Thrift Savings Plan (TSP): Quick Guide

The Thrift Savings Plan (TSP) is the government's version of a 401(k) plan, offering federal employees and members of the uniformed services a tax-advantaged retirement savings and investment opportunity. This guide covers the essential aspects of TSP that federal employees need to understand to make informed investment decisions.

Introduction
TSP Fund Options
Contribution Types and Limits
Investment Strategies
Withdrawals and Loans
TSP Modernization
Resources for Federal Employees

Introduction

The Thrift Savings Plan (TSP) is a defined contribution plan established by Congress in 1986 as part of the Federal Employees' Retirement System (FERS). It provides federal employees and uniformed service members with retirement benefits similar to what many private corporations offer through 401(k) plans.

The TSP offers significant tax advantages, low administrative costs (with expense ratios consistently below 0.06%), and a simple, streamlined investment approach with a limited number of diversified fund options. Understanding how to strategically utilize the TSP can significantly enhance your retirement readiness.

Thrift Savings Plan (TSP) Fund Options

The TSP offers six core investment funds:

Fund	Description	Investment Style	Risk Level	Benchmark
G Fund	Government Securities Investment Fund	Short-term U.S. Treasury securities	Very low	Special rate set by law
F Fund	Fixed Income Index Investment Fund	U.S. government, corporate, and mortgage-backed bonds	Low to moderate	Bloomberg Barclays U.S. Aggregate Bond Index
C Fund	Common Stock Index Investment Fund	Large- and mid-cap U.S. stocks	Moderate to high	S&P 500 Index
S Fund	Small Capitalization Stock Index Fund	Small- to mid-cap U.S. stocks	High	Dow Jones U.S. Completion Total Stock Market Index
I Fund	International Stock Index Investment Fund	International stocks in developed markets	High	MSCI EAFE Index
L Funds	Lifecycle Funds	Mix of G, F, C, S, and I Funds	Varies based on target date	Composite of underlying funds

L Funds automatically adjust their asset allocation to become more conservative as the target retirement date approaches. Available L Funds include L Income, L 2025, L 2030, L 2035, L 2040, L 2045, L 2050, L 2055, L 2060, and L 2065.

Source: TSP.gov - Fund Comparison Matrix

Contribution Types and Limits

The TSP offers various contribution types:

Contribution Type	Description	Tax Treatment
Traditional	Pre-tax contributions	Taxes deferred until withdrawal
Roth	After-tax contributions	Tax-free withdrawals if qualified
Agency Automatic (1%)	Equivalent to 1% of basic pay for FERS employees	Pre-tax
Agency Matching	Up to 4% match of employee contributions for FERS	Matches tax treatment of employee contributions
Catch-up Contributions	Additional contributions for those 50+	Can be traditional or Roth

For 2025, the annual elective deferral limit is $23,500, with an additional $7,500 allowed for catch-up contributions. The total annual addition limit (including all sources) is $69,000.

Source: IRS - Retirement Topics - Contributions

Investment Strategies

Here are some common TSP investment strategies:

Strategy	Description	Best For
Age-Based	Use L Fund corresponding to expected retirement date	Those preferring automatic adjustment
Core & Explore	Core holdings in L Funds with tactical allocations to individual funds	Those wanting active management with safety
Lifecycle Custom	Build your own lifecycle portfolio	Those wanting more control than L Funds offer
G Fund Safety	Use G Fund during market volatility	Conservative investors or those near retirement
Maximum Growth	Higher allocations to C, S, and I Funds	Younger employees with long time horizons

The TSP offers an Interfund Transfer (IFT) feature that allows participants to redistribute existing account balances among the available funds, with no limit on the number of rebalancing transfers.

Source: TSP.gov - Managing Your Account

Withdrawals and Loans

The TSP offers several withdrawal options:

Option	Description	Tax Consequences
In-Service Age-Based	Available at age 59½ while still employed	Taxable for traditional, potentially tax-free for Roth
Hardship	For financial hardship while employed	Subject to income tax and possibly 10% early withdrawal penalty
Post-Separation	Various options after leaving federal service	Depends on withdrawal method and tax treatment of funds
Required Minimum Distributions (RMDs)	Must begin at age 73	Traditional portions subject to income tax

TSP also offers loan options:

General Purpose Loans (1-5 year term)
Residential Loans (1-15 year term)
Loan amounts: $1,000 minimum, maximum is the lesser of 50% of your vested account balance or $50,000 minus outstanding loan balances

Source: TSP.gov - Loan Basics

TSP Modernization

Recent updates to the TSP include:

Mutual Fund Window (allows investment in over 5,000 mutual funds outside the core offerings)
Enhanced online security features
Mobile app improvements
More flexible withdrawal options

These changes aim to provide participants with more investment choices and easier account management.

Source: Federal Retirement Thrift Investment Board

Resources for Federal Employees

For additional information and support:

TSP.gov - Official TSP website with calculators, forms, and educational materials
OPM Retirement Services - Information about federal retirement benefits
TSP YouTube Channel - Educational videos about TSP features and strategies
TSP ThriftLine - Direct phone support at 1-877-968-3778

This guide is intended for educational purposes only and does not constitute financial, legal, or tax advice. Federal employees should consult with qualified professionals regarding their specific circumstances.