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TSP
The TSP is a federal employee’s equivalent of a 401(k) retirement plan. Employees contribute to their savings pre-tax, and those contributions can be matched by the government.
The TSP is a defined contribution plan considered one of the three pillars that make up the modern federal employee retirement program, alongside FERS*, a defined benefit plan similar to a pension, and Social Security benefits. How a federal employee utilizes their TSP over the course of their working and retirement years can result in a financially secure retirement. Understanding how to make the most out of TSP from the earliest days of government employment is critical in determining retirement outcomes. The key decisions that must be made include how much to contribute each pay period, how to allocate those contributions between the various investment options, and whether to use both the Traditional and Roth TSP.
In practice, the TSP is similar to the widely-known 401(k) plans offered in the private sector. Essentially, an employee contributes part of their income to the plan and can obtain tax benefits for the funds they contribute. The funds can be invested as the employee wishes (within some limitations of the plan options). What’s significant is that the employee calls the shots. They can contribute nothing if they so choose, and how to allocate their contributions.
FERS employees are eligible for an employer match on their pre-tax contributions, but have to contribute a minimum amount to get the full match. After 5% of your salary has been contributed, there’s no more matching from the government but employees can possibly put in more than that until they reach the annual limits. (For 2026: Elective deferral limit: $24,500; Catch-up limit age 50-59 and 64+: $8,000; and Super catch-up limit age 60-63: $11,250.)
*While those under the old CSRS system can contribute to the TSP, there are differences. Most importantly, CSRS TSP participants are not eligible to receive the match from the government that FERS employees are entitled to.
Money contributed to your Thrift Savings Plan (TSP) can be invested in one or more of the TSP’s core investment funds. These funds are designed to provide broad diversification across stocks and bonds at very low cost.
Three of the core funds invest primarily in stocks:
– C Fund (Common Stock Index Investment Fund): Tracks the performance of the S&P 500 Index and provides exposure to large U.S. companies.
– S Fund (Small Capitalization Stock Index Investment Fund): Tracks the Dow Jones U.S. Completion Total Stock Market Index, which includes U.S. small- and mid-sized companies that are not included in the S&P 500.
– I Fund (International Stock Index Investment Fund): Invests in companies located outside the United States and tracks an international stock index that provides broad exposure to developed international markets. Seeks to Match the performance of the MSCI ACWI IMI ex USA ex China ex Hong Kong Index.
The other two core funds focus on preserving capital and generating income:
– F Fund (Fixed Income Index Investment Fund): Tracks a broad U.S. bond market index. Bonds are often referred to as “fixed-income” investments and have historically experienced less volatility than stocks, though they also generally offer lower long-term growth potential.
– G Fund (Government Securities Investment Fund): Unique to the TSP, the G Fund invests in specially issued U.S. Treasury securities. The principal and interest are guaranteed by the U.S. government, meaning participants do not face market losses. The fund’s interest rate is based on a formula established by law using Treasury security yields.
Lifecycle (L) Funds
The TSP also offers Lifecycle, or L Funds, which are professionally managed portfolios made up of the five core TSP funds. Each L Fund is designed for a specific retirement time horizon and automatically adjusts its investment mix over time, becoming more conservative as the target date approaches. For example, the L Income Fund, designed for participants already withdrawing money or who expect to do so soon, has a larger allocation to the G and F Funds. In contrast, longer-dated funds such as the L 2075 Fund maintain a higher allocation to stock funds in pursuit of long-term growth.
The Roth TSP was introduced in 2012 and allows participants to make after-tax contributions. Unlike a Roth IRA, there are no income restrictions that limit eligibility to contribute to a Roth TSP. The annual IRS contribution limit applies to your combined Traditional and Roth TSP contributions. Participants can divide contributions between the two options in any proportion, provided they do not exceed applicable contribution limits.
– Traditional TSP contributions are made on a pre-tax basis, reducing current taxable income. Taxes are owed when money is withdrawn.
– Roth TSP contributions are made after taxes have been paid. Qualified withdrawals, including earnings, are generally tax-free if IRS requirements are met. In addition, Roth TSP accounts are no longer subject to required minimum distributions.
Participants may generally withdraw TSP funds without the IRS early-withdrawal penalty beginning at age 59½, whether retired or still employed. Participants who need access to funds earlier may have options such as TSP loans or hardship withdrawals, but these should be carefully considered because they may have an impact on long-term retirement savings. Many federal employees make TSP decisions without fully understanding all of their available options. Contribution levels, investment choices, and Roth versus Traditional elections can significantly affect retirement outcomes. Taking the time to understand these decisions today can help you maximize the value of your TSP throughout your career and retirement.
The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you’re eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP.
S&P 500: This index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks. It consists of 400 industrial, 40 utility, 20 transportation, and 40 financial companies listed on U.S. market exchanges. This is a capitalization-weighted calculated on a total return basis with dividends reinvested. The S&P represents about 75% of the NYSE market capitalization.
MSCI ACWI Excluding US Index: The index is a market-capitalization-weighted index maintained by Morgan Stanley Capital International (MSCI) and designed to provide a broad measure of stock performance throughout the world, with the exception of U.S.-based companies. The MSCI All Country World Index Ex-U.S. includes both developed and emerging markets.
Target retirement date (lifestyle) investment options are designed for participants who plan to withdraw the value of their accounts gradually after retirement. Each of these options follows its own asset allocation path (“glidepath’) to progressively reduce its equity exposure and become more conservative over time. Options may not reach their most conservative allocation until after their target date. Investors should consider their own personal risk tolerance, circumstances and financial situation.
All fixed income securities are subject to market risk and interest rate risk. If fixed income securities are sold in the secondary market before maturity, an investor may experience a gain or loss depending on the level of interest rates, market conditions and the credit quality of the issuer. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices generally rise. Please note these strategies may be subject to state, local, and/or alternative minimum taxes. You should discuss any tax or legal matters with the appropriate professional.
Treasury securities are direct obligations of the United States Government. Bond prices and yields are subject to change based upon market conditions and availability. If bonds are sold prior to maturity, you may receive more or less than your initial investment. U.S. government bonds are issued and guaranteed as to the timely payment of principal and interest by the federal government.
Disclosures
The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Every investor’s situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. This information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Past performance does not guarantee future results. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Be sure to contact a qualified professional regarding your situation before making any investment or withdrawal decision. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
The FedLife Podcast is your in-depth, biweekly deep dive into the world of federal benefits and retirement planning. Hosted by federal benefits expert Ed Zurndorfer and Dan Sipe of Serving Those Who Serve, each 30-minute episode unpacks the complexities of FERS and CSRS retirement, FEHB and Medicare, survivor benefits, tax planning, and more. Designed for federal employees and retirees who want more than just the basics, FedLife goes beyond the headlines to explore the rules, nuances, and strategies that can make a meaningful difference in your retirement. Remember: it’s your Fed life, make it a great one.
The Fed15 Podcast is your weekly 15(ish)-minute briefing on federal benefits and financial planning, built specifically for federal employees and retirees. Hosted by Dan Sipe and Katelyn Murray of Serving Those Who Serve, each episode delivers clear, actionable guidance on topics like FERS and CSRS retirement, TSP strategies, FEHB, survivor benefits, tax planning, and more! Whether you’re five years from retirement or already there, The Fed15 helps you cut through the noise, avoid costly mistakes, and make confident decisions about your federal benefits.
