TSP vs 401k — What Veterans Need to Know

If you served in the military after January 1, 2018, you likely participated in the Thrift Savings Plan (TSP) under the Blended Retirement System (BRS). If you separated and now work in the private sector, you may have rolled your TSP into a 401(k) — or you may be wondering whether to keep it or move it. Understanding the differences between the TSP and a civilian 401(k) is essential for making smart retirement decisions after service.

What Is the Thrift Savings Plan (TSP)?

The Thrift Savings Plan is a retirement savings plan for federal employees and military service members — the government equivalent of a 401(k). It’s administered by the Federal Retirement Thrift Investment Board and offers some of the lowest investment expense ratios of any retirement plan in existence.

Key features:

• 2026 contribution limit: $23,500 (same as 401k)
• Catch-up contribution (age 50+): Additional $7,500
• Government match under BRS: Up to 5% of basic pay
• Investment options: 10 funds including L (lifecycle) funds
• Expense ratios: Approximately 0.048% — among the lowest available anywhere

TSP Fund Options

The TSP offers a limited but carefully designed fund lineup:

• G Fund: Government securities — stable value, no risk of loss
• F Fund: Fixed income index — bond market exposure
• C Fund: Common stock index — tracks the S&P 500
• S Fund: Small cap stock index — US small/mid-cap companies
• I Fund: International stock index — international developed markets
• L Funds (2025–2065): Lifecycle funds — automatically adjusting allocation based on target retirement year

The C, S, and I funds together provide comprehensive US and international equity exposure comparable to most index fund strategies available in private 401(k) plans.

TSP vs 401(k) — The Key Differences

Feature	TSP	Typical 401(k)
Expense ratios	~0.048%	0.5%–2.0% average
Investment options	10 funds	10–30+ funds typical
Employer match	Up to 5% (BRS members)	Varies — often 3–6%
Contribution limit 2026	$23,500	$23,500
Loan provisions	Yes — general purpose and residential	Varies by plan
Withdrawal flexibility	Good — multiple options	Varies by plan
Roth option	Yes — Roth TSP	Yes — Roth 401(k)

The Expense Ratio Advantage — Why It Matters Enormously

The TSP’s ultra-low expense ratios are its most powerful advantage. The difference between a 0.05% expense ratio (TSP) and a 1.0% expense ratio (typical actively managed 401(k) fund) seems small — but over 30 years, it’s massive.

Example — $100,000 invested for 30 years at 7% growth:

• TSP at 0.05% expenses: $757,000
• 401(k) at 1.0% expenses: $574,000
• Difference: $183,000

Expense ratios are the most controllable factor in investment returns. The TSP’s expense ratio advantage is genuinely exceptional — most private investors can only approach these ratios through Vanguard index funds or similar low-cost options.

Should You Keep Your TSP After Separating?

After leaving military service, you can keep your TSP account — you just can’t contribute to it anymore (unless you take a federal civilian job). Many veterans leave their TSP in place and use their civilian 401(k) for ongoing contributions.

Reasons to keep your TSP:

• Unbeatable expense ratios — if your 401(k) has higher-cost funds, the TSP’s C, S, and I funds may be better long-term holdings
• Simplicity — one less account to manage actively
• G Fund access — the G Fund (government securities with no risk of principal loss but bond-like returns) is not available anywhere outside the TSP
• Loan provisions — TSP loans are available even as a separated veteran

Reasons to roll TSP into an IRA or 401(k):

• Consolidation — simplify your retirement accounts into one place
• More investment options — if you want international small-cap, REITs, sector funds, or other options not available in the TSP
• Your new 401(k) has competitive low-cost index funds (Vanguard, Fidelity, Schwab)
• Roth conversion strategy — rolling to a traditional IRA allows Roth conversion planning

The verdict for most veterans: Keep the TSP. The expense ratios alone justify maintaining it. You can continue building in your civilian 401(k) while letting the TSP compound at minimal cost.

Blended Retirement System (BRS) — What Veterans Separated After 2018 Need to Know

If you entered service on or after January 1, 2018, you’re automatically enrolled in the Blended Retirement System — which combines a reduced defined-benefit pension with TSP matching contributions.

BRS components:

• Pension: 2.0% × years of service × final pay (reduced from legacy 2.5% per year)
• TSP matching: Government automatically contributes 1% of basic pay; matches up to 4% additional contributions (total up to 5% match)
• Continuation pay: Mid-career bonus for committing to additional service
• Lump-sum option: At retirement, option to take reduced pension in exchange for lump sum

Critical BRS action: If you’re under BRS, contribute at least 5% of your basic pay to the TSP to capture the full government match. Not doing so is leaving free money on the table — one of the most costly financial mistakes service members make.

Legacy Retirement System vs BRS

If you entered service before January 1, 2018, you were under the Legacy (High-3) retirement system — a defined benefit pension of 2.5% × years of service × average of highest 3 years’ pay, with no government TSP matching.

Veterans who served under Legacy and separated before 20 years received no pension — making the TSP their primary military retirement savings vehicle. If this describes you, your TSP balance is especially important to protect and grow.

TSP Withdrawal Rules

Understanding when and how you can access TSP funds:

• Age 59½: Penalty-free withdrawals allowed
• Age 55 rule: If you separated in or after the year you turned 55, you can withdraw penalty-free — earlier than the standard 59½ rule for IRAs
• Required Minimum Distributions (RMDs): Must begin at age 73
• Early withdrawal (before 55 or 59½): 10% penalty plus ordinary income tax — avoid if possible
• TSP loans: Can borrow against your TSP without penalty — must repay within 5 years (15 years for residential loans)

The Bottom Line

The TSP is one of the best retirement savings vehicles in existence — its expense ratios alone make it worth keeping after separation. If you’re still serving under BRS, contribute enough to capture the full government match (5% of basic pay) — it’s the highest guaranteed return available anywhere. If you’ve separated, keep your TSP growing alongside your civilian 401(k) and take advantage of both.

Military service comes with real retirement savings advantages. Make sure you’re using all of them.