TSP vs. 401(k): How Federal Retirement Savings Stacks Up (2026)

Federal employees getting a private-sector offer, or private-sector workers considering a government job, often ask: is the TSP better or worse than a 401(k)? The honest answer is that they're the same in some ways and meaningfully different in others — and the differences mostly favor the TSP. Here's a complete comparison.

Employer match: TSP edge for most federal employees

For FERS employees, the federal government contributes in two ways:

• 1% automatic contribution — deposited regardless of whether you contribute anything, after your first year of service
• Up to 4% matching contribution — dollar-for-dollar on your first 3%, then 50 cents per dollar on your next 2%

Result: contribute 5% of your salary, and you get a 5% match (1% automatic + 4%). Contribute less than 5% and you're leaving money behind. At a GS-14 salary of $145,000, the full match is worth $7,250/year — every year you under-contribute is a permanent loss.¹

One important caveat: the TSP 1% automatic contribution has a 3-year vesting requirement (2 years for FERS employees hired before 2000). The matching contributions are immediately vested. Most 401(k) matching contributions also vest over 2–6 years at private employers — check your offer carefully.

Expense ratios: TSP wins decisively

This is where the TSP has a structural advantage that compounds over a career. The five core TSP funds carry an expense ratio of approximately 0.049% for 2026 — about 5 cents per $1,000 invested per year.³

The average equity mutual fund in a 401(k) plan charges approximately 0.26% — and that's just the fund-level cost. Many 401(k) plans add recordkeeping fees, administrative fees, and advisor fees on top, pushing total all-in costs to 0.5–1.5% or more of plan assets per year.⁴

Vanguard index funds in a well-designed 401(k) can get close — Vanguard's average expense ratio across funds was approximately 0.06% as of early 2026, and some plans offer institutional-class shares below 0.03%.⁴ But these are best-case private-sector plans; many employers — especially smaller ones — offer actively managed funds with much higher costs. The TSP offers institutional pricing to every federal employee, regardless of agency size.

The G Fund: no private-sector equivalent

This is the single most underappreciated TSP advantage. The G Fund — the Government Securities Investment Fund — earns the long-term Treasury rate on short-term government securities. The result: currently 4.500% (June 2026), with no possibility of principal loss.⁵

Nothing in a 401(k) replicates this combination of yield and zero nominal risk. The closest private-sector equivalents are:

• Money market funds: principal stable but yields fluctuate daily with short-term rates — currently similar but not guaranteed
• Stable value funds: offered in some 401(k) plans; principal-protected with a wrap contract, but typically yield 0.5–1% less than the G Fund and carry insurer counterparty risk
• Short-term bond funds: principal can decline when rates rise; not principal-guaranteed

Investment options: 401(k) wins on breadth; TSP wins on cost

The TSP offers five individual funds plus ten Lifecycle (L) target-date funds:

• G Fund: government securities, 4.500% June 2026, no principal risk
• F Fund: Bloomberg U.S. Aggregate Bond Index (investment-grade bonds)
• C Fund: S&P 500 (large-cap U.S. stocks)
• S Fund: Dow Jones U.S. Completion Index (mid/small-cap U.S. stocks)
• I Fund: MSCI ACWI ex USA ex China ex Hong Kong (international stocks, expanded since October 2024)

Five funds sounds limiting compared to the hundreds of options in many 401(k) plans. In practice, the five TSP funds cover the major asset classes a diversification-conscious investor needs. The C + S + I + G + F combination replicates global stock market + bond market exposure at institutional pricing.

What the TSP can't do directly: REITs, factor tilts (small value, momentum), individual sector funds, ESG-screened portfolios. The Mutual Fund Window adds access to ~5,000 mutual funds for employees with $40,000+ in TSP who want these options — but at $132/year in fixed fees plus $28.75 per trade. See our TSP Mutual Fund Window guide for the full cost analysis.

2026 contribution limits: identical at the statutory level

The IRS sets the same limit for TSP and 401(k) contributions:

• Base limit (2026): $24,500 (IRS Rev. Proc. 2025-67, up from $23,500 in 2025)
• Catch-up limit (age 50–59, age 64+): additional $8,000, for a total of $32,500
• Super catch-up (age 60–63): additional $11,250 instead of $8,000, for a total of $35,750 — per SECURE 2.0 §109⁶

These limits apply to employee elective deferrals only. They don't cap employer match contributions, which are separate under IRC §415(c). The total annual additions limit (employee + employer) is $70,000 for 2026 — rarely a binding constraint for GS employees.

One TSP-specific wrinkle: mandatory Roth catch-up for high earners. Under SECURE 2.0 §603, employees whose FICA wages exceeded $150,000 in 2025 are required to make catch-up contributions to Roth (not Traditional) in 2026. The same rule applies to 401(k) plans. See our TSP catch-up guide for the full mechanic.

Roth options: both plans now equivalent on RMDs

Both TSP and 401(k) plans can offer Roth versions. Contributions go in after-tax; qualified distributions are tax-free including earnings. SECURE 2.0 §325 eliminated lifetime RMDs from Roth accounts in employer plans starting in 2024 — so Roth TSP and Roth 401(k) balances no longer require withdrawals during your lifetime.

Prior to 2024, Roth TSP had a quirk: it was subject to RMDs (unlike Roth IRA), which drove advisors to recommend rolling Roth TSP to a Roth IRA before RMD age. That rule is now gone. Roth TSP is effectively RMD-equivalent to Roth IRA for lifetime purposes.

For federal employees doing Roth conversions from Traditional TSP, the path remains a two-step: Traditional TSP → Traditional IRA → Roth IRA conversion. You cannot convert directly within TSP. See our FERS Roth conversion strategy guide for timing.

Withdrawal rules: penalty-free access at 55 for both

The IRS Rule of 55 allows penalty-free withdrawals from a workplace retirement plan if you separate from service in the year you turn 55 or later. This applies to both TSP and 401(k) plans — though 401(k) plans are not required to offer the rule and some do not.

Traditional TSP RMDs begin at age 73 (for those born 1951–1959) or 75 (born 1960 or later) per SECURE 2.0 §107. Traditional 401(k) RMDs follow the same rules.

Portability: what happens when you leave federal service

If you leave federal service — voluntarily, via RIF, or into retirement — your TSP options are:

1. Leave it in TSP. No fees change. You retain G Fund access. You can no longer make contributions or receive agency match. Withdrawals are allowed once you separate. This is often the smartest choice for early retirees using the G Fund + Rule of 55 bridge.
2. Roll to a Traditional IRA. Broadest investment selection. Loses G Fund, loses Rule of 55 access. Roth TSP can roll to Roth IRA. Roth IRA has no RMDs ever; Traditional IRA RMDs begin at 73/75.
3. Roll to a new employer's 401(k). If you move to a private employer, you can typically roll TSP into their 401(k) plan. Useful if you want to consolidate accounts.

Incoming rollovers: the TSP accepts rollovers into Traditional TSP from other qualified plans and Traditional IRAs. This matters for the TSP pro-rata trick for employees doing backdoor Roth contributions: roll pre-tax IRA money into Traditional TSP before year-end to clear the pro-rata rule. See our IRA strategy guide for details.

The bigger picture: TSP is one leg of a three-legged stool

For FERS employees, the TSP vs. 401(k) comparison misses the real point: the TSP exists within a retirement package that no typical private-sector employer matches.

A GS-14 with 30 years of service, a $145,000 high-3, and a 5% TSP match retiring at 57 leaves government with:

• FERS annuity: approximately $43,500/year (1% × 30 × $145,000) — for life, with COLA after 62
• FERS supplement: approximately $14,000–$18,000/year until age 62
• FEHB: health coverage in retirement with the same government subsidy
• TSP balance built over 30 years of low-cost investing with 5% match

The private-sector equivalent would require roughly $1.1–1.4 million in additional retirement savings just to replace the FERS annuity floor at a 3.5–4% withdrawal rate — before counting the FEHB subsidy or supplement. This is the main reason why direct salary comparisons between federal and private-sector roles are misleading: the retirement package is a significant part of total compensation.

When should a federal employee consider a 401(k) plan instead?

A private-sector 401(k) can make sense over the TSP only in specific situations:

• The 401(k) has Vanguard or similar institutional index funds at equivalent expense ratios. A handful of large employers offer 401(k)s with fund expenses near 0.03–0.05%, eliminating the TSP expense advantage. In those cases, investment flexibility wins.
• The 401(k) match is significantly higher than 5%. Some tech companies match 6–10%. If the match is meaningfully richer and you max out quickly, the extra match could exceed TSP's expense advantage.
• You need investment options TSP can't provide — for instance, significant real estate (REIT funds), international small-cap exposure, or specific factor-based strategies. Most employees don't need these.

For most federal employees considering private-sector offers, the math favors staying in the federal system through retirement: the G Fund alone, FEHB in retirement, and the FERS pension create a retirement security floor that no typical 401(k) plan replicates.

Already separated? Leaving TSP vs. rolling to IRA

Federal employees who have already left government service often ask whether to roll their TSP to an IRA. The full analysis is in our TSP rollover vs. IRA guide, but the key decision points:

• Keep TSP if: you're under 59½ and plan to draw from retirement savings before then (Rule of 55 matters); you want G Fund yield with zero principal risk; you have a simple portfolio need that the five TSP funds cover.
• Roll to IRA if: you need investment options beyond TSP's five funds and the Mutual Fund Window is too expensive for your balance; you've reached 59½ or older; you want to consolidate multiple retirement accounts; you're doing Roth conversion planning that requires more flexibility.
• Partial rollover: keep G Fund and Traditional TSP for Rule of 55 bridge; roll equities and Roth TSP to IRA at 59½ or later. Often the optimal structure.

What a federal-benefits specialist does differently

A generalist financial advisor who has mostly worked with 401(k) clients will treat TSP like any other workplace plan and often recommend a rollover at retirement without modeling the full picture. A specialist who regularly advises federal employees will:

• Model the G Fund income bridge alongside the FERS supplement to determine whether a rollover makes sense before 59½
• Optimize the Roth conversion window — the years between federal retirement and Social Security/RMD age — using TSP's structure
• Coordinate TSP withdrawals with IRMAA thresholds ($106,000 single / $212,000 MFJ for 2026) and FEHB Medicare Part B decisions
• Account for the FERS annuity as a fixed-income substitute when setting TSP asset allocation — often justifying a more aggressive equity mix in TSP than a generic target-date fund would suggest

See our guide to choosing a financial advisor for federal employees — including the 10 diagnostic questions that reveal whether an advisor has genuine FERS depth or is treating you like a private-sector client.