By Zach Hogan
Federal workers’ exceptional contributions to the American public make them unique in the eyes of the federal government. To better prepare federal employees for retirement, the government offers an alternative to traditional retirement and investment accounts: the thrift savings plan (TSP).
What distinguishes thrift savings plans from “civilian” retirement accounts? Let’s explore how they work, how contributions are managed, and the options federal employees have with TSPs.
How a Thrift Savings Plan Works
Thrift savings plans apply to federal employees covered by the Federal Employees’ Retirement System (FERS) and the Civil Service Retirement System (CSRS). Structurally similar to 401(k) plans, TSPs act as supplements to annuities for both groups, along with Social Security and standard military retired pay, respectively. TSPs are managed by the Federal Retirement Thrift Investment Board.
Employees and service people must be covered by one of those two systems to qualify for a thrift savings plan. They must be employed full- or part-time or actively serving in the military. They must also be in a position to contribute to their TSPs.
Participants have several fund options for investing in a TSP. Like private retirement account holders, TSP participants can choose to invest in tax-deferred traditional IRAs or tax-free Roth plans. Participants can also invest in Lifecycle (L) Funds, diverse mixes of five of the funds that are actively managed.
The biggest difference between TSPs and private savings plans is administrative costs. TSPs have exceptionally low fees, allowing federal employees to keep more earnings and maximize investment returns.
How Do Contributions Work?
Automatic payroll deductions fund federal employees’ TSPs. Those covered by FERS deduct 5% of their basic salaries to their TSPs every month if they were hired after October 1, 2020. Employees who started working between August 1, 2010, and September 30, 2020, deduct 3%. Employees in the FERS also get matching employer contributions, effectively doubling their investment.
As with private retirement plans, the IRS imposes limits on annual contributions federal employees make to TSPs. In 2025, the annual contribution limit is $23,500. Employees over 50 who need to catch up can contribute $7,500 more; those aged 60 to 63 can fund up to $11,250 to get on track.
Including their own contributions and employer matching, federal employees can make annual additions of $70,000 to their TSPs. This limit does not include catch-up contributions, meaning the ultimate annual limits can increase to $77,500 or $81,250, depending on age and station.
New employees covered by FERS are automatically enrolled in their TSPs at the 5% deduction rate. The first 3% is matched by your employer or the agency that represents you. Fifty percent of the remaining 2% is matched as well.
What Are My TSP Plan Options?
The government offers thrift savings plans in several forms. Basic fund options include:
- G Fund for government securities like notes and bonds
- F Fund for fixed-income securities that match the U.S. Aggregate Bond Index
- C Fund for common stock investments matching the S&P 500
- S Fund for small-cap stocks
- I Fund for international stocks matching the MSCI EAFE index
Federal employees also have 11 different Lifecycle (L) Funds to choose from. Each L Fund contains a different mix of those five basic funds. They reflect the concept of diversification of assets, a strategy for mitigating investment risks.
Maximize Your Thrift Saving Plan With RetireWise
TSPs are convenient, low-cost structures that allow federal workers to invest in profitable commodities with low maintenance on their end. With all the available configurations, federal workers can craft TSPs that fit their financial goals and current situations.
If you’re a federal worker surveying your TSP options, RetireWise Tax and Wealth Advisors, Inc. can be a valuable partner. We focus on finding investment opportunities that may be new to our clients and guiding their decision-making.
Using our custom-tailored Your RetireWise Path™ planning process, we build three distinct segments for clients. These segments lay out strategies for right now, a few years down the road, and over the long term. Our approach gives clients the tools they need to respond to immediate concerns while examining the best ways to generate predictable investment income. With the right tools in place, retirement accounts can grow over time, even when faced with short-term fluctuations that pop up in the market.
Taking the next step on your path toward a confident and joy-filled retirement is easy. To start building your path or updating an existing plan to account for TSPs, call (785) 228-1234 or contact us online here.
About Zach
Zach Hogan is a retirement planner at RetireWise Tax and Wealth Advisors, Inc., serving clients in Topeka, Kansas. His passion for financial planning stems from a desire to help people enjoy lasting financial stability and confidence. Zach takes a client-first approach, focusing on building trusting relationships and developing holistic financial plans that support each client’s unique goals and dreams.
Zach’s journey into financial services began in college, where a mentor sparked his interest in finance and investing. After earning his finance degree from the University of Kansas, he worked as a business consultant for financial advisors, ultimately inspiring him to become an advisor himself. Today, he draws on those experiences to help clients navigate retirement planning with clarity and purpose.
Outside of work, Zach enjoys hiking with his dog, tackling DIY car and home projects, and watching sports. Health and wellness are important parts of his life, and he brings that same balanced, thoughtful approach to the work he does for his clients.