Retirement Planning
March 23, 2023

Thrift Savings Plan vs 401K: Which Is Better for You?

Stewart Willis

Retirement planning can be confusing at times. When looking at your options for a retirement account, you might be wondering if you should go with a thrift savings plan vs 401k. The answer depends on what you need and what you are eligible for.

Let’s clear things up, so you can decide which is better for you. As you start making or updating your long-term financial plans, keep these similarities and differences in mind.

What Are the Similarities? Thrift Savings Plan vs 401k

Some people wonder if a thrift savings plan is a 401k, but they are not the same. A side-by-side comparison between a 401k vs a thrift savings plan will quickly highlight the similarities.

1. They Both Have Traditional and Roth Options

A thrift savings plan and a 401k are both defined contribution plans. You might be wondering if a thrift savings plan is an IRA or a 401k.

A thrift savings plan is not the same as a 401k. It’s a retirement savings plan offered to federal government employees and members of the uniformed services.

Both a 401k and a thrift savings plan offer traditional and Roth options. The difference between a traditional and Roth IRA is the tax benefits.

In the traditional setup, contributions you make are tax-deductible and tax-deferred. When you have your money invested, any gains that accumulate from selling stocks at a profit or earning dividends are exempt from taxation. However, you will pay income tax on money that you withdraw after a specific age.

It is recommended that you diversify your contributions for your thrift savings plan by splitting between Roth and traditional plans. Keep in mind that any matching or automatic contributions from your employer will go to the balance of your traditional thrift savings account, and they can’t be transferred to your Roth plan.

2. They Both Have the Same Contribution Limits

The Internal Revenue Service (IRS) has set a limit for the amount that you can contribute as an employee to your thrift savings plan or 401k plan. For all federal employees, this limit is $22,500 in 2023.

If you are age 50 or older, you can currently contribute an additional $7,500. Each year, these contribution limits change. This allows employees to save more money for retirement while taking advantage of tax benefits.

3. They Both Have Required Minimum Distributions

Both a thrift savings plan and a 401k require you to meet certain minimum distribution. If you fail to make these minimum withdrawals, you will face a 50 percent tax on any required minimum distributions. Understanding these rules is essential for making the most of your retirement savings.

If you worked for either private businesses or the federal government, you must begin taking your required minimum distributions (RMDs) at age 72 (or 70½ if you are a 401(k) participant born before July 1, 1949).

They Both Support Rollovers

Life comes with many changes and that certainly includes employment. Both a thrift savings plan and a 401k support rollover contributions should you change your employer.

What exactly does this mean?

If you are a federal employee or a member of uniformed services and you leave for a private sector job, then you can move your retirement assets to your 401k without penalties or fees.

Similarly, if you have a 401k or any other eligible retirement saving plan like a traditional IRA or 403b, you can transfer your retirement assets to your thrift savings plan.

A hand placing coins in a jar labelled for retirement.

What Are the Differences between a Thrift Savings Plan vs a 401k Plan?

Both options can help you save for a better future after retirement, but there are some important differences.

1. Eligibility for Each Plan Differs

If you are an employee of the federal government or uniformed services, you are eligible for a thrift savings plan, not a 401k plan. A 401k retirement plan is only for employees in the private sector.

To be eligible for a 401k plan, you must be employed by a company or organization that offers it. Your employer may also require you to work a minimum number of hours or be employed for a specified period of time before you can participate and enjoy the benefits of this plan.

2. Thrift Savings Plans Have Lower Fees

Both a thrift savings plan and a 401k involve fees, although thrift savings plans have lower fees overall. There are administrative fees, which include things like maintaining records, printing and mailing notices, and providing services. There are also investment fees, which are the fees needed to pay investment managers.

3. A Thrift Savings Plan Has Fewer Investment Options

Investment options are an important factor when comparing a thrift savings plan vs a 401k. A thrift savings plan falls short in its investment options. On the other hand, a 401K plan offers a wide range of options from fund families to emerging markets.

Restrictions aside, if you want more freedom and options with investing, then 401ks are a better option for complex investing.

Even though options are limited with a thrift savings plan, the investment options still have some benefits. You have the option to invest in low-risk government securities and fixed-income funds, as well as mid to high-risk investments such as international funds and common stocks.

4. Thrift Savings Plans Have Higher Employer Matching Contributions

For retirement funds, you’ll find that some plans have employer matching. This means that your employer will provide a percentage of your own contribution to your retirement plan. For a thrift saving plan, this match can be up to 5%.

A 401k plan generally tends to have lower percentage matches. Since a 401k is for private companies, the matching limits will vary based on your company's restrictions. Some companies even provide a match that is less than 3%.

5. Thrift Savings Plans Have More Withdrawal Options

Thrift savings plans have made it easier to withdraw funds since September 2019 by introducing multiple withdrawal options. You can choose installment payments with monthly, quarterly, or annually fixed dollar amounts; single withdrawals, annuity purchases; or a combination of any of these.

If you are a holder of a thrift savings plan, you can make an unlimited number of withdrawals after you retire, but they must be spaced at least 30 calendar days apart.

Picking the Right Plan for You

The thrift savings plan is a great option for retirement savings, offering many of the same features as a 401k with some important differences. Where 401k plans typically offer a variety of investment options, thrift savings plans have limited options but with lower expense ratios than private employer funds.

If you need help with understanding and preparing the best retirement plan for you, then let our experts lend a helping hand.

Call the Pros at Asset Preservation Wealth & Tax

Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to and search by our firm name or by our CRD # 175083.

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