Is the Thrift Savings Plan a Good Idea for a Federal Employee?

Written by: Mike Valles

The Thrift Savings Plan (TSP) is the Government’s version of an employer’s 401k. It is specially designed to provide for the future retirement needs of Federal employees and uniformed service members. Through the years it has been refined to better suit the needs of people employed by the Government.

Lower Fees than Most Other Plans

In an article by Kimberly Lankford at, she mentions that a great benefit of the Thrift Saving Plan is that it has low fees. This means that participating Plan members are left with more money in their retirement fund each year to build even more interest than what you would have from a 401k from an employer.

Matching Funds Are Provided

The TSP program includes matching funds for Federal employees, but the members of the military do not receive this benefit. Federal employees receive one percent of their base pay as a contribution whether or not they contribute anything. Matching funds up to five percent of an employee’s salary are added to the account. This is a powerful benefit, especially when you consider the power of compounding interest. Starting early to contribute to this account is important, and Federal employees should try to make the maximum allowable contributions each year to get the most out of the TSP program.

Thrift Saving Contributions Can Be Divided

In 2012, the TSP added the Roth savings option. Money that was already in the account stayed in the Traditional TSP, but money put into your Thrift Saving account can be put into one account or the other, or divided up between both of them if that is preferred, says This flexibility enables you to decide if you want to pay taxes now on your contributions with a Roth account, or pay taxes when you withdraw your money with Traditional contributions.

Money Can Be Borrowed Easily

According to the website, money can be borrowed easily from your Thrift Savings Plan account. You only need to have a minimum of $1,000 in the account, and you can borrow it up to four years. If you are going to buy a house with the borrowed money, and have good documentation, loans can be made up to 15 years. One potential problem with these loans, however, is that you do not earn interest on the money borrowed, says, and you may be taxed twice if borrowed from an account that has after-tax funds.

Fewer Investment Options Available

One of the poorer options of the Thrift Saving Plan is that there is not a lot of flexibility to be able to control how your money is invested. A number of choices of funds are available, as well as a professionally balanced LifeCycle Funds (L), says Ryan Guina at, but people who really understand investing would find these options very limited.

The Thrift Saving Plan is an excellent plan for most people. It offers flexibility and options, and the matching contributions for Federal employees are hard to beat. Like any other plan, though, the earlier you start contributing to it, the more money will be accumulated in it over the years.


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