Thrift Savings Plan: The Government's 401k

The thrift savings plan is a retirement plan for government employees. It is very similar to the 401(k) in the corporate world. Here are the basics of the thrift savings plan and how government employees can use it.

Employee Contributions

Just as with a 401(k), employees can make contributions to this type of account from their paychecks. The contributions that are made are considered tax-deferred. This means that for every dollar that you contribute to the thrift savings plan, your taxable income will be reduced by a dollar. This allows government employees to put away more money for their retirement. The annual contribution limits for the thrift savings plan are the same as the contribution limits for the 401(k). With either account, you can save as much as $16,500 per year. If you are over the age of 50, you can make contributions of as much as $22,000 per year.

Matching Contributions

The thrift savings plan also has a provision for an employer match. It works in much the same way as with the 401(k). To start off with, an employee will receive an Agency Automatic Contribution of 1 percent of his annual salary. After that, an employee can receive dollar-for-dollar matching contributions of up to 3 percent worth of his annual salary. Beyond this contribution, he can also receive a 50 percent match on his contributions for up to 5 percent of his salary. The matching contributions are very powerful because you are basically receiving free money for your retirement.


Account holders are allowed to invest the money in their accounts into several different types of investments. Just like with the 401(k), employees have a few different choices to choose from. Currently, there are five mutual funds with different investment strategies for them to invest in. There are also five different life cycle funds that they can invest in.

One of the most popular index funds to invest in is the G Fund. This fund is made up of various securities that are backed by the federal government. This makes it a very safe form of investment for those that are saving for retirement. This fund is not accessible to the general public. This provides a nice option for those that are eligible for the thrift savings plan and gives them an advantage over other retirement savers. With the other funds, you can invest in bonds, small-cap stocks and international stocks.

The life cycle funds make investing for retirement extremely easy. You simply choose a target date that you would like to retire by and invest your money. The fund manager then takes care of the individual investment decisions and asset allocation for you. The investments in the life cycle fund will get more conservative as you get closer to your target retirement date. This is a way for many retirement savers to put their investments on autopilot. Periodically, the thrift savings plan will add other investment choices for the investors as well.

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