TSP and 401(k) contrasts

The Thrift Savings Plan is regulated by most of the same rules as Employee Retirement Income Security Act (ERISA) plans like 401(k)s. The IRS explains what plans may do, must do, and may not do. A plan may not do what it is not allowed to do by the IRS, and a plan is not required to do what it may do. This page examines some of the contrasts between the TSP and 401(k) plans in general.

Although the TSP currently has less flexibility in some areas compared to some 401(k) plans, the Federal Retirement Thrift Investment Board is examining rules changes that could offer participants more options such as in-plan Roth conversions.

In-plan Roth conversions
While 401(k) plans with a traditional and Roth option may allow in-plan conversions from traditional to Roth, the TSP does not. As of November 2013, the TSP is studying the idea of permitting in-plan Roth conversions and has listed this as an initiative for further action in 2014. A communication from the TSP in August, 2014, indicated further progress in this effort.

Partial withdrawals
Prior to the enactment of the TSP Modernization Act of 2017, the TSP allowed separated employees to make a single lifetime partial withdrawal, for example to a traditional or Roth IRA. With the act now implemented, both current and separated employees may make multiple partial withdrawals

Incoming rollovers into Plan
The IRS permits employer sponsored retirement to allow participants to roll over certain eligible accounts into the plan, such as IRAs or 401(k)s from previous jobs. While these plans are permitted to offer this option, they are not required to, and many 401(k) plans have different rules on whether a participant is allowed to roll over an account into their 401(k) plan. Additionally, while most plans will allow current employees to roll over assets into the plan, many plans won't allow former employees to do so.

The TSP allows both current and separated employees to roll over traditional pre-tax IRAs and eligible employer plans into their TSP accounts.

Only Roth 401(k)s can be rolled into the Roth TSP; Roth IRAs may not be. This restriction applies to employer plans in general, and not just the TSP, as described in IRA Rollovers and Transfers - Roth IRA.

Note that direct beneficiaries (a surviving spouse who inherited a TSP account from his or her spouse and chose to stay in the TSP) cannot roll over or transfer money into a beneficiary TSP account; see TSP estate planning for more.

Beneficiaries
There are some important considerations in how the TSP handles beneficiaries compared to what eligible plans may or may not offer. See linked page for more details.

Mutual fund window
Many retirement plans offer participants the option to invest their assets in a self-directed brokerage window that would offer a wider selection of investment options than just the core TSP funds. The TSP now has a mutual fund window, allowing investments in mutual funds, but not stocks or ETFs. The window is also limited to 25% of the TSP balance, and with high fees.