Roth TSP vs. Roth IRA: How Do They Compare?

Investing News



Key Takeaways

  • A Roth IRA is an individual retirement account that you open and fund directly.
  • Roth IRAs distributions are tax-free because contributions are funded with post-tax dollars.
  • If you serve in the military for more than 60 days, you are automatically enrolled in a TSP program, which you can (but not necessarily should) opt-out of upon request.

About the Federal Employees Retirement System

The Roth Thrift Savings Plan (TSP) is part of the Federal Employees Retirement System (FERS), which is a retirement plan that provides benefits from three sources: a Basic Benefit Plan, Social Security, and the Thrift Savings Plan (TSP).

FERS employees must pay each pay period through payroll withholding into the plan to fund the cost of the Basic Benefit and Social Security parts of FERS. If you are a federal employee or member of the military, you are automatically enrolled in FERS. Typically, the agency withholds 0.8% of basic pay for FERS basic benefits, while the agency also contributes to FERS. After an employee retires, they receive payments each month for the rest of their life.

Understanding the Roth Thrift Savings Plan

The Roth Thrift Savings Plan (TSP) is the third part of the Federal Employees Retirement System (FERS). The TSP is an account automatically established for the employee. The agency deposits an amount equal to a fixed percentage of the basic pay earned each pay period. The employee can also make contributions, and the agency may also make matching contributions.

A Roth TSP is similar to a Roth IRA, meaning the Roth TSP offers many benefits of Roth accounts. The money contributed by the employee to the TSP account is in after-tax dollars, meaning income taxes are still withdrawn from your paycheck before the contribution is deposited into the TSP account. Once you retire, you should owe no additional taxes, meaning your contributions and any investment gains earned are tax-free.

Agency/Service Automatic (1%) Contributions

For FERS employees, the agency or service employing them contributes to the TSP account an amount equal to 1% of basic pay for each pay period. These contributions are called Agency/Service Automatic (1%) Contributions, but the employee doesn’t need to make contributions to receive them.

However, employees need to be vested before they own the money. Vesting is a period of time, such as a specific number of years, that employees must work before the money is theirs—typically three years for most FERS employees. FERS employees in congressional and certain noncareer positions can become vested after 2 years of service.

FERS Employee TSP Contributions

FERS employees hired on or after October 1, 2020, are automatically enrolled in the TSP by their agency employing them, and each pay period, 5% of basic pay is deducted and deposited into the employee’s TSP account. Those who began their federal service between August 1, 2010, and September 30, 2020, are automatically enrolled into a 3% payroll deduction.

Agency Matching Contributions

Once eligible, participants can receive matching contributions from the agency or service based on the employee’s contribution. The match equals the first 5% of pay that an employee contributes each pay period. The first 3% of pay contributed is matched dollar-for-dollar, meaning the employee receives another 3% of pay. However, the next 2% contributed by the employee is matched at 50 cents per dollar, meaning the employee receives 1% of pay for the 2% contributed by the employee.

How the 5% Agency Match Equals the 5% of Employee Contributions
 Employee Contribution  Agency Match
3% per pay period  3% (dollar-for-dollar)
2% per pay period  1% (matches 50 cents per dollar)
No contribution needed  1% automatic contribution
Source: Thrift Savings Plan

Any employee contributions beyond 5% of their pay will not be matched by the agency. Also, if the employee stops making regular contributions, so too do the matching contributions. The rules and the matching amounts are slightly different depending on whether the employee is military or a civilian.




Those who are interested have to “opt-in” to join the BRS. It’s a reasonably comprehensive retirement plan with its own rules and options.

By contrast, you don’t have to opt into the TSP program. After you serve 60 days, the military will automatically start contributing 1% of your salary to it. It will automatically begin to deducting 3% of your base pay to the TSP, although you can opt-out of that anytime. The government contribution will continue if you’re in the BRS.

Thrift Savings Plan Contribution Limits

TSPs parallel the contribution and catch-up limits of the 401(k) plans available to many private-sector workers. For 2021 and 2022, the Thrift Savings Plan contribution limits are as follows:

  • $19,500 ($20,500 in 2022) if you’re under age 50
  • $26,000 ($27,000 in 2022) if you’re age 50 or older (including a catch-up contribution of $6,500)

What Is a Thrift Savings Plan (TSP)?


The purpose of a TSP is to allow employees to build a retirement savings account over time by setting aside a percentage of their paychecks to be invested and grow until they retire and are ready to spend the money.



Summary of Roth TSP and Traditional TSP Rules


  • You can contribute up to a maximum annual limit, which may be adjusted annually. For the 2021 tax years, the maximum is $19,500, plus $6,500 if you’re age 50 or older. In 2022, it goes up by $1,000 to $20,500. That’s for a Roth TSP or a traditional TSP, or even a combination of accounts if you have more than one.

How the Roth TSP and the Traditional TSP Differ


  • When you reach age 72, you must take some money out of your traditional IRA account every year. There are no similar restrictions on a Roth account.


Differences Between Roth TSP and Roth IRA


The standard Roth IRA or Roth 401(k) plan available to private-sector employees phases out contributions for those who earn above a certain amount. As of the 2022 tax year, the amount is $214,000 for a married couple who file joint taxes and $144,000 for individuals. In 2021, those amounts were $140,000 for individuals and $208,000 for married couples filing jointly.


$1 million

The number of federal workers and retirees with $1 million or more Thrift Savings Plan accounts jumped to 98,523 as of September 30, 2021.

Roth TSP vs. Roth IRA



The annual limits to your contribution are the same, too.


Combat Zone Tax Exclusion


Note that qualified withdrawals in retirement from a Roth TSP (or Roth IRA) are always tax-free. That means that a military member who is deployed to a combat zone can divert money into a Roth TSP (or Roth IRA) and never pay tax on the contributions or earnings.

How Do Roth TSPs and Roth IRAs Compare?






Only the TSP is a payroll deduction. With a Roth IRA, you would open an account and contribute to it directly. Roth TSP contributions come out of payroll deductions.


You can’t withdraw money early from a TSP. You can withdraw your Roth IRA contributions at any time, with no tax or penalty, but this is not an option with a Roth TSP.







The Bottom Line

Roth TSPs and Roth IRAs are excellent ways to save for retirement. And there are no rules that prevent you from contributing to both. Ideally, you could max out both accounts to boost your retirement savings.


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