The Thrift Savings Plan (TSP)
Your Financial Engine for Federal Retirement
The Third Pillar of Your Federal Retirement — and the One You Control
If your FERS pension is your guaranteed paycheck and Social Security is your federal backup, then the Thrift Savings Plan (TSP) is your wealth engine — the tool that can turn a solid retirement into a great one.
🔥 No other job in America gives secretaries, maintenance workers, techs, and park rangers a legitimate shot at retiring as millionaires — but federal service does, thanks to the TSP.
Not just federal doctors. Not just agency lawyers. Not just scientists or SES executives. We're talking:
💡 Think of the Pillars Like This:
| Pillar | Description | Who Controls It |
|---|---|---|
| 🏦 FERS Pension | Your guaranteed monthly income | Your agency and time-in-service |
| 🧾 Social Security or RAS | Supplemental support | Congress & eligibility |
| 💼 TSP | Your personal investment account | YOU — your contributions, your risk, your reward |
The TSP is where you have the most power — and where small smart decisions (especially early on) can snowball into six or seven figures over time.
🧠 What Exactly Is the TSP?
The Thrift Savings Plan is a tax-advantaged investment account, similar to a private-sector 401(k). It's a defined contribution plan, meaning the final benefit depends on:
- How much you put in,
- How long you leave it there,
- And how your investments perform over time.
💡 You're in control. You choose the contribution level, the tax treatment (Roth or Traditional), and the mix of funds. It's also portable — your account stays with you after you separate or retire.
💰 Government Matching: The Secret Raise You're Already Getting
Every dollar you contribute (up to 5%) earns free money from the government. This matching system is one of the most generous around:[Source]
| Your Contribution | Gov Match | Total Put Into TSP |
|---|---|---|
| 0% | 1% (auto) | 1% |
| 3% | 4% | 7% |
| 5% | 5% | 10% |
🎯 Bottom line: If you don't put in at least 5%, you're leaving free money on the table.
📊 TSP Contribution Calculator
See how different contribution rates impact your retirement savings with our interactive calculator.
Calculate Your TSP Contributions →📈 TSP = Compound Growth Over Time
The real magic of the TSP is not the contributions — it's the compound growth. Here's what consistent investing can look like over a career:
(Assumes increasing salary, 5%+5% contributions, and C Fund avg ~10% return)
"Your pension helps you retire. Your TSP decides how well you retire."
🔍 Traditional vs. Roth TSP — Choosing the Right Path
This is one of the most important decisions you'll make in your federal career. And it's not about what funds you pick. It's about how you pay taxes — either now (Roth) or later (Traditional).
🧠 Tax Timing, Not Different Investments
The Thrift Savings Plan (TSP) allows you to invest in the same exact funds regardless of whether you pick Traditional or Roth. The only difference is when your money is taxed.[Source]
| Category | Traditional TSP | Roth TSP |
|---|---|---|
| Contributions | Taken from pre-tax salary | Taken from after-tax salary |
| Immediate Impact | Lowers your current taxable income | No current tax benefit |
| Growth | Grows tax-deferred | Grows tax-free |
| Withdrawals | Fully taxed as ordinary income | Tax-free (if qualified) |
Bottom line: Traditional gives you a tax break now. Roth gives you tax-free income later.
Visualizing the Tax Impact in Retirement
🏛️ Where Does the Government Match Go?
This is one of the most misunderstood parts of the TSP. All matching and agency contributions go into your Traditional TSP, even if you only contribute to Roth.[Source] This means even if you "go all Roth," you will still build a Traditional (taxable) balance behind the scenes.
👷 SCEs (Special Category Employees): This Is Critical
If you're a LEO, Firefighter, or ATC, you can retire as early as age 50. This creates a unique tax trap if you're not careful.
- ✅Traditional TSP: You can take penalty-free withdrawals if you separate in or after the year you turn 50.[Source]
- ⚠️Roth TSP: The earnings portion is different. You must be age 59½ AND have the account for 5 years to withdraw earnings tax/penalty-free.[Source] Retiring at 52 and tapping Roth earnings means you'll owe taxes AND a 10% penalty.
SCE Strategy: Prioritize building a solid Traditional TSP balance to live on between retirement and age 59½. Let your Roth TSP grow untouched until it becomes fully qualified.
🔄 The TSP Modernization Act & Future Changes
Thanks to recent rule changes, you have more control than ever. You can now choose which account (Traditional or Roth) to withdraw from and take multiple partial withdrawals.[Source] This gives SCEs the power to draw only from their Traditional balance to avoid the Roth penalty trap.
Coming in 2026: A game-changer is coming. The TSP will allow "in-plan Roth conversions," letting you move money from your Traditional to your Roth balance inside the TSP.[Source] This is a taxable event but allows you to strategically create more tax-free income in retirement.
💸 TSP Roth Conversion Calculator
Model the tax impact of converting Traditional TSP to Roth (feature coming soon).
TSP Roth Conversion Calculator →🪦 Inheritance & RMDs
If you pass away, your beneficiaries will owe income tax on any Traditional TSP money they inherit. Roth TSP funds, if qualified, are passed on tax-free. Additionally, the TSP requires you to take Required Minimum Distributions (RMDs) from both Traditional and Roth accounts starting at age 73.[Source] Many retirees roll their Roth TSP to a Roth IRA to avoid RMDs, as Roth IRAs have no such requirement for the original owner.
🧭 Summary: Strategic Considerations
- Young feds in lower tax brackets? Roth is likely better long term.
- Mid/late-career high earners? Traditional may lower your tax bill now.
- SCEs retiring early? Prioritize Traditional so you can access it penalty-free before 59½.
- Everyone else? You'll probably need a mix — but understanding these rules helps you avoid penalties and make smarter moves.
📅 Core TSP Funds — Your Building Blocks for Wealth
The Thrift Savings Plan offers five core individual funds, each with its own risk profile, purpose, and historical return. Understanding how these funds work is essential to building long-term wealth as a federal employee. Below is a detailed breakdown of each fund—no fluff, no summaries—so you can make informed decisions based on facts.[Source]
Purpose: Preserve capital while earning interest above inflation. Ideal for ultra-low-risk investors or those near retirement.
Key Features: Guaranteed by the U.S. government, never had a negative return, no market risk.
Best For: Short-term holdings, retirees preserving principal, or conservative allocations.
Purpose: Provide income through bonds with moderate stability. Subject to interest rate risk.
Key Features: Invests in U.S. government, mortgage-backed, and corporate bonds. Can have negative returns.
Best For: Balanced portfolios, income seekers, or diversifying away from stocks.
Purpose: Long-term capital growth by investing in 500 of the largest U.S. companies (S&P 500).
Key Features: High long-term returns but with market volatility. Historically reliable for growth over 10+ years.
Best For: Growth-focused investors, long-term savers, or those early to mid-career.
Purpose: Aggressive growth through small- and mid-sized U.S. companies not in the S&P 500.
Key Features: Captures high-growth U.S. stocks. Higher volatility than C Fund, with sharp ups and downs.
Best For: Younger investors, aggressive portfolios, or those willing to ride market waves for higher returns.
Purpose: Exposure to international developed and emerging markets outside the U.S.
Key Features: New index includes emerging markets and Canada. Currency fluctuations and foreign market risks apply.
Best For: Global diversification, long-term international exposure, or risk-tolerant investors.
📊 Core Fund Performance Comparison (as of early 2024)
| Fund | 1-Year | 5-Year (Ann.) | 10-Year (Ann.) | Risk Level |
|---|---|---|---|---|
| G Fund | 4.42% | 3.11% | 2.65% | Very Low |
| F Fund | 6.07% | -0.64% | 1.88% | Low-Moderate |
| C Fund | 15.11% | 16.61% | 13.62% | Moderate-High |
| S Fund | 15.24% | 11.68% | 9.22% | High |
| I Fund | 16.91% | 11.32% | 6.78% | High (Int'l) |
📈 TSP Growth Projector
Model how different fund allocations could grow your TSP balance over time.
Project Your TSP Growth →🔄 Lifecycle (L) Funds — Set It and (Mostly) Forget It
The L Funds are professionally managed portfolios made up of the Core Funds (G, F, C, S, I). They are designed to match your time horizon until retirement, automatically adjusting to become more conservative as you approach your target date.
"The higher the number of the L Fund, the higher the percentage of the more aggressive funds like the C, S, and I Funds. The lower the number (or L Income), the more conservative it is, holding more in G and F."
These are a good option if you prefer a simplified, hands-off approach to investing. But that doesn't mean you shouldn't understand what's under the hood.
⚠️ Common Mistake: Doubling Down Without Realizing It
A common error is investing in both L Funds and Core Funds without understanding the overlap. For example, an investor might put 50% in L 2050, then add another 20% to C, 20% to S, and 10% to I. Because the L 2050 already contains those funds, they've unintentionally created a much riskier portfolio than intended. If you're using an L Fund, consider letting it do its job.
How "Doubling Down" Unbalances Your Portfolio
✓ CORRECT: 100% in L 2050
✗ INCORRECT: 50% L 2050 + Core Funds
📆 L Income Fund
TARGET: Retirees & current withdrawers
Prioritizes preservation of capital and income. Very conservative.
Allocation: ~69% G, ~6% F, ~25% Stocks (C/S/I)
📆 L 2025 Fund
TARGET: Retiring within 2 years
Slightly more aggressive than L Income but still conservative. Will transition into L Income.
📆 L 2030 Fund
TARGET: Retiring in ~5 years
Balanced growth and preservation. Still has meaningful exposure to stocks.
📆 L 2035 Fund
TARGET: Retiring in ~10 years
Tilted more toward growth but begins the glide path to safety.
📆 L 2040 Fund
TARGET: Retiring in ~15 years
Higher stock allocation, growth-focused.
📆 L 2045 Fund
TARGET: Retiring in ~20 years
Maximizes growth for long-term investors. Heavy in C/S/I Funds.
📆 L 2050, 2055, 2060, 2065 Funds
TARGET: Retiring 25+ years from now
These are the most aggressive options, with the highest allocations to C, S, and I Funds. Designed for younger feds with time to weather market swings.
💸 TSP Withdrawals — Getting the Money Out
You've spent years, maybe decades, building your TSP balance. But now it's time for the hard part: using it. This section is for those nearing retirement who need to shift from a savings mindset to a spending strategy.
🛠️ Withdrawal Flexibility: The TSP Modernization Act Changed Everything
For years, TSP withdrawals were notoriously rigid. But in 2019, the TSP Modernization Act brought long-overdue upgrades. Now, after you leave federal service, you can:[Source]
- 🔄Multiple Partial Withdrawals: Take money out whenever you need it, not just once.
- 🗓️Custom Installments: Choose monthly, quarterly, or annual payments and change the amount anytime.
- ⏯️Stop and Restart: Pause your payments and resume them later as your needs change.
- 🏦Rollovers: Transfer some or all of your balance to an outside IRA (Traditional or Roth) at any time.
One important note: To access this full flexibility, you must be separated from federal service. If you're still employed, your only options are an age-based in-service withdrawal (if 59½ or older) or a TSP loan.
🧠 Why You Need a Withdrawal Strategy
If you don't make a choice when you retire, TSP will automatically place you into monthly payments based on IRS life expectancy tables. That's a generic default — not tailored to your tax situation, cash flow needs, or goals. Your goal isn't just to take money out — it's to do so intentionally.
🔁 Withdrawing Roth vs. Traditional TSP
One of the best features of the TSP Modernization Act is that you can now choose which balance to withdraw from. If your TSP is 70% Traditional and 30% Roth, you can specify that your withdrawal should come from "Traditional only" or "Roth only."[Source]
👉 This is a massive advantage for tax planning and is especially critical for Special Category Employees trying to avoid the Roth penalty trap before age 59½.
"I hear people say, 'I'm not touching my TSP.' I think that's silly. That's what it's there for... I'm using mine like a punching bag!"
— Retired ATF agent
If you delay withdrawals too long, you're not only missing out on the comfort your money could provide now — you're also setting yourself up for massive Required Minimum Distributions (RMDs) later, which can create a tax trap.
🧾 Required Minimum Distributions (RMDs)
Once you hit a certain age, the IRS requires you to start taking money out of your Traditional TSP — whether you want to or not. These forced withdrawals are called Required Minimum Distributions (RMDs).[Source]
- Born 1951–1959: RMDs begin at age 73
- Born 1960 or later: RMDs begin at age 75
Failing to take your RMD results in a steep penalty (25% of the amount you should have withdrawn). RMDs are taxable and can push you into higher tax brackets or trigger Medicare IRMAA surcharges.
🧮 What About TSP Annuities?
TSP offers a way to convert your balance into a MetLife-managed annuity — a guaranteed monthly check for life. Sounds safe, right? But very few people choose this. Let's break down why.
Why Most Feds Avoid the TSP Annuity
- 🚫You lose control of your money. Once you buy the annuity, your TSP balance is gone. You can't get it back.
- 🚫The money disappears when you die. Unless you pay extra for survivor options, there's nothing left for your heirs.
- 🚫Payments are often not inflation-adjusted. Your purchasing power shrinks every year.
- 🚫It's inflexible. You can't pause, increase, or reduce your payments. You're locked in.
Official Source: TSP Publication on Annuities
Most financial professionals agree that TSP annuities are outdated and inflexible. For most feds, managing your own withdrawals or rolling into a low-cost IRA offers better control, flexibility, and often better long-term results.
🎯 3-Pillar Retirement Calculator
Plan your complete retirement strategy including TSP, pension calculations, and Social Security projections.
Launch 3-Pillar Calculator →💳 TSP Loans — Borrowing From Yourself... But Not For Free
Taking a loan from your TSP might sound like a harmless way to access quick cash. After all, you're "borrowing from yourself," right? Well… sort of. But that phrase hides a lot of fine print. Let's unpack this clearly — because a TSP loan can either be a lifesaver or a long-term regret, depending on how it's used.
🏦 What Is a TSP Loan?
A TSP loan allows you to borrow money from your own TSP account while you're still employed. You repay the loan with interest, typically through automatic payroll deductions. You don't need a credit check. You don't pay a bank. And technically, the interest you pay goes back into your own account.
📂 Types of TSP Loans
There are two main types of TSP loans:[Source]
1. General Purpose Loan
- No documentation required
- Maximum term: 5 years
- Can be used for anything
2. Residential Loan
- Used to buy or build a primary residence
- Documentation required
- Maximum term: 15 years
💥 The Hidden Cost: Missed Growth
Here's the sneaky part of TSP loans — you're removing money from your account that could be growing. Even if you pay yourself interest, it usually doesn't come close to the gains you might've had in your C, S, or L Funds. This opportunity cost can be huge.
⚠️ Deemed Distributions = Taxes + Penalties
If your loan becomes delinquent or unpaid after leaving service, the outstanding balance is treated as a taxable distribution. That means you'll owe income tax on the amount, and if you're under age 59½, a 10% early withdrawal penalty may apply.[Source]
📚 TSP Loan FAQ — What People Really Ask
Yes — but there's a catch. You can continue repaying a TSP loan after you retire, but the process changes. When you're working, repayments are taken out of every paycheck (usually biweekly). After retirement, you no longer have payroll deductions — so you must switch to monthly payments, which are higher to keep pace with your original repayment schedule. If you miss a payment, your loan may become a deemed distribution, triggering taxes and possible penalties. Be sure to contact TSP directly and set up a repayment plan before separating.
Not really. The interest you pay yourself is often much lower than the compound growth your money could have been earning in the stock funds (C, S, I).
Upon separating, you have options. You can keep the loan and make direct monthly payments to the TSP, pay it off in full, or roll it over to an IRA or another employer plan. If you do nothing and fail to make payments, it will be declared a "deemed distribution," which means you'll owe income tax on the balance and potentially a 10% penalty if you're under 59½.
No. TSP loans are internal to your retirement account and are not reported to credit bureaus.