Can You Have a 401(k) & a TSP?

The Internal Revenue Service (IRS) has given tax advantages to several retirement plans to encourage retirement savings. Commonly used retirement accounts include the 401(k) and Thrift Savings Plan (TSP). And you can have both. However, your work situation will determine whether you have access to both of these retirement plans.

If you work for both the federal government and a private-sector employer, then you may be in a position to enroll in both of these plans. But your private-sector employer must offer 401(k) for that to happen. Should you be eligible to enroll in both plans, your TSP and 401k contribution limits must not exceed the maximum annual contribution limit for all retirement plans.

The main difference between TSP and 401(k) lies in the groups these plans serve. Otherwise, the 401(k) and the TSP have nearly identical plan structures.

The 401(k) is an employer-sponsored retirement plan and is one of the available defined contribution plans. Employees within the private sector contribute a portion of their wages, which may grow tax-deferred. Employers can also contribute to their employees’ accounts, thus boosting their retirement savings.

The TSP is essentially a 401(k) for federal employees. Civilians in some types of federal services, in congressional positions and some positions in the judiciary, are also eligible for TSP. The same applies to members of the uniformed services. The government created this retirement account, so that federal employees could save for retirement with the same advantages as private-sector employees.

Since both accounts allow you to make tax-deductible contributions to a retirement account, your investments in each account can grow tax-free until retirement. However, once you reach retirement age, you will owe income tax on a withdrawal from either account. The only exception is when using a Roth 401(k) or TSP, which is usually funded by after-tax dollars. As a result, your withdrawals will be tax-free.

Once you have established that you can own both a 401(k) and a TSP account, it would be wise to start saving as soon as possible. However, you must familiarize yourself with the IRS rules on contributions.

According to the IRS 2021 contribution rules, the maximum salary deferrals you can contribute to a 401(k) is ​$19,500​, or ​100 percent​ of an employee’s earned income a year, whichever is less. However, if you are 50 years or older, you can add another ​$6,500​ in catch-up contributions to your 401(k) investment limits.

In addition, if you have a TSP account that you are saving in, it allows you to contribute a maximum of ​$19,500​ in annual elective deferrals. You also have the option of contributing an additional ​$6,500​ to boost your TSP investment limits if you are 50 years or older.

However, it would help if you practiced caution when you want to contribute to both a TSP and 401k at the same time. You cannot use your pretax monies to save more than ​$19,500​ (or ​$26,000​ if you are 50 years or older) across the two retirement accounts in any given calendar year.

While you cannot save more than $19,500 in annual elective deferrals, you can still save up to ​$58,000​, which is the annual additions limit set by the IRS. That means you can still save in your 401(k) account with after-tax dollars if your employer’s plan allows it.

Also, you can contribute to a Roth TSP with after-tax earnings, so that’s something to bear in mind too. In addition, you may want to explore getting an individual retirement account (IRA). Having a 401(k) or TSP does not prevent you from having an IRA, so you should consider opening one to save the maximum possible for retirement while enjoying the available tax benefits.

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.

You may be able to save for retirement through multiple retirement plans, such as the 401(k), TSP, and IRA. But you must ensure you don’t exceed the annual additions limits set by IRS to avoid problems.