The Thrift Savings Plan (TSP) is meant to be a huge source of retirement income for federal employees. The FERS retirement system is based on three different sources of income:
- FERS annuity
- Social Security
- Thrift Savings Plan
As you can see, the TSP is supposed to make up a third of retirement income for FERS employees. The TSP also happens to be the only one of the three that employees have 100% control of, meaning feds can invest the dollars in TSP however they choose. Because the TSP is so important for providing retirement income, the most common question I receive is “what should I do with my TSP?” It is impossible to determine a “magic allocation” that everyone should invest in, however, I have put together the following list to help maximize your TSP in your working years.
How to get the most from your TSP contributions
1. Understand your matching. FERS employees receive an automatic 1% agency contribution plus matching on their first 5% of contributions. The bottom line is if you put 5% in your TSP then the government is going to put 5% in. This is a MUST for FERS employees. New employees are automatically enrolled at 5%, but check that you haven’t dropped below it.
2. Increase your contributions each year. Most people don’t start contributing the maximum their first day on the job, therefore it is important to increase your contributions as you start to make more. Every time you receive a pay raise or a step increase you should consider increasing your TSP contributions. A good goal would be to increase your contributions by 1% a year until you are maxing it out. Before you max out, make sure you have looked at the one account I would fund before maxing your TSP.
3. Review your pay stub. Your Leave and Earnings Statement (LES) will show how much is deducted from your paycheck and put in TSP. I worked with someone who thought he was putting in the maximum regular contribution as well as the catch-up contribution. Reviewing his LES showed he wasn’t doing the catch-up contribution. Remember to review your LES to verify your contributions. For 2026, the limits are:
- Regular (elective deferral) limit: $24,500
- Catch-up, age 50 and older: an extra $8,000
- Catch-up, ages 60 to 63: an extra $11,250 instead of $8,000
Starting in 2026, if your FICA wages in 2025 were more than $150,000, your 2026 catch-up contributions must go into Roth TSP. Check your LES to make sure the catch-up is coming out the way you expect.
4. Save early. Hardly a week goes by that I don’t talk to someone in their 50’s that tells me they are going to increase their contributions when a certain event happens (kids out of college, house paid off, cars paid off, etc.). While increasing retirement savings always helps, the best time to invest is right now, the earlier the better! The time value of savings will have a huge impact on your TSP over your lifetime. If you invest $5,000 today and make 10% a year for 30 years it will be worth over $87,000. If the same money is invested for 5 years and makes 10% it will be worth just over $8,000. BIG DIFFERENCE!
5. Put money in Roth TSP. Contributions to Roth TSP are made with after tax dollars, and qualified distributions are taken income tax free. This means that everything in Roth TSP is yours, which is the opposite of traditional TSP that you pay income taxes on. Therefore, if Roth TSP and traditional TSP have equal balances, Roth TSP has more value due to being income tax free. Roth TSP also no longer has required minimum distributions (as of 2024), and since January 28, 2026 you can convert traditional TSP dollars to Roth inside the plan. See should you invest in Roth TSP for how to decide.
How to invest your TSP without hurting yourself
6. It’s not a game. Seriously, don’t play with it! It has been proven time and time again that investors make the worst decisions at the wrong times. The best way for most people to invest their TSP is to set an allocation and rarely change it. By “rarely,” I mean that maybe you should review and rebalance your TSP once a year. Or maybe you should look at changing your allocation if you have a life event such as a death in the family or divorce. The one thing you don’t want to do is change investments based on a hunch, what your colleague at the water cooler told you to do, or because you just lost 40%. I explain why in Should You Move Your TSP to the G Fund When the Market Drops?.
7. Understand your funds. You have five individual funds in your TSP (G, F, C, S and I) along with the Lifecycle (L) funds. Take a little time to become familiar with the funds and the risks associated with each. The Lifecycle funds are simply a combination of the five individual funds that become more conservative every quarter. Do you want to be more conservative every quarter? If so then they may be a good fit; I cover the details in the good and bad of Lifecycle funds. The TSP also has a mutual fund window, but it comes with extra fees on top of the funds’ own expenses, so most people are better served by the core funds.
8. Don’t borrow from your TSP. Much could be said about this subject but to keep it simple, if you borrow money from your TSP then that money is no longer working for you, which defeats the purpose of retirement savings. So…. try your best not to do it. Here are four reasons not to take a TSP loan.
9. Hire a professional. One of the most important things an advisor can do is manage investor behavior. By investor behavior I mean preventing investors from making terrible decisions. In nearly every seminar I did in 2009 I had at least one person tell me that they just moved all of their money into the G fund because they just couldn’t handle any more losses. If an advisor can coach people not to make irreversible mistakes like this, he just might be worth it. Just make sure you know how different advisors are paid.
Making the most of TSP is essential to a healthy FERS retirement. If you are near retirement and looking for a partner to help you on your retirement journey, take a look at how we work with federal employees or let’s talk.
Brad Bobb, CFP®, Bobb Financial, is an expert in federal benefits and retirement planning for federal employees.
This article is for educational purposes only and is not individualized financial advice. Figures are illustrative.