What’s a thrift savings plan match?

If you are a federal employee or a member of the uniformed services, you may have access to a Thrift Savings Plan (TSP). A TSP account allows participants to contribute to their retirement savings account up to the contribution limit each year. The federal agency also matches TSP contributions up to a specific limit.

A thrift savings plan match is the amount contributed by your agency to your TSP account in addition to your contributions. The agency provides an automatic 1% contribution of the employee’s pay, dollar-for-dollar matching from 1% to 3% of the employee’s pay, and $0.5 for every dollar for the next 2% of the employee’s pay.

Who is eligible for a thrift savings plan?

Most federal employees are allowed to contribute part of their paycheck to a TSP account. Typically, an employee must be enrolled in an eligible retirement system like the Federal Employees Retirement System (FERS) or the Civil Service Retirement System (CSRS), or be a member of the uniformed services including the Army, Air Force, Navy, Coast Guard, or Marine Corps.

How thrift savings plan match works

If you are a FERS participant, the agency (your employer) will match your TSP plan contributions, with the matching percentage varying based on the amount you are contributing.

If you contribute zero to your TSP account, the agency will contribute an automatic 1% of your pay to your account. For contributions in the 1% to 3% bracket, the agency will match the contributions dollar-for-dollar. If you contribute 3%, your agency will contribute 4% (3% dollar-for-dollar match plus the 1% automatic contribution). Cumulatively, your contributions and the agency contributions will amount to 7%. Different rules apply if you contribute 3% to 5% of your pay.

Do you get a match on your TSP contributions?

If you have a TSP plan, you will get matching contributions if you participate in the Federal Employees Retirement System (FERS) or Blended Retirement System (BRS).

The agency will automatically contribute an amount equal to 1% of your pay to your TSP account, regardless of the amount you contribute. The 1% agency contribution is vested over a specific period, and you must complete the vesting period to keep the full contributions.

In addition to the 1% agency contribution, the agency will match your contributions up to 5% of your pay. Typically, you will receive a dollar-for-dollar match for the first 3% of your contribution, and an additional 50% match on the dollar for the additional 2%. This means that, if you contribute 5% of your pay, you can receive the full 3% plus an extra 1%, for a total of 4%.

If you contribute more than 5% of your pay to your TSP account, you won’t receive a match on the extra contributions. If you stop making plan contributions, the agency match will also stop.

Do the matching contributions go to the traditional or Roth TSP account?

If you have both traditional and Roth TSP accounts, the agency match will go to your traditional TSP account. However, you can choose to contribute to either or both TSP accounts, depending on your retirement goals. If you contribute to both accounts, the total annual contributions cannot exceed the TSP contribution limit.  

Since the matched contributions go to the traditional TSP account, the contributions are made on a pre-tax basis. Hence, you won’t pay taxes on the matched contributions until when you make a withdrawal. If you contribute to a Roth TSP account, you pay income taxes on contributions, and you won’t owe taxes when you make a qualified withdrawal.

How much can you contribute to the TSP?

If you are a new federal employee, your agency may automatically deduct 5% of your paycheck and add the funds to your TSP account. However, you can opt to contribute a lower percentage of your pay, and adjust the contribution rate gradually. Generally, if you want to receive the full agency match, you must contribute at least 5% of your salary.

For 2023, the contribution limit for a TSP account is $22,500, and an additional catch-up contribution of $7,500 if you are age 50 or older. Once you reach the elective deferral limit, the TSP system will not allow you to make excess contributions to the account.

Employees who reach the contribution limit within the year will also lose their matching contributions for the remaining months of the year. Usually, TSP matching contributions are based on employee contributions, and once an employee reaches the deferral limit, the agency cannot make additional contributions to the employee’s TSP account.

Traditional TSP vs. Roth TSP account

A traditional TSP account is funded with pre-tax contributions, and you can delay paying taxes until when you withdraw your money. You will only owe taxes when you make a withdrawal. Traditional TSP can be a good option if you expect to be in a lower income tax bracket when you retire; you can defer paying taxes now until a later time when you will be in a lower tax bracket.

On the other hand, Roth TSP contributions are taxed upfront, and they allow participants to take qualified tax-free withdrawals when they retire. For your withdrawal to be qualified, you must be at least age 59 ½ or older and have held the Roth TSP account for at least five years. A Roth TSP may be a good option if you expect to be in a higher tax bracket in your retirement years, and you prefer to pay income taxes now at a lower rate and avoid paying higher taxes in the future.