What is the Federal Thrift Savings Plan?

The Federal Thrift Savings Plan (or TSP) is a federal government-sponsored retirement savings plan. It was established by the U.S. Congress as a result of the Federal Employee's Retirement System Act of 1986 ( the same year the 10% early withdrawal penalty was created).

Initially, the plan was designed and intended only for civilian federal employees, but in October of 2000, the National Defense Authorization Act was signed into law extending participation to members of the uniformed services.

Essentially, the TSP is a defined contribution plan much like a private-sector 401(k) plan. A defined contribution--or DC--plan is simply a plan by which the amount of income received in retirement from your account will depend upon the amount you've contributed over the years and the performance of your investments. Whereas the income from a pension plan--or defined benefit plan--is a specific amount determined by the rules set forth by your employer (usually based on a combination of age and years of service).

Also, the same rules and guidelines regarding terminations, withdrawals, loans, and contributions limits (including catch-up contributions) that apply to private-sector 401(k)'s also apply to the TSP. And like a 401(k), participants in the Thrift Savings Plan also receive matching contributions.

The amount of match received, though, depends on which agency you work for. According to Wikipedia, however, a common matching formula is "1% regardless of employee contribution (even if zero), then 1% for each 1% contributed by the employee (to a maximum of 3%), then 0.5% for each 1% contributed by the employee (to an additional 1% match maximum). In other words, the employee may receive up to 1%+3%+1% = 5% matching contributions."

What About Thrift Savings Plan Investments?

Like any other retirement plan, this plan offers funds to invest in. The funds, however, are specific only to the TSP. In other words, you can get them anywhere else.

Check out the thrift savings plan investments here.

You can also visit the Thrift Savings Plan website for more information.