Although an IRA and a TSP are both types of retirement accounts, they are governed by different sets of rules, starting with the fact that anyone with earned income can open an IRA, but only employees of the U.S. government or the armed forces can fund a thrift savings plan.
A TSP effectively functions more like the government version of a 401(k) plan, with similar rules and contribution limits to these private company-sponsored plans.
When considering the advantages of an IRA vs. a TSP, remember that in many cases it’s possible to fund both types of accounts, as long as you understand the rules and restrictions that apply to each.
What Is an IRA?
You may already be familiar with what IRAs are: These are individual retirement accounts that are tax advantaged in different ways. Anyone with earned income can open an IRA, as long as they meet certain criteria.
Retirement savers can generally choose between traditional and Roth IRAs, with some exceptions owing to Roth eligibility rules (more on that below).
Traditional IRAs allow for pre-tax contributions, while Roth IRAs involve after-tax contributions and permit qualified tax-free withdrawals in retirement.
For tax year 2024, the maximum annual amount you can contribute to either type of IRA is $7,000; $8,000 if you’re 50 or older. This is the total annual contribution amount allowed across all ordinary IRA accounts. So, if you contribute $3,000 to a Roth IRA for 2024, then you can only contribute up to $4,000 in another IRA for that year.
Calculate your IRA contributions.
Use SoFi’s IRA contribution calculator to determine how much you can contribute to an IRA in 2024.
What Is a TSP?
The Thrift Savings Plan (TSP) is an employer-sponsored plan that is open to members of the military and civilian employees of the federal government. TSPs are tax-advantaged plans that share many similarities to 401(k) plans offered by private employers.
Like 401(k) plans, you can contribute to a traditional TSP or a designated Roth TSP, both of which come with the types of tax advantages that are similar to traditional and Roth IRAs, as described above. In other words, many different types of retirement accounts may also offer a Roth-style option, for after-tax contributions. Be sure to check the rules and restrictions on contributing to both sides of a plan.
Perhaps the biggest difference with a TSP vs. an IRA is the annual contribution limit. You can contribute up to $23,000 for tax year 2024; for those 50 and older there is also an annual catch-up contribution of $7,500 per year, for a total of $30,500.
But contribution limits for IRAs are $7,000 for tax year 2024, and $8,000 for those 50 and up.
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TSP vs. IRA
In addition, there are other similarities and differences between a TSP and an IRA.
Similarities
Both the TSP and IRAs provide tax-advantaged ways to save for retirement. With both TSPs and IRAs you can choose between a traditional (tax-deferred) account or a Roth (tax-free) account.
• With a traditional-style TSP or IRA, funds are deposited pre-tax, and you owe ordinary income tax on the withdrawals.
• With a Roth-style TSP or IRA, you deposit after-tax money, and qualified withdrawals are tax-free starting at age 59 ½, as long as you’ve held the account for at least five years.
• With both types of accounts, you may face tax consequences and/or a penalty if you withdraw your funds before age 59 ½.
Differences
There are far more differences between TSPs and IRAs, as you’ll see in the table below.
| IRAs | TSP |
|---|---|
| Anyone with earned income can open an IRA | Only members of the military and government employees are eligible |
| Annual contribution limits for 2024 are $7,000; $8,000 with the catch-up provision | Annual contribution limits for 2024 are $23,000; $30,500 with the catch-up provision |
| A wide range of investment choices | Investment choices are limited to the funds the TSP provides |
| You have some control over the investment fees you pay, so be sure to check your all-in costs. | You have little control over the investment fees you pay, though TSP account and investment fees tend to be low. |
| You cannot take a loan from your IRA | TSP loans may be available |
| You are solely responsible for contributions | The government typically provides matching contributions of up to 5% |
| Traditional IRAs are subject to RMD rules; Roth IRAs are not | RMD rules apply to TSPs, but there are different distribution options: e.g. an installment plan or a lifetime annuity, among other choices |
Pros and Cons of IRAs
As the name suggests, an IRA is an account that you manage individually. As such, it comes with its own set of advantages and disadvantages.
Pros
• You can open an IRA at most brokerage firms, and manage it yourself, as long as you have earned income.
• An IRA account typically offers access to a wide range of investment options.
• Traditional and Roth IRAs offer different tax treatments; you can choose whatever works best for your financial plan.
Cons
• Annual contribution limits are lower than many other types of retirement plans.
• Eligibility rules for Roth IRAs are complicated and can be limiting.
• Only you can fund an IRA; there is no employer match for a traditional IRA or Roth.
• You cannot take a loan from any type of IRA (but you may be able to take early withdrawals under some circumstances without owing a penalty; see IRS.gov).
Pros and Cons of TSPs
Remember that you can only participate in a TSP if you are an employee of the federal government or a member of the armed forces. Here are some other considerations.
Pros
• The annual contribution limits are higher than IRAs, and the same as 401(k) plans.
• TSPs include an employer match up to 5%.
• When setting up your income plan in retirement, TSPs offer a range of options for taking withdrawals, including fixed installments and a lifetime annuity option.
• You can take a loan from a TSP.
• TSP accounts have lower fees, generally, than IRA accounts
Cons
• Investment options within a TSP can be limited.
• If you leave your government job, you can no longer contribute to your TSP.
• TSP plan participants have less control, and cannot opt for lower-fee or investment options.
Can You Roll a TSP Into an IRA?
Yes, you can rollover your TSP funds into a qualified trust or eligible retirement plan. Eligible retirement plans include IRAs as well as qualified employer-sponsored plans.
Keep in mind that generally you generally need to rollover funds from a traditional TSP account into a traditional IRA and funds from a Roth TSP account into a Roth IRA in order to avoid taxes on the amount you rollover.
You may want to consult with a professional.
The Takeaway
The Thrift Savings Plan (TSP) is a government program intended to help government employees and members of the military save for retirement. It is an employer-sponsored plan similar to a 401(k). An individual retirement account (IRA) is also a way to save for retirement, but is an account you open and manage yourself.
While there are advantages and disadvantages to each, a TSP allows you to invest more of your savings over time; contribution limits are lower for traditional and Roth IRAs.
Ready to invest for your retirement? It’s easy to get started when you open a traditional or Roth IRA with SoFi. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
FAQ
Is a TSP or IRA better?
A TSP and an IRA are two different ways to save for retirement, and may suit different people for different reasons. Contributing to an IRA may provide you with more investment options, while you can save more in a TSP and the government may match some of your contributions — but not everyone has access to a TSP.
Should you move your TSP to an IRA?
If you leave government service, you can’t contribute to your TSP anymore — but you may be able to open an IRA and rollover the TSP funds. Doing a TSP-to-IRA rollover within the standard 60-day window can help ensure that you don’t have to pay any taxes or penalties, and this may help your retirement plan.
Is a TSP the same as an IRA?
No, a TSP is not the same as an IRA. A TSP is for employees of the government or the armed forces, and it’s comparable to an employer-sponsored plan like a 401(k) or 403(b). By contrast, anyone can open an IRA, as long as they have earned income and qualify.
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