The Thrift Savings Plan is one of the best retirement plans in the country, thanks to rock-bottom fees and generous matching. Here’s how to make the most of it.
2026 TSP Contribution Limits
| Category | Limit |
|---|---|
| Employee elective deferral | $23,500 |
| Catch-up contribution (age 50+) | $7,500 |
| Catch-up contribution (age 60-63) | $11,250 |
| Total employee contribution (under 50) | $23,500 |
| Total employee contribution (50+) | $31,000 |
| Total employee contribution (60-63) | $34,750 |
TSP Matching (FERS Employees)
| Your Contribution | Agency Automatic (1%) | Agency Match | Total to Your Account |
|---|---|---|---|
| 0% | 1% | 0% | 1% |
| 1% | 1% | 1% | 3% |
| 2% | 1% | 2% | 5% |
| 3% | 1% | 3% | 7% |
| 4% | 1% | 3.5% | 8.5% |
| 5% | 1% | 4% | 10% |
| 6%+ | 1% | 4% | 11%+ |
At 5% contribution, you get a total of 10% of your salary going to retirement (your 5% + 5% from the government).
The Cost of Not Maximizing the Match
| Salary | Contributing 0% | Contributing 5% (with match) | Money Left on Table |
|---|---|---|---|
| $50,000 | $500/yr (1% auto) | $5,000/yr | $4,500/year |
| $75,000 | $750/yr | $7,500/yr | $6,750/year |
| $100,000 | $1,000/yr | $10,000/yr | $9,000/year |
Over 30 years at 8% growth, leaving $4,500/year on the table costs over $510,000 in retirement savings.
TSP Fund Options
| Fund | What It Tracks | Expense Ratio | 10-Year Avg. Return |
|---|---|---|---|
| G Fund (Government Securities) | Government bonds (guaranteed principal) | 0.049% | 2-3% |
| F Fund (Fixed Income) | US Aggregate Bond Index | 0.049% | 1-3% |
| C Fund (Common Stock) | S&P 500 Index | 0.049% | 10-13% |
| S Fund (Small Cap) | Completion Index (small/mid-cap stocks) | 0.049% | 8-11% |
| I Fund (International) | MSCI EAFE Index (international developed) | 0.049% | 4-7% |
| L Funds (Lifecycle) | Target-date blend of above funds | 0.049% | Varies |
The TSP’s 0.049% expense ratio is among the lowest in the world. A typical 401(k) charges 0.50-1.00%.
Fee Comparison: TSP vs. Others
| Plan | Expense Ratio | Annual Fee on $500,000 |
|---|---|---|
| TSP | 0.049% | $245 |
| Vanguard (average) | 0.06% | $300 |
| Fidelity (index) | 0.015-0.04% | $75-$200 |
| Average 401(k) | 0.50% | $2,500 |
| Financial advisor fund | 1.00% | $5,000 |
TSP Fund Allocation Strategies
Simple Approaches
| Strategy | Allocation | Best For |
|---|---|---|
| Lifecycle Fund | L2060, L2050, etc. (set and forget) | Most people |
| Aggressive growth | 60% C + 20% S + 20% I | Young investors (20+ years to retirement) |
| Moderate | 50% C + 15% S + 15% I + 20% F/G | Mid-career (10-20 years) |
| Conservative | 30% C + 10% S + 10% I + 50% G/F | Near retirement (under 10 years) |
Traditional vs. Roth TSP
| Feature | Traditional TSP | Roth TSP |
|---|---|---|
| Tax on contributions | Pre-tax (reduces current taxable income) | After-tax (no current tax break) |
| Tax on withdrawals | Taxed as ordinary income | Tax-free (if qualified) |
| Required Minimum Distributions | Yes (starting at 73) | No (starting 2024 per SECURE 2.0) |
| Best if | In higher tax bracket now | In lower bracket now, expect higher later |
| Employer match goes to | Traditional (always) | Traditional (even if you choose Roth) |
TSP Vesting Schedule
Not all contributions are immediately yours to keep if you leave federal service early.
| Contribution Type | Vesting Period |
|---|---|
| Your own contributions (any %) | Immediate — always 100% yours |
| Agency automatic 1% | 3 years of federal civilian service |
| Agency matching (up to 4%) | 3 years of federal civilian service |
| Military contributions | Immediate |
If you leave federal service before 3 years, you forfeit the agency 1% automatic contribution and any matching. Your own contributions are always yours.
TSP Withdrawal Rules
| Withdrawal Type | Penalty | Notes |
|---|---|---|
| Age 59½+ | None | Standard retirement withdrawal |
| Separation at age 55+ (FERS) | None | Must separate in calendar year you turn 55 |
| Separation at 50+ (law enforcement/fire) | None | Special category employees |
| Before 59½, no exception | 10% early withdrawal | Plus ordinary income tax |
| Substantially Equal Periodic Payments (72t) | None | Fixed schedule required |
| RMDs (age 73+) | 50% penalty if missed | Required each year |
TSP Loan Option
The TSP allows you to borrow from your own account — but this is generally a poor strategy since your borrowed funds stop growing.
| Loan Type | Maximum | Repayment | Interest Rate |
|---|---|---|---|
| General purpose | $50,000 (or 50% of vested balance) | 1–5 years | G Fund rate |
| Residential (primary home) | $50,000 (or 50% of vested balance) | 1–15 years | G Fund rate |
Taking a TSP loan is not a free move: you repay with after-tax dollars, miss out on investment growth, and face taxes plus penalty if you leave federal service before repaying.
Real Salary Example: $75,000 FERS Employee
A federal employee earning $75,000 per year contributing 5% to Traditional TSP:
| Item | Amount |
|---|---|
| Annual salary | $75,000 |
| Employee contribution (5%) | $3,750 |
| Agency automatic contribution (1%) | $750 |
| Agency matching contribution (4%) | $3,000 |
| Total TSP contribution | $7,500 |
| Pre-tax income reduction | $3,750 |
| Estimated federal tax savings (22% bracket) | ~$825 |
| Effective cost to employee after tax savings | ~$2,925 |
The employee puts in $3,750 and the government adds $3,750 (agency auto + match), effectively doubling the contribution before any investment growth. After accounting for the tax savings from lower taxable income, the actual out-of-pocket cost is about $2,925 per year.
Projected balance: At $7,500/year into a C Fund averaging 8%, this $75,000-salary employee accumulates approximately:
- After 10 years: ~$117,000
- After 20 years: ~$370,000
- After 30 years: ~$918,000
These projections assume annual contributions grow with salary and do not include catch-up contributions.
TSP vs. 401(k): How They Compare
Federal employees sometimes wonder whether a TSP is “as good” as private-sector retirement plans. The answer is that the TSP is superior on almost every measurable dimension:
| Feature | TSP | Typical 401(k) | Winner |
|---|---|---|---|
| Expense ratio | 0.049% | 0.50–1.00% | TSP |
| Employer match | Up to 5% (FERS) | 3–6% (varies) | Roughly equal |
| Fund selection | 5 core + L funds | 10–30+ options | 401(k) (more choice) |
| Loan provisions | Up to $50,000 | Up to $50,000 | Equal |
| Roth option | Yes | Yes (most plans) | Equal |
| Annual fee on $250K | $123 | $1,250–$2,500 | TSP |
The fee difference is the biggest factor over a career. An employee with $500,000 in a TSP pays $245/year. The same balance in an average 401(k) costs $2,500/year — a $2,255 annual drag. Over 20 years at 8% growth, that fee gap alone costs over $110,000.
TSP Contribution Strategy by Career Stage
How much you should contribute — and to which account type — depends on where you are in your federal career:
Early Career (Under 10 Years of Service)
- Prioritise Roth TSP: You are likely in a lower tax bracket now than you will be at peak earnings and retirement. Tax-free withdrawals in retirement are worth more when rates are higher.
- At minimum, contribute 5% to capture the full employer match on day one.
- Max out if you can. Time in the market matters more in early career. The $23,500 annual limit invested at 8% for 30 years grows to over $2.6 million.
Mid-Career (10–20 Years of Service)
- Reassess Roth vs. Traditional. If your salary has grown substantially, Traditional TSP (pre-tax) reduces your current tax bill while rates are high.
- Increase contributions as your income rises and childcare/mortgage costs stabilise.
- Check your FERS pension. Your TSP supplements the FERS defined-benefit pension. Project both together to understand your total retirement income picture.
Late Career (20+ Years, Within 10 Years of Retirement)
- Maximise catch-up contributions. Workers aged 60–63 can contribute $34,750 total in 2026 — the highest catch-up limit ever under SECURE 2.0. Workers aged 50–59 can contribute $31,000.
- Shift toward L Income or conservative allocation as retirement approaches — but don’t go entirely to G Fund. Inflation risk is real over a 20–30 year retirement.
- Plan your withdrawal strategy before you retire. TSP has multiple withdrawal options; understanding them before you need them avoids costly mistakes.
FERS vs. CSRS: Different TSP Situations
Your retirement system determines how important TSP contributions are:
| Factor | FERS (most employees hired after 1984) | CSRS (older employees, hired before 1984) |
|---|---|---|
| Employer match | Up to 5% | None |
| Pension formula | 1% × years × high-3 average salary | 1.5–2% × years × high-3 average salary |
| Social Security | Covered | Not covered |
| TSP importance | Critical — one of three income legs | Supplementary — pension is larger |
FERS employees rely on three legs: TSP + FERS pension + Social Security. TSP is essential. Not maximising the match is particularly costly because employer contributions compound over decades.
CSRS employees have a more generous defined-benefit pension but no employer TSP match and no Social Security. Contributing to TSP is entirely voluntary and funded solely by the employee, making the calculus different — it is still valuable for additional savings, but the urgency of the 5% minimum threshold does not apply.
What Happens to Your TSP When You Leave Federal Service?
If you leave federal employment before retirement, your TSP account stays open and invested. You have four main options:
| Option | Pros | Cons |
|---|---|---|
| Leave it in TSP | Keeps the lowest fees available anywhere | Limited investment options; no new contributions |
| Roll over to IRA | More investment flexibility | Higher fees in most IRAs |
| Roll over to new employer 401(k) | Consolidates accounts | Typically higher fees than TSP |
| Cash out | Immediate access | 10% early withdrawal penalty + income tax if under 59½ |
Leaving it in TSP is almost always the right choice if you have a meaningful balance. The 0.049% expense ratio is hard to beat anywhere else. You can always roll it out later; you cannot roll external funds back into TSP after separating.
The Bottom Line
The TSP is one of the best retirement plans available, with the lowest fees in the industry (0.049%) and a generous 5% employer match. At minimum, contribute 5% to capture the full match—anything less is leaving free money on the table. For most people, a Lifecycle (L) fund matched to your expected retirement year is the simplest and most effective allocation strategy. Consider Roth TSP contributions if you expect to be in a higher tax bracket in retirement.
For more on workplace retirement plans, see the Workplace Retirement Plans hub.
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