What Is a Thrift Savings Plan or TSP?


Quick Answer

A thrift savings plan, or TSP, is a retirement savings plan established in 1986 for federal civil service employees, according to Investopedia. The Federal Employee's Retirement System Act of 1986 established this defined-contribution plan to allow federal employees the same sort of savings potential that private sector employees have through 401(k) plans.

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Full Answer

The thrift savings plan has six funds for government employees to consider. These funds are the life cycle fund, international stock fund, small-cap stock fund, common stock fund, fixed-income fund and government security fund, states Investopedia. Some of the benefits of this plan include matching contributions from government agencies, automatic contributions from government agencies, low expense ratios for investors and the opportunity to make contributions to catch up from missed opportunities in the past.

Employees make tax-deferred contributions into their thrift savings plans, which means they do not have any tax liability for that money until they withdraw the money in retirement. Also, no withdrawals have to occur until they retire. Just as with other types of retirement plans, employees are able to move funds from other 401(k) plans, IRAs and similar retirement vehicles into their thrift savings plan and back out when their employment situation changes, notes Investopedia.

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