Can You Have a 401(k) and a TSP?

Private, for-profit employers frequently help employees save for retirement through a 401(k) plan. The federal government, however, offers its employees thrift savings plans (TSPs) instead. Both provide tax-sheltered growth for retirement savings and allow matching contributions from employers. You're allowed to have both a 401(k) and a TSP and may contribute to each during the year. You may contribute to both plans if you worked for the government and a private employer. While you may hold and contribute to both plans, the IRS caps the amount of money that you may invest in them each year.

The IRS defines both 401(k) plans and TSPs as contribution plans, which means you aren't guaranteed to receive a specific retirement benefit. Instead, you contribute specific dollar amounts to the account while you're working and the plan manager invests that money. How much you get at retirement depends on how well your investments perform. To prevent people from stashing away too much money, the IRS sets a cumulative contribution limit for all your 401(k)s and TSPs combined. This limit also includes other types of plans, such as 403(b) plans.

As of 2018, you're limited to putting in $18,500 in personal contributions to both plans combined. For example, you could put in $18,500 to your TSP and nothing to your 401(k), nothing in your TSP and $18,500 in your 401(k), or split the contributions between the two. Similarly, your total contributions — including the contributions the government agency or your private employer makes on your behalf — can't exceed $55,000 for the year.

Both 401(k) plans and TSPs can offer Roth options, where you put in after-tax dollars and then get your qualified distributions out tax-free, including the earnings. The Roth account lets you pay taxes now rather than later, but it isn't a way for you to stash more cash. The contribution limits still apply. For example, say your contribution limit is $18,500. If you stick $12,000 in your Roth 401(k) plan and $6,500 in your Roth TSP, you're already at your limit and can't contribute more to a traditional 401(k) or TSP without going over.

If you exceed the contribution limits for your 401(k) and TSP, you must include any excess contributions in your taxable income that year. If you miscalculated and contributed $5,000 more than allowed during the year, you must add that $5,000 to your taxable income. You'll also still have to pay taxes on the money when you take it out at retirement — essentially forcing you to pay tax on the same money twice. To avoid this double taxation, you must request a distribution of the excess contributions before March 15 so your request gets processed before April 15.