The Thrift Savings Plan (TSP), part of the Federal Employees’ Retirement System, is a defined contribution plan that closely resembles the private sector 401(k) and Roth IRA plans. It is not only a qualified plan, but it is also a part of the federal retirement system that can travel with federal employees who move into the private sector (or a different level of government) before they retire. The Federal Employees Retirement System (FERS) has three components: Social Security, to which both the employee and the employer must contribute, the Basic Benefit Plan, for which the employee also pays via payroll deduction and is partly funded by the employer as well, and the TSP. Both Social Security and TSP contributions can accompany you to another employer if you leave federal service before you retire.
Note that a qualified plan, by definition, is a retirement plan that meets the guidelines of the Employee Retirement Income Security Act of 1974, which created rules to ensure that employers did not misuse the assets of their employee retirement programs and set standards relating to funding, benefits, vesting and other features. Because the TSP is a government-sponsored plan, it is not subject to ERISA provisions. However, it offers the same tax and savings benefits expected in private sector 401(k) programs.
You are eligible for participation in the TSP if you are a federal employee covered by the Federal Employees Retirement System (or the Civil Service Retirement System, if you were hired before January 1, 1987), a member of the uniformed services, or a civilian in certain positions including some congressional and judicial offices. Recently the TSP changed how new eligible employees are enrolled in the program, setting them up with an automatic contribution of 5% of their pay into the TSP. This increase enables the employee to maximize the benefit of federal matching. The employer matches the first 3% of income contributed to the TSP at 100% and the next 2% at 50 cents on the dollar.
Federal TSP accounts have a Roth option as well. Employees can contribute to both, understanding that since they are funding the Roth account with post-tax money, the employer matching funds can only go to the Traditional TSP account and not the Roth. The employee cannot have a separate allocation for the two but can shift the investment options they select for each account individually. As with private-sector Roth accounts, you should consult your tax advisor to run through some scenarios when considering how to allocate funds between traditional and Roth options. The difference between "tax me now" and "tax me later" is influenced by variables specific to your circumstances. Since the Roth does not allow the employer to match contributions, it is not "qualified" as a retirement plan under ERISA.
Federal participants have ample investment options, choosing between several lifecycle funds (these are funds designed to optimize the amount of risk based on the participant's planned retirement date) and individual funds with specific investment targets, including common stocks, government securities, international equities, and fixed income.