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TSP vs. 401k

It is always crucial for federal employees and those in the private sector to select the best retirement plan for them to have the much-needed financial security during retirement. However, most employees usually are left confused as a result of the many retirement plans that are available for them. Some of the most notable retirement plans include the 427 plan, 403b plan, 401(k) plan, TSP, Roth IRA, and an IRA.

difference between TSP and 401k

Each of these retirement plans has its advantages and disadvantages that one should consider when selecting an appropriate retirement plan. This article will compare TSP and 401(k) retirement plans by looking at some of their significant differences and similarities when it comes to eligibility, contributions, tax advantages, withdrawals, and rollovers.

What is the difference between TSP and 401k?

TSP is the Thrift Savings Plan- it’s the federal government’s equivalent of a 401k. TSP contributions are matched up to 5% by their employer, and the amount of money available for early withdrawal is limited to $1000 before fees will be applied. 401(k)s have no upper limit on their contribution match, and early withdrawal is unlimited.


TSP participation is available for federal employees that include uniformed service members and those in civilian jobs. Civil employees that are eligible for TSP participation must be covered by the Civil Retirement System or the Federal Employees’ Retirement System.On the other hand, the 401(k) plan is normally provided by private sector employers as an employment benefit for employees above the age of 21. In this case, one must not be covered by a collective bargaining agreement and should have been in employment for at least one year for them to participate in 401k plan.


For the two plans, the contribution is by a payroll deduction. There is a designated percentage of a participant’s pay that is deducted as a contribution to the plan. However, it is important to point out that the employer-agency in the TSP plan does not offer them a matching contribution for the FERS employees. In fact, it only matches a small percentage of the contribution.
For the 401k plan, the private employers match the employee’s contribution in totality. For the TSP plan, the employer agency only matches a maximum of 5% of the contribution made by the FERS employees. However, it is important to point out that no law forces the private employers to make a matching contribution to the 401k plan. The matching contribution varies from one employer to another and is entirely voluntary.
A private employer can decide to match all or part of the contribution. When it comes to annual contribution limits, the two plans have a similar contribution limit of $17,500 for those below 50 years and $23,000 for those that are 50 years or older. The additional amount is in the form of catch-up contributions.

Tax Advantages

Both the TSP and the 401(k) plans offer participants both the Roth and the traditional account options. For traditional accounts, a participant’s taxable income does not include their regular contributions. In this case, participants are only taxed on distributions.
For the Roth account, there is a tax exemption for qualified withdrawals. However, it is important to point out that contributing to a Roth 401(k) and TSP account does not mean that the matched contribution are also deposited in the same account. For both plans, all the matched contributions are deposited to the traditional account.


For both Plans, employees have the option of rolling over their funds into a new qualified retirement plan or leave the funds in the 401k or TSP account. Also, the funds’ tax differed status is maintained when the rollover is made into the IRA account. Also, an employee that terminates employment can pay taxes on the funds to convert the funds to a Roth IRA.


There are major differences between the two plans when it comes to early withdrawals. For the TSP plan, you are only allowed to withdraw up to $1000 with any extra amounts attracting fees. For the 401k plan, you can withdraw any amount without any penalties or fees.