How the TSP Works
The Thrift Savings Plan, or TSP, is a retirement savings and investment plan for Federal employees and members of the uniformed services – including the Ready Reserve. This plan was established by Congress in the Federal Employees’ Retirement System Act of 1986. This plan offers the same types of savings and tax benefits that many private companies offer to their employees.
The TSP is a defined contribution plan, meaning that the retirement income that is generated from a participant’s account will be dependent on how much the employee – and their agency – puts into the account, as well as any earnings that are accumulated over time.
Employees can contribute funds into the TSP – up to a maximum allowable amount – each year. The TSP plan is automatically set up when an individual is initially hired. In addition to personal contributions that are made by the employee / participant, agencies may also make an additional deposit, as well as a matching contribution.
Because the employee contribution to the TSP is deposited via payroll deduction, an employee / participant will need to make a contribution election through his or her agency or service in order to do the following:
- Begin TSP contributions (if not automatically enrolled)
- Increase or decrease the amount of the contribution (if automatically enrolled)
- Change the amount of employee contributions or their tax treatment
- Stop the TSP contributions
There are two tax treatment options that are offered through the TSP. These are traditional and Roth. With the traditional option, the contributions that are made by the employee will be tax-deferred, as will the earnings, until the money is withdrawn in the future.
Alternatively, if the Roth option is chosen, funds will be contributed to the TSP on an after-tax basis. However, the money can accumulate tax-free, and withdrawals are also taken in the future without being taxed.