The Thrift Savings Plan for Federal Employees

by Jonathan G. Cameron, CFP®

The Thrift Savings Plan, or TSP, is the equivalent of the 401k for federal government employees. My intention here is to cover the main highlights of this fantastic retirement benefit. Much more detail is found on the TSP website.

As in a 401k, you contribute pre-tax money into a Thrift Savings Plan. Earnings in the account are tax-deferred. You are taxed only when you withdraw funds in retirement. If you work long enough, consistently contribute to your plan, and invest appropriately, you can potentially retire comfortably.

Thrift Savings Plan: Military and Non-Military Accounts

This post is for non-military TSP retirement participants. The TSP offered to those in the military is different. Elsewhere I discuss the benefits of a Thrift Savings Plan retirement account as a High-3 and as a BRS (blended retirement system) participant.

FERS – the Federal Employment Retirement System

If you are a federal civilian employee and began employment after 1983, you are automatically a FERS participant. As a covered FERS employee, your Thrift Savings Plan is one part of a retirement three-legged stool. The other two legs on that stool are your FERS basic annuity and your Social Security benefits.

Thrift Savings Plan account matching

Make sure you contribute up to the employer match! Under FERS, your federal agency matches up to 5% when you contribute into your Thrift Savings Plan. Let me break down what you’re getting:

First 3% match

The Federal Government matches the first 3% of your voluntary contributions dollar for dollar.

Next 2% match

The next 2% of your salary deferrals are matched by the Feds at 50 cents on the dollar.  Taken together, when you contribute 5% of your base pay into a Thrift Savings Plan, the agency contributes an additional 4% of base salary into your retirement.

Agency Automatic Contribution

On top of all this, you get an agency automatic contribution of 1% regardless of whether you personally contribute. It is subject to vesting, but this is free money we’re talking about if you work long enough in the system.

Your contribution power is doubled!

Bottom line: when you defer 5% of your salary into the Thrift Savings Plan the government will kick in another 5%. The federal government matches your 5% contribution by contributing 4%. Then, your agency contributes an additional automatic 1% regardless of whether you personally contribute. Together these employer contributions double your contribution power. Leveraging this match is an absolute must, so make sure you take advantage of this excellent benefit.

Elsewhere you'll find a video on making the Thrift Savings Plan work for you.

Roth Thrift Savings Plan

There is a Roth Thrift Savings Plan retirement option. A Roth TSP is a tax-efficient way to save for long term retirement goals. A Roth TSP retirement account makes sense if you have time to accumulate and invest for growth over the long term. With the Roth option, you contribute after-tax dollars into your retirement account. These accumulate tax-deferred. But best of all, all your retirement distributions down the line are tax-free! This can be a significant amount of tax savings.

Know What You Have

The federal government offers some great benefits to FERS employees. Navigating what is available to you and making a plan for your retirement is much of the battle. Take matters into your own hands by learning how FERS employees can effectively make a plan for retirement.

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