To encourage retirement savings, the Internal Revenue Service has given tax advantages to a number of retirement plans. The 401k and Thrift Savings Plan (TSP) are two commonly used retirement accounts. It is possible to be enrolled in both plans if you work for both the federal government and a private-sector employer. Be careful that your contributions to the two accounts do not exceed the maximum annual contribution limit for retirement plans.
The 401k and the TSP have nearly identical plan structures. The TSP is essentially a 401k for federal employees. The government created this retirement account so federal employees could save for retirement with the same advantages as private-sector employees. Both accounts allow you to make tax-deductible contributions to a retirement account. Investments in each account grow tax-free until retirement. Once you reach retirement age, you will owe income tax on a withdrawal from either account.
It is possible to own both a 401k and a TSP account. To contribute to a 401k, you must be currently working for a private-sector employer that offers a 401k. To contribute to a TSP, you must be currently working for the federal government. If you work for the federal government and for a private employer, you could have access to both plans. In this situation, you may make contributions to either account.
There is an maximum contribution limit on your investments into a retirement account. If you are younger than 50, you may defer up to $16,500 into a 401k or a TSP in 2011. If you are 50 or older, you may defer up to $22,000 into a 401k or a TSP. While enrolled in two plans, your maximum annual contribution limit remains the same. You may divide you contributions between the two plans any way you wish, but having two plans will not let you invest more than $16,500 or $22,000 per year.
If you would like to save more per year for retirement on a tax-favored basis, you have a few options. You could open a traditional individual retirement account (IRA). In 2011, you can invest and deduct up to $5,000 a year into an IRA, or $6,000 a year if you are 50 or older. Another way to save money is through a deferred annuity. You cannot deduct contributions to an annuity, but your investments will grow tax-free in these accounts until retirement.
David Rodeck has been writing professionally since 2011. He specializes in insurance, investment management and retirement planning for various websites. He graduated with a Bachelor of Science in economics from McGill University.