What Kind of IRA Plan Is the TSP?

The Thrift Savings Plan (TSP) is a retirement plan for employees of the federal government and members of the military. The TSP functions in a similar manner to a 401(k) plan in the private sector, not an individual retirement account (IRA). However, all of these types of plans are considered qualified retirement accounts by the Internal Revenue Service, and rollovers from a TSP may be made into an individual's IRA if leaving government or military service.

Thrift Savings Plans

The TSP was established in the Federal Employees' Retirement System Act of 1986. Like the 401(k), it is a defined contribution plan, so the actual income in retirement depends on how much the individual put into the account, along with matching contributions, during the years employed by the government or in military service and the amount of accumulated earnings. Government employees may contribute to the TSP as well as the Federal Employees Retirement System basic annuity, which civilian federal employees receive upon retirement. Retired members of the armed forces also receive military retirement benefits.

Account Establishment

FERS participants hired after July 31, 2010, are automatically enrolled in the TSP, with 3 percent deducted from each paycheck and deposited in the account. The employing federal agency automatically contributes 1 percent of pay along with matching contributions of 3 percent of pay from the time the account is established. FERS participants hired prior to Aug. 1, 2010, automatically receive contributions equaling 1 percent of pay, and if the employee contributes his own money to the account, the employing agency sends matching contribution of up to 5 percent of the employee's contributions for each pay period.

Fund Options

The Federal Retirement Thrift Investment Board manages the G Fund, which purchases guaranteed U.S. Treasury securities, and cannot lose money. For individuals who prefer some risk with the TSP, the TSP offers the C, F, I, L and S index funds. Each fund invests in a manner replicating the characteristics of a specific benchmark, such as the Standard and Poors 500. As of the time of publication, these funds are managed by BlackRock Institutional Trust Company. These funds are overseen by the Comptroller of the Currency, not the Securities and Exchange Commission, as in the case of mutual funds.

Account Consolidation

In addition to rolling over funds from a TSP to an IRA, federal employees may also consolidate IRAs or other qualified employer-sponsored retirement plans into the TSP. One reason for consolidation are the low costs charged by the TSP for account administration. Private investors cannot participate in any funds offered by the TSP.