A Thrift Savings Plan, or TSP, is the retirement savings account the federal government offers to civilian employees and members of the uniformed services. It functions much like a private sector 401(k), letting workers set aside pretax or after tax dollars, get an employer match, and choose from a small menu of low cost investment funds.
How the TSP Actually Works
Congress created the TSP in 1986 through the Federal Employees Retirement System Act, and it has grown into one of the largest defined contribution plans in the country. Like an IRA, it comes in two flavors. A traditional TSP lets you deduct contributions from your taxable income now, defers taxes on growth, and then taxes both contributions and earnings when you withdraw money in retirement. A Roth TSP flips that arrangement: you pay taxes upfront on the money you put in, but qualified withdrawals in retirement, including all the growth, come out completely tax free.
Choosing between the two often comes down to whether you expect to be in a higher or lower tax bracket later in life. Someone early in their federal career, likely earning less now than they will later, might lean toward a Roth TSP. Someone closer to retirement, in a higher bracket today, might prefer the immediate deduction a traditional TSP provides.
What You Can Contribute in 2025
Federal workers can put up to $23,500 into a TSP in 2025. Anyone 50 or older can add a catch up contribution of $7,500, bringing their total possible contribution to $31,000 for the year. That ceiling dwarfs what's allowed in a traditional or Roth IRA, where the 2025 limit sits at $7,000, plus a $1,000 catch up for those 50 and up.
Federal employees covered under the Federal Employees Retirement System (FERS) or the Blended Retirement System (BRS) also get help from their agency. Most agencies kick in an automatic 1% of salary regardless of whether the employee contributes anything at all. After two years of service, that support typically grows: agencies match contributions dollar for dollar on the first 3% of salary and 50 cents on the dollar for the next 2%, which adds up to a potential 5% match once the automatic 1% is included. Skipping that match means walking away from money the government is otherwise willing to hand over.
Picking Investments Inside the Plan
The TSP keeps things simple compared with many 401(k) menus, offering five core funds plus a set of target date options. The five individual funds are:
| Fund | What It Invests In | Risk Level |
|---|---|---|
| G Fund | Government securities, such as Treasuries | Lowest |
| F Fund | Corporate and government bonds | Low to moderate |
| C Fund | Index fund tracking the S&P 500 | Moderate to high |
| S Fund | Small cap stock index fund | High |
| I Fund | International stocks tracking the MSCI EAFE Index | Highest |
Savers who would rather not manage the mix themselves can choose one of 11 Lifecycle, or L, Funds instead. Each L Fund blends the five core funds in different proportions depending on how far away the target retirement date sits. As that date approaches, the fund automatically shifts its allocation toward the more conservative G and F funds, reducing risk as retirement nears.
The plan also accepts rollovers from previous employer retirement accounts, including old 401(k)s or IRAs, so someone switching into federal service does not have to leave old savings behind. And if a federal employee eventually leaves for a private sector job, the reverse works too: the TSP balance can stay put, move into a new employer's plan, or roll into a traditional IRA.
Leaving a Job or Needing Money Early
Quitting federal service does not force you to close out your TSP. As long as the balance is at least $200, the account stays open and continues earning returns based on whatever funds you have chosen. You simply lose the ability to make new contributions, though you retain full control to adjust your existing investments or request a distribution to move elsewhere.
Pulling money out while still employed is possible but comes with strings attached. The TSP allows two categories of in service withdrawal: one tied to genuine financial hardship, and another available once you turn 59½. Either way, the withdrawal is permanent. You cannot repay it or convert it into a loan later, and you lose out on any future growth that money would have earned. Federal income tax applies to the taxable portion, state tax may apply depending on where you live, and hardship withdrawals taken before age 59½ can trigger a 10% early withdrawal penalty on top of ordinary taxes.
Why Starting Early Still Matters Most
The mechanics of matching contributions, fund selection, and tax treatment matter, but the biggest lever remains time. A federal employee who begins contributing in their twenties, even modestly, gives compounding decades to work in their favor. Those who wait until later in their careers can still benefit from the higher contribution limits and catch up provisions, but they have less runway for growth. For anyone newly hired into federal service, the practical first move is straightforward: confirm enrollment, decide between traditional and Roth treatment based on current versus expected future tax brackets, and contribute at least enough to capture the full agency match before considering anything else.
