The Best Ways to Take Advantage of Government TSP Matching

Everything You Need to Know About the Federal Government’s Thrift Savings Plan

Congrats! You’re under consideration for a job for the federal government. Or maybe you already have one.

You’ve heard great things about the benefits. But you wonder, how good is the federal government TSP matching? Is the Thrift Savings Plan (TSP) as great as some suggest?

Here’s a reality: federal government jobs often don’t pay as well as private sector jobs. According to an April 2024 report, some federal workers earned about 29% less on average than their private-sector counterparts.

Yet, the federal government may make up part of the shortcoming with better benefits.

2025 Update: Will the Trump Administration Make Changes to Your Government TSP Account?

The recently formed Department of Government Efficiency (DOGE) has embarked on a plan to “dismantle government bureaucracy” and “cut wasteful expenditures.”

For example, DOGE has cut contracts within the General Services Administration, ended certain federal leases, and eliminated programs that the U.S. Agency for International Development (USAID) oversaw.

Will DOGE leader Elon Musk target the Federal Thrift Savings Program next?

Precedent for this type of action under Donald Trump exists. In 2020, Trump “nominated replacements for three of the five members of the board that governs the federal government’s 401(k)-style retirement savings program.”

For now, the TSP website touts that, “If you’re eligible for matching, when you contribute 5% of your pay, your agency or service contributes a total of 5% too.”

And neither Trump nor Musk have yet marked the TSP matching benefit for possible reduction. So at this stage, TSP participants are mainly focused on how the administration’s policies will impact the growth of their existing and future TSP contributions.

What is the Federal Government Thrift Savings Plan (TSP)?

You can learn all about the Thrift Savings Plan at TSP.gov. In short, though, the TSP is a retirement plan. If you’re a federal employee or uniformed service member, you can save and invest through the TSP.

In many cases, government TSP matching is superior to many private-sector 401(k) plans. The investment fees are often lower than many 401(k) plans, too.

And listen to this: the federal government automatically credits 1% of your salary into your TSP. Even if you don’t contribute any money yourself!

This credit might not seem like a lot in the short term. Over time, though, any small amounts will compound. Especially if you start working for the federal government early in your career.

You may feel tempted at times to leave the public sector for a better salary. You might want to consider, though, what you stand to lose for later in your life. Because the TSP can set you up nicely for the retirement you have in mind.

Sound good to you? Let’s learn a little more.

Differences Between the Government TSP and the Private Sector 401(k)

The TSP functions much like a traditional 401(k) program. Yet, the TSP includes some important differences. Here’s six ways in which the federal government’s TSP may differ from private employers:

1. If you began or rejoined federal service as of October 2020, 5% of your annual salary is automatically deducted and invested in the TSP. That is, unless you decide to opt out, increase your contribution, or reach your IRS limit. Private-sector retirement programs generally do not automate retirement savings.

2. The federal government automatically contributes 1% of an employee’s annual salary to the TSP. This is known as Agency / Service Automatic (1%) Contributions.

3. Government TSP matching can be as much as 5% of your annual salary. Private sector employers, meanwhile, generally match up to 3% of your salary.

4. TSP investment fees are lower, averaging around 0.05%. In the private sector, those investment fees may be as high as 2.5% to 5%. And fee-only financial advisors love minimizing your investment fees!`

5. With a TSP, you can only receive disbursements monthly, quarterly or annually once you reach retirement age. If you request it, TSP will also average out your payments based on your life expectancy. With a traditional 401 (k), you can deduct money as needed as long as you over the age of 59 ½, which is the legal retirement age.

6. Likes most retirement programs, you can begin to withdraw from your TSP at 59 ½ without paying penalties. However, if you retire age 55, TSP will waive the 10% early withdrawal penalty. If you qualify under Federal Employees Retirement System (FERS) special provisions, this age drops to 50.

Similarities Between the Government TSP and the Private Sector 401(k)

Now let’s look at three ways in which the federal government’s TSP looks similar to many private employers:

1. The annual contribution limit for both types of retirement accounts as set by the IRS is $22,500 for 2023 (up from $20,500 in 2022).

2. Employees aged 50 and over can make annual catch-up contributions of $7,500 in 2023 (up from $6,500 in 2022) to both types of accounts.

3. Payments from the balance of both types of accounts are taxable income. Keep in mind that this income is subject to federal, state, and local taxes.

The Roth TSP Option

The Roth TSP functions much in the same way as a Roth IRA.

With the Roth TSP, federal government employees contribute income that has already been taxed into the account. Then let’s fast forward to your retirement. When you withdraw the money, neither the income nor the qualified earnings in the account are subject to federal taxes.

This can boost your retirement resources in a significant way. Especially if you’ve contributed consistently over the years.

If you’d like, you can choose to split your contributions between the TSP and the Roth TSP. Keep in mind, however, that any government matching contributions must be placed in the traditional TSP. Which means that your money will grow faster in a traditional TSP.

For example, you have an option to earn the maximum match in your traditional TSP. Then you can direct any additional contributions to your Roth TSP account.

During retirement, that non-taxed income from a Roth TSP can ease your money management decisions. Unlike pre-tax accounts, your Roth TSP or Roth IRA don’t require distributions staring at a certain age.

Who Qualifies for the Federal Government TSP?

On January 1, 1987, the Federal Employees Retirement System (FERS) was put into place. The government designed FERS to conform federal retirement plans to those in the private sector.

FERS provides what was formerly known as a pension to federal employees. It is composed of a benefits plan, Social Security payments, and disbursements from the TSP.

As a result, most federal employees are eligible to participate in the TSP, including government TSP matching, if they are actively employed as a civilian employee or member of the uniformed services.

Even so, let’s review a few specific employment statuses within the system:

• All FERS employees are automatically enrolled in the TSP. This means that most hires in the federal government after 1985 are eligible to participate in the program.
• In addition, Civil Service Retirement System employees (CSRS) generally were hired before 1984. They also qualify.
• And finally, active duty or Ready Reserve members of the uniformed services qualify.

In total, 6.2 million Americans hold TSP accounts.

So, who doesn’t qualify for the TSP?

Some independent contractors working for the federal government, for example. And, of course, people who don’t currently work for the federal government. If you think that you may qualify, but are not sure, ask your supervisor.

What Can I Invest In Within the Federal Government TSP?

So you’ve contributed to your TSP account. And you’ve taken advantage of government TSP matching. What are your options for investing your money?

One nice thing about the TSP is its simplicity. You only have six fund options, along with a mutual fund option (which the government added in 2022). The average private-sector 401(k) generally has between 8 and 12 options, and sometimes many more.

The six individual TSP investment options include:

• G Fund (Government Securities Investment)
• F Fund (Fixed-Income Index Investment)
• C Fund (Common-Stock Index Investment)
• S Fund (Small-Capitalization Stock Index Investment)
• I Fund (International Stock Index Investment)
• L Fund (Lifecycle Funds)

Each fund focuses on a specific type of investment:

• The G Fund generates returns above those of short-term U.S. Treasury securities.
• The C Fund matches the performance of the Standard and Poor’s 500 (S&P 500) Index.
• The I Fund matches the performance of the MSCI EAFE (Europe, Australasia, Far East) Index.
• The S Fund matches the performance of the Dow Jones U.S. Completion Total Stock Market Index.
• The F Fund matches the performance of the Bloomberg U.S. Aggregate Bond Index.

The L (Lifecycle) fund invests in a mixture of the five funds listed above. Functioning much like a target date fund, the investments are adjusted every quarter to shift from higher risk and reward to lower risk and reward as you get closer to retirement age.

This may be a great option if you don’t know much about investments. You also may favor this approach if you just want your retirement account to do the ongoing “maintenance” for you.

Approach The TSP Mutual Fund Option With Caution

If you want more investment flexibility, you can also choose to invest a portion of your TSP funds into a mutual fund window.

A mutual fund window pools money from investors into securities such as stocks, bonds, and short-term debt. Mutual funds are companies. Investors buy shares in them just like people buy stock in other companies. Then, your returns equal your share of the income the mutual fund generates.

A strong note of caution: you pay additional fees for investing in the mutual fund pool. You also must have at least $40,000 in your TSP account. And then you must make an initial transfer of $10,000. At no time are you allowed to invest more than 25% of your TSP balance in a mutual fund window.

If you’re interested in learning more, the TSP has a helpful tool that allows you to compare up to three of its fund options at a time.

What Happens to Your TSP if You Leave Your Job or Experience a Government Shutdown?

How Leaving Your Federal Government Job Impacts Your TSP

At some point, you may leave federal service. For example, you may retire from the military or chose a job in the private sector. At that point, you no longer may make employee contributions to your TSP account.

However, as long as your account balance is more than $200, your account can stay active. You still can still change your investment mix, transfer eligible money into your account and accrue earnings. And you still can rely on the stability of a federally-run program.

Another option is to move your account balance to a traditional IRA. Or to the 401(k) offered by your new employer. However, you also may want to pay attention to the future costs associated with this change. Depending on your employer, you may pay higher investment fees for accounts not associated with the federal government.

Finally, if you ever return to government service, you can easily re-enroll in the TSP, and roll over money from other retirement accounts.

How a Federal Government Shutdown Impacts Your TSP

Even if you don’t intend to leave your federal position, you may experience a government shutdown during your employment period.

What happens to your TSP accounts during a government shutdown?

In the past, the Thrift Savings Plan board has said that the TSP will operate normally during a shutdown. And in addition, the board also alluded to offering “some relief to participants who are affected.”

For example, if a government shutdown forces you to miss a loan payment, the TSP will not place you in default. Or, if you’re furloughed, “the TSP automatically pauses paycheck deductions for loans.”

Is the TSP a Good Option for Saving for Retirement?

The short answer is: yes. The TSP is a pretty strong option compared to many workplace retirement plans.

If you’re currently a federal employee who has access to the TSP, you likely can consider it one of your best options for saving for retirement.

Recall that federal government TSP matching may be up to 5% of your salary. And you’ll also pay much lower-than-average investment fees on the account. Your investment options will be robust and refreshingly straightforward.

A final thing to consider is that you can take out loans from your TSP at low interest rates. As of April 2024, the interest rate on a TSP loan is 4.375%.

Some people use these loans to make down payments on houses or to start businesses. Over time, you repay the loan with interest back into your account. But the interest rate never changes over the life of the loan.

And if you’re a federal employee, you can deduct the payments directly from your paycheck. The minimum loan is $1,000, and the highest amount you can deduct is $50,000.

Where Can I Find the Federal TSP Login Website?

You can access the federal TSP login page using the following link: https://www.tsp.gov/login.

If you have questions about the retirement account’s benefits (including the strong government TSP matching program), contact your human resources manager.

You also can download the TSP mobile app. The app has a virtual assistant, called Ava, that offers help with your TSP account around the clock.

What To Do If You Experience Issues with the TSP Website

The about the TSP’s two-year-old online system. A few years ago, the TSP board launched a new online system “to modernize and improve users’ access to their federal retirement savings.”

The GAO report added, “Soon after the new system launched, TSP participants experienced a variety of issues with managing their account and completing transactions.” These issues included:

• Initial account setup issues
• Missing beneficiary data
• Trouble completing rollover requests and receiving required minimum distributions
• And difficulty in getting adequate assistance from the ThriftLine, TSP’s customer service line.

Government contractors have addressed these issues since the rollout. But you may want to report any similar occurrences to ThriftLine and your HR representative.

Your Questions About Government TSP Matching

What questions do you still have about the federal government’s Thrift Savings Plan?

I encourage you to send me an e-mail at kevin@illumintfc.com with anything else you would like to know. You also can subscribe to my finance podcast for Millennials to learn more how you can invest in your family’s future.

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About Kevin Mahoney, CFP®

Hi, I’m Kevin. I’m the founder of Illumint and a financial advisor in Washington, DC. I specialize in financial planning for Millennials like you. As a Millennial father and Certified Financial Planner™, I empower our peers to invest with confidence and flexibility. If you’re new to Illumint, I’m glad you’re here – you now have access to the leading college finance blog for Millennial parents. I encourage you to read, watch, or listen to the ideas I share about exchanging your money for memories with your kids. And then when you’re ready, please send me your thoughts & questions!