Understanding Your Federal Employee Benefits | Thrift Savings Plan

As a federal employee, you have access to a wide range of employee benefits that make your career in the public sector not only rewarding but also financially secure. One of the key components of your federal employee benefits package is the Thrift Savings Plan (TSP). The TSP is a retirement savings plan designed to help you build a nest egg for your future. In this blog post, we'll delve into the details of the Thrift Savings Plan, help you understand how it works, its benefits, and how to make the most of it to secure your financial future.

What Is the Thrift Savings Plan (TSP)?

The Thrift Savings Plan, often abbreviated as TSP, is a retirement savings and investment plan for federal employees and members of the uniformed services, such as the military. It operates in a manner similar to a 401(k) plan in the private sector, allowing participants to contribute a portion of their salary into the plan, which is then invested to grow over time.

Key Features of the TSP

1. Employee Contributions: As a federal employee, you can contribute a percentage of your salary to your TSP account on a pre-tax or after-tax (Roth) basis. The annual contribution limits are set by the IRS, and they typically increase each year.

2. Employer Matching: The federal government offers a matching contribution for your TSP contributions, up to 5% of your Basic Pay (FERS employees only). This matching contribution adds to your retirement savings, helping it grow faster. CSRS employees do not get a match.

3. Investment Options: TSP only offers 5 core investment funds. G, C, S, I and F funds. There are also Lifecycle funds that use a target date to adjust the 5 fund allocations automatically to apply traditional investment strategy (gets more conservative the closer you get to retirement). TSP opened up the Mutual Fund WIndow last year, but very few people are participating in it because it is complex and expensive. Limited fund options and lack of diversity are the main disadvantages of the TSP. 

4. Low Costs: TSP is known for its low administrative and investment expenses, but with that  low cost comes some limitations to how TSP functions.

5. Portability: If you leave federal service, you can keep your TSP account and continue to manage it or roll it over into another qualified retirement plan. You are also able to roll funds over while you are still working if you are 59.5 or older. These are called in-service transfers and are a very smart way to gain diversity in your investments as you get closer to retirement.  

6. Withdrawal Options: When you retire, you have several options for withdrawing funds from your TSP account, including periodic payments, life annuity, and lump-sum withdrawals/rollovers. 

Benefits of the TSP

1. Tax Advantages: Contributions to the traditional TSP are made on a pre-tax basis, reducing your taxable income in the present. Roth TSP contributions are made with after-tax dollars, but qualified withdrawals are tax-free. 

2. Compound Growth: By contributing consistently over time and benefiting from compound interest, your TSP account can potentially grow significantly, helping you build a substantial retirement nest egg.

3. Matching Contributions: The government's matching contribution effectively gives FERS employees "free money" for their retirement savings, making it an attractive benefit for federal employees.

Downsides to the TSP

1. Lack of options: The closer you get to retirement, the more the lack of fund options can negatively impact your TSP performance. There is only 1 safe fund option, and that is the G fund. The G fund does not have market risk, but it doesn’t provide enough upside potential alone. In-service rollovers are a great way to gain access to more diversification and safe money strategies for those who are 59.5 and older or separated from service. 

2. Limited Access: When you are retired, you are only allowed to make withdrawals from TSP once every 30 days (to keep administrative costs low).

3. RMD Rules: If you have money in your Roth TSP, they will automatically send you an RMD if you want it or not.

4. Beneficiary Limitations: If the beneficiary is anyone but a spouse, TSP does an automatic full payout. No other options. 

How to Maximize Your TSP

1. Start Early: The earlier you start contributing to your TSP, the more time your investments have to grow. Even small contributions can add up over time thanks to the power of compounding.

2. Contribute at Least Enough to Get the Match: Ensure you contribute enough to take full advantage of the government's matching contributions. Failing to do so is essentially leaving money on the table.

3. Diversify Your Investments: Consider your risk tolerance and diversify your TSP investments across different funds to spread risk and potentially increase returns.

4. Regularly Review and Adjust: Periodically review your TSP investments and contributions to make sure they align with your retirement goals. Adjust your strategy as needed.

5. Take advantage of 59.5 rollovers: Once you are eligible, take advantage of the opportunity to diversify your investments. 


The Thrift Savings Plan is a valuable asset in your federal employee benefits package. By understanding how it works, the benefits it offers, and how to make the most of it, you can take important steps toward securing your financial future in retirement. Whether you're a new federal employee or have been in federal service for years, it's never too late to make the most of your TSP and work toward a comfortable and financially secure retirement.
The Federal Retirement Specialists at Federal Employee Benefit Advisors have been serving federal employees since 2008. Our goal is to ensure that each of our clients feels fully informed and knowledgeable about their federal employee benefits, and can enter retirement comfortably and confidently. Please contact us for a free consultation, and we will be happy to assist you.

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