Individual Fund Type	Retirement Goal
G Fund	Ensure preservation of capital and generate returns above those of short-term U.S. Treasury securities.
F Fund	Match the performance of the Bloomberg U.S. Aggregate Bond Index.
C Fund	Match the performance of the Standard and Poor's 500 (S&P 500) Index.
S Fund	Match the performance of the Dow Jones U.S. Completion Total Stock Market Index.
I Fund	Match the performance of the MSCI EAFE (Europe, Australasia, Far East) Index.

Source: TSP.gov

L Funds

The 10 L Funds are a mix of the five individual fund types listed in the table above. The title of each L Fund includes a year, which indicates its target date for high returns. For example, L 2065 is best for those planning to retire near 2065.

These funds account for when you need the money, the expected risk and best expected return. The Thrift Savings Plan has a fact sheet breaking down more details about L Funds and their key features.

Mutual Fund Window

The mutual fund window allows you to invest a portion of your TSP savings into available mutual funds. Once your account is set up, you can buy, sell and exchange mutual funds. Know that you have to meet eligibility requirements and pay a fee to use this feature.

How To Enroll in a Thrift Savings Plan

To enroll in a Thrift Savings Plan online, go to the Thrift Savings Plan website and create an account. It shouldn’t take longer than 10 minutes to set up your account.

Before you create your account, gather important personal information, like your Social Security number and the names of your beneficiaries.

Determine which investment options you’d like to select. Be cautious when choosing your investments — make sure they fit your retirement goals while not adding unnecessary risk.

5 Steps To Enroll in a Thrift Savings Plan

Gather your Social Security number and determine your TSP account beneficiaries.
Go to the Thrift Savings Plan website and create an account.
Create your username, password and ThriftLine PIN to access your account.
Verify your identity through a one-time passcode sent to your phone by text message or voice call.
You’re enrolled!

Once you’re enrolled, you can view and manage your investments online. Access online forms using your login information to make changes to your TSP account.

Strategies for Maximizing Thrift Savings Plan Benefits

To maximize your TSP benefits, contribute 5% of your salary to your plan. In response, your agency will make a matching contribution of 5%. Contributing the maximum amount early on helps you gain the long-term benefits offered by Thrift Savings Plans.

If you began or rejoined the federal service on or after Oct. 1, 2020, you were automatically enrolled to contribute 5% of your basic salary. If you began or rejoined the federal service between Aug. 1, 2010, and Sept. 30, 2020, you were automatically enrolled at 3%. To get the optimal match from your agency or service, increase your contribution to 5%.

Plan exact contribution amounts as another way to maximize your TSP benefits. Keep in mind there will be 26 pay dates in 2023.

The U.S. Customs and Border Protection recommends limiting your bi-weekly contributions to $866 to maximize your contributions in 2023. The agency calculated the $866 recommendation by taking the contribution limit of $22,500 and dividing it by the 26 pay periods.

TSP participants who are 50 or older and participating in the catch-up contributions can contribute an additional $288 per pay period to reach the $7,500 catch-up contribution limit in 2023.

Pro Tip

If you’re making catch-up contributions, contribute $1,154 ($866 + $288) each pay period to maximize your TSP benefits. If you’re not making catch-up contributions, only contribute $866 each pay period.

Source: U.S. Customs and Border Protection

In addition to planning and maxing out your contributions, diversifying your investments can boost your retirement funds. Meet with a financial advisor to evaluate a safer option, like the G Fund, and higher risk, higher return options, like the I Fund.

TSP Tax Considerations

How your TSP is taxed depends on if it’s a traditional TSP or Roth TSP. Different rules exist for your contributions, earnings, withdrawals and the early withdrawal penalty. Both options offer lower taxable income as you near retirement.

Traditional TSP

Withdrawals from your traditional TSP balance are considered taxable income because you had deferred paying taxes on this money when you made contributions. The one exception is traditional contributions made from tax-exempt pay — these funds are not taxed when withdrawn.

If you receive a TSP distribution before you turn 59 1/2 , you may have to pay an early withdrawal penalty tax equal to 10% of any taxable portion of the distribution. This early withdrawal penalty is on top of your regular income tax.

Roth TSP

Roth funds are separated into two categories: contributions and earnings. Because you already paid income tax on the Roth money you contributed to your account, your contributions won’t be taxed again. Whether or not your earnings are taxed depends on if they are qualified earnings.

For your earnings to be qualified, you must be 59 ½ or older or permanently disabled, and five years must have passed since your first Roth contribution. The earnings portion of a nonqualified distribution is taxed and may be subject to the early withdrawal penalty.

Taxes In Retirement

Thrift Savings Plan FAQs

Can you rollover funds from other retirement plans into a Thrift Savings Plan?

Yes. You can roll over funds from other eligible retirement plans — like your 401(k), 403(b) or traditional IRA — into your TSP.

What happens to a Thrift Savings Plan if you leave your job?

As long as you have more than $200 in your TSP account when you leave your job, you can still accrue earnings on your investments. However, you won’t be able to make any more contributions to your TSP after you leave your job.

How are contributions and withdrawals taxed in a Thrift Savings Plan?

TSP participants pay taxes either when they earn and contribute the money (Roth TSP) or when they withdraw it (traditional TSP). You can split your contributions between Roth and traditional, and you can change your contribution type through your agency.

Editor Malori Malone contributed to this article.

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Last Modified: June 23, 2023

Lindsey Crossmier Financial Writer

Lindsey Crossmier joined the RetireGuide team in 2022 as a writer to promote long-lasting financial literacy. She leverages her creative writing background, editorial experience and financial education from Yale to write retirement-focused financial content for those ready to prepare for their futures. Making complex information simple and accessible for all is her specialty.

Special focus on content about life insurance, Social Security, Medicare and certificates of deposits (CDs)
Research-based data drives her work
Bachelor’s degree in English from the University of Central Florida

Edited By

Lamia Chowdhury Financial Editor

Financially Reviewed By

Stephen Kates, CFP® Principal Financial Analyst for RetireGuide.com

12 Cited Research Articles

Thrift Savings Plan. (2023, February). Tax Rules About TSP Payments. Retrieved from https://www.tsp.gov/publications/tspbk26.pdf
U.S. Customs and Border Protection. (2023, January 23). Thrift Savings Plan Contributions. Retrieved from https://www.cbp.gov/employee-resources/benefits/retirement/tsp/contributions
Thrift Savings Plan. (2023). Roth and Traditional TSP Contributions. Retrieved from https://www.tsp.gov/making-contributions/traditional-and-roth-contributions/
Thrift Savings Plan. (2023). Maximize Your Savings. Retrieved from https://web.archive.org/web/20211226141717/https://www.tsp.gov/making-contributions/maximize-your-savings/
Thrift Savings Plan. (2023). Leaving Uniformed Services. Retrieved from https://www.tsp.gov/changes-in-your-career/leaving-uniformed-services/
Thrift Savings Plan. (2023). Contribution Types. Retrieved from https://www.tsp.gov/making-contributions/contribution-types/
Thrift Savings Plan. (2023). About the Thrift Savings Plan (TSP). Retrieved from https://www.tsp.gov/about-the-thrift-savings-plan-tsp/
Thrift Savings Plan. (2023). Move Money Into the TSP. Retrieved from https://www.tsp.gov/tsp-basics/move-money-into-tsp/
Thrift Savings Plan. (2023). Access Your Account. Retrieved from https://www.tsp.gov/access-your-account/
Thrift Savings Plan. (2023). How the TSP Fits Into Your Retirement. Retrieved from https://www.tsp.gov/tsp-basics/how-tsp-fits/
Thrift Savings Plan. (2022, May). Fund Information. Retrieved from https://www.tsp.gov/publications/tsplf14.pdf?TSP-LF-14
Thrift Savings Plan. (n.d.). Individual Funds. Retrieved from https://www.tsp.gov/funds-individual/