Explore the differences in retirement accounts, from 401(k)s to 403(b)s and the TSP, and learn about maximizing your savings, investment strategies and more for a secure future.
Article: 9 minutes
Updated: January 23, 2026 Published: February 13, 2024
By: Josh Andrews, CFP® Reviewed by: Mikel Van Cleve, CFP®
For young adults, retirement can seem pretty far away. But whether it's 30 or 40 years in the future or right around the corner, it's still important to understand how an employer-provided retirement plan can help people reach their financial goals.
A 401(k), a TSP, 457(b) and a 403(b) are all types of employer-sponsored retirement plans that are eligible for certain tax benefits. These accounts can be helpful tools when it comes to your retirement planning. A 401(k) is offered by for-profit employers. For example, as an employee at USAA, I have a 401(k).
The TSP (Thrift Savings Plan Opens in a New Window See note 1) is offered by the federal government to federal workers and members of the military, while a 403(b) — also known as a tax-sheltered annuity plan Opens in a New Window See note 1 — is offered by public schools and nonprofit organizations. If you can't sleep one night, you can dig further into the differences between all the plans at this IRS website Opens in a New Window See note 1, which also includes information on employer pension plans. But, for this article, we will focus mainly on TSP and 401(k) plans.
Each employer sets the eligibility and enrollment process for its own retirement plan, subject to certain rules and regulations. Those requirements and steps are usually covered in new employee orientation meetings when you're hired.
Once you're eligible, contributions to the account are made out of your paycheck. Contributions can be a certain percentage of the paycheck or a set dollar amount. For example, you can direct your employer to contribute 5% of each paycheck to your 401(k), which would then be allocated into the specific investments chosen.
Because of the tax advantages involved — more on that below — the IRS sets limits Opens in a New Window See note 1 for how much each person can contribute to a retirement plan each year. The three most common limitations are:
This is how much the employee can “elect to defer” from their paycheck into their 401(k). This amount may increase from year-to-year with cost of living adjustments made by the IRS.
Employees older than 50 can make additional contributions above the elective deferral limit, subject to IRS Opens in a new window See note 1 rules, which could include year-to-year inflation adjustments and other stipulations.
This is the maximum amount that can be added to a person's 401(k) from all sources — but not including catch-up limit contributions. The annual additions paid to an account cannot exceed the lesser of either 100% of the participants compensation, or the yearly limit set by the IRS.
You may feel like you'll never be able to contribute up to the full annual addition limit, and the average person might not. But it's important to be aware of the possibility.
Consider this scenario: Let's say you're 45 and want to maximize your retirement savings. You can contribute the full elective deferral during the year, which let's say is $23,000 in that particular year, and your employer provides a match of $5,000. That brings your total contributions so far up to $28,000. If the annual additions limit is $66,000 that year, that would mean you could still contribute an additional $38,000 before you hit the limit.
However, since you've already met the elective deferral limit, those contributions must be made as an after-tax contribution. You won't receive a tax deduction when you make those additional contributions, but the money will grow in the account as tax deferred.
That means you'll only pay taxes on the earnings when you withdraw the money from your retirement account years later. Avoidance of future taxes on earnings is why many people quickly convert after-tax contributions to the Roth portion of their 401(k). However, not all employers provide this option in their plan.
A TSP is slightly different in that contributions can only be made out of basic pay, incentive pays, special pays, or bonuses — you cannot make contributions out of basic allowance for housing or basic allowance for subsistence. If you are receiving tax-exempt pay, for example, while serving in a combat zone, contributions from that pay will be considered tax-exempt. This which means you can contribute to the Roth TSP out of tax-free dollars, so qualified withdrawals of that money are tax-free. If you're in a combat zone and making catch-up contributions, those contributions must be made into the TSP's Roth option.
One more caveat for TSP contributions: If a service member contributes above the elective deferral limit while in a combat zone, those contributions towards the annual addition limit must go into the Traditional portion of the TSP.
If your employer matches your retirement contributions, you may be wondering what happens to that money if you leave the company. To encourage employee loyalty and longevity, employers often use vesting schedules for matching contributions. In short, the length of time you're with the company determines the amount of matching funds you retain if you leave.
For example, if your company has a two-year vesting schedule, at the end of the two years you are 100% vested and keep all of your employer's matching contributions regardless of when you leave the company after the vesting period. Some employers use graded vesting schedules, in which case, every year of service with the company increases the vested percentage of the matching contributions. See the chart below for an example:
If you leave your job, you'll need to decide what to do with your retirement funds, whether you're fully vested or not. Should you cash out, leave the funds in the current plan, or roll it over to a new plan? There can be tax implications for each option.
It's such an important decision that we have an article dedicated to just this decision. Service members may find themselves with similar questions about their TSP account if they are retiring from the military or being discharged; they have several additional factors to consider.
After a certain age, there are minimum amounts that a retirement plan account owner must withdraw annually. For a better understanding on the requirements, check out USAA's RMD guide.
There are several factors that make employer sponsored retirement plans appealing. For many people, one of the biggest draws is that the contributions are made directly from your paycheck — the money is distributed to your retirement account without ever hitting your checking account, so there's no chance you'll spend it.
There also are tax advantages — the tax deferral (the Traditional portion) and the tax-free growth (the Roth portion) is key. Working with a qualified tax professional can help you determine which choice is best for you. To better learn the difference between a Roth versus a Traditional plan, check out this article on Traditional vs. Roth IRAs. Quick guide to Roth versus Traditional. While this article focuses on IRAs, the tax treatment is the same.
If your employer offers matching contributions, you should think of that like free money — and everyone likes free money, right? These are free dollars offered to help you meet your retirement goals, and you should take advantage because matching funds can add up quickly. For example, let's say Bill and Anna each contribute $5,000 to their Roth 401(k)s each year of their 40-year careers.
However, Anna's employer provides a 1-to-1 match, while Bill's does not. That means every year, Anna gets an additional $5,000 in her account. Assuming a growth rate of 6%, after 40 years Bill has $807,000 in his 401(k) — but Anna has $1.6 million. It's something to consider when weighing benefits before taking a new job or deciding between two companies.
Those under the Blended Retirement System are eligible for matching contributions to their TSP. Eligible members of the military get 1% automatic and an opportunity for an additional 4% in matching contributions. If the service member contributes 5% of their basic pay into the TSP, they'll receive 5% in matching funds from the government (1% automatic and 4% matching).
Now that we have a good understanding of what employer sponsored retirement plans are, how can you maximize them to achieve your goals? It all starts with a plan. Having retirement goals may give you more control of your financial life, and people who plan generally feel more confident about their financial decision-making, manage to save more money, and feel better about their progress towards their financial goals. An earlier start with a retirement plan may enable you to reach your goals sooner, or at least on time.
Here are a few key tips to maximize your use of your employer-provided retirement plan:
This will help you prioritize your finances and decide the best way to spend your money. Not sure where to start, check out USAA's budgeting page.
Don't miss out on free money! If you're eligible, take advantage to get as much in matching funds as you can.
What do you want your retirement to look like? How much money will you need to maintain that lifestyle? You want to make sure your money lasts as long as you do. Your retirement needs will depend on you. For example, you'll need more money to retire and travel the world full time than you will to retire and sit on your porch babysitting your grandchildren. Personalize your retirement goal and monitor your progress towards it each year.
Did you get a raise, or negotiate a higher salary after changing jobs? That's an opportunity to increase your retirement contributions.
Service members might be wondering if they can contribute to a 401(k) and a TSP at the same time. Usually, no. However, members of the National Guard or the Reserves can potentially have access to both — but they'll need to make sure they're carefully monitoring their contributions, so they don't overdo it. The elective deferral limit is per person, not per account, so you can't contribute the full elective deferral limit to both a 401(k) and a TSP.
As you decide how to balance the two, consider matching contributions. Make sure you are contributing enough to both accounts to take advantage of full matching contributions, even if this means reducing contributions to one to increase your deferrals into the other.
In a perfect world, you'd start saving for retirement as early as possible. For example, teenagers can contribute to a Roth IRA if they have a summer job. Still not convinced about the importance of starting early? These articles might change your mind: When to start investing: 4 reasons why the time is now and Time is on your side: Start saving for retirement early.