What is the Thrift Savings Plan?

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  • Written By: Jessica Reed
  • Edited By: Heather Bailey
  • Last Modified Date: 14 January 2020
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The Thrift Savings Plan (TSP) is a retirement plan used by the United States to provide retirement savings for those who work for the government or in uniformed services such as homeland security. The Thrift Savings Plan was created under the Federal Employee's Retirement System Act of 1986 to help provide the same rights to people working in these occupations as those given to people working in businesses considered part of the private sector. Traditionally, a worker in the private sector sets up a 401(k) plan through his company which automatically deducts a certain amount of money from each of his paychecks. The money is deposited into the 401(k) as savings to use upon retirement. The company then typically chooses to either match the amount deposited or match a portion of the amount by depositing that much of its own money into the employee’s 401(k) account.

This allows the employee to not only save for retirement but possibly double the money he puts into his retirement funds. The money allows tax deferment until retirement, meaning any taxes on it are not due until retirement or when the employee withdraws his money from the account. He may remove the money before retirement but under most conditions will pay a heavy penalty for withdrawing early and will have to pay taxes on the money.


Under the Thrift Savings Plan, many who are not employed by the private sector can still receive these same benefits. The government will match all or a portion of money deposited into accounts for employees holding certain jobs. The job itself determines whether or not this occurs and may have a limit on how much the government will match. When signing up for the Thrift Savings Plan, the employee has the option to choose from six investment plans for his money. These include a fixed-income fund, a common stock fund, a government security fund, a small cap stock fund, an international stock fund, and a life cycle fund.

Another advantage of the Thrift Savings Plan is the ability to move money from a previous account into an employee’s new account. The process also works if the employee quits his government job and moves to a private sector employer. In either case, regardless of which job he leaves and which he moves to, he can take any money in his 401(k) and move it into his new 401(k) account at his new place of employment. No penalty or charge occurs from moving the funds from one job to another. Once a person reaches a certain age, typically 70 years old, he must begin to withdraw money from his account even if he is not officially retired yet.



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