5 Questions Newly-Hired Federal Employees Should Ask About the TSP

One of the first things that newly hired federal employees are encouraged to do is to contribute the maximum possible each year to the Thrift Savings Plan (TSP). The TSP is classified as a defined contribution plan, the equivalent of a 401(k) or 403(b) qualified retirement plan that many private companies offer to their employees.

When they are hired, new or rehired federal employees should ask themselves five basic questions about their participation in the TSP. Answering these questions can help them make the most of their TSP participation during the years they are in federal service and saving for their retirement. These five questions are presented,

How Are Employee Contributions Made to the TSP and What Are the Contribution Limits?

Employee contributions are always made via payroll deduction. Contributions can be made to the traditional TSP – deducted from an employee’s before-taxed salary and/or to the Roth TSP – deducted from an employee’s after-taxed salary.

The IRS each year sets TSP annual contribution limits. During calendar year 2026, all permanent employees (no matter their age) can contribute a maximum $24,500. Employees over age 49 as of 12/31/2026 can contribute a maximum $8,000 in “catch-up” contributions for a total maximum contribution of $32,500. Employees who are age 60, 61, 62 or 63 during 2026 (that is, employees born between January 1,1966 and December 31, 1969) can make “super catch-up” contribution maximum of $11,250, allowing those employees to make a maximum contribution of $35,750 during 2026.

Which Federal Employees Receive Agency TSP Matching Contributions and What Are the Vesting Requirements?

Only FERS-covered employees are eligible for agency matching TSP contributions. CSRS and CSRS-Offset employees are eligible to contribute to the TSP but they do not receive any agency matching contributions. FERS employees receive from their agency an automatic one percent of their annual salary (their adjusted basic salary as shown in Box 12c of their current Standard Form 50). The agency will also make a maximum matching contribution of four percent on the first five percent contribution that a FERS employee makes to the TSP.

Vesting refers to the process of allowing employees to own any contributions made by their employer over time, such as employer contributions to a retirement plan. There is a three-year vesting period for the TSP Agency Automatic one percent contribution. That means that a FERS employee must be in federal service for a minimum three years in order to keep the Agency Automatic one percent of SF 50 salary (and accrued earnings) should the employee leave federal service. Employees are immediately vested in Agency matching TSP contributions.
Which TSP Account: The Traditional TSP Account or the Roth TSP Account: Is More Appropriate?

Starting in 2013, the TSP started to offer the Roth TSP. Prior to that and continuing over the years since 1987, there is the traditional TSP. With the traditional TSP, all employee direct contributions are deducted from the employee’s gross (before-taxed) salary before federal income taxes and in most states, state income taxes are deducted. Earnings in the traditional TSP grow tax deferred. All traditional TSP account withdrawals are fully taxable. With the Roth TSP, all employee contributions are deducted from an employee’s after-taxed salary. Earnings in the Roth TSP grow at least tax deferred. All qualified Roth TSP withdrawals are completely tax-free.

The Roth TSP is particularly valuable to younger employees (in their twenties and thirties) who are probably in a lower marginal tax bracket now than they will be later in their careers. Another advantage of the Roth TSP is that a Roth TSP participant will not have to deal in the future with annual required minimum distributions (RMDs) that the traditional TSP is subject to. Traditional TSP RMDs can have an impact on a federal retiree’s federal and state income liabilities.

Because both the traditional TSP and the Roth TSP are available, employees can split their contributions between the two. This would give an employee the benefits of both tax scenarios during the employee’s working years and in retirement.

What Are the TSP Investment Options?

The TSP offers TSP participants three approaches to investing in order to help meet the participant’s retirement goals. These approaches are:

‧ Investing in individual TSP funds. TSP participants can choose their own mix of TSP investment funds – the G, F, C, S and I funds. These funds include a short-term US Treasury securities fund and a mix of index funds consisting of stocks and bonds.

‧ Lifecycle Funds (L Funds). Each of the 10 Lifecycle Funds is a diversified mix of the five individual TSP funds. They are professionally designed to allow a TSP participant to invest their entire TSP portfolio in a single L Fund and, most importantly, get the best expected return for the amount of expected risk that is appropriate for the TSP participant. The amount of expected risk is based primarily on when the TSP participant will need to start withdrawing from their TSP account.

‧ Mutual fund window. If a TSP participant meets certain eligibility requirements and is willing to pay the necessary fees, then the participant can choose to invest a portion of their TSP savings in their choice of available mutual funds through the “Mutual fund window”.

TSP participants can obtain basic information about how to invest their retirement savings in the TSP by reading, “TSP Investing Strategies.”

What Are the TSP Annual Fees?

When it comes to annual fees, the TSP most probably has the lowest annual fees charged by administrators of qualified retirement plans such as 401(k), 403(b) and 457 retirement plans. Administrators of qualified retirement plans charge an annual fee to cover investment management and administrative expenses. While annual fees (computed as a percentage of the assets being managed and administered) may appear small to the average qualified retirement plan participant, the cumulative amount of these fees could be into six digits. The result of high annual fees is long-term diminished investment returns. This is because retirement plan participants lose not only the annual fees but also the long-term growth that the fees could have generated . Annual plan fees typically range from 0.25 percent to one percent of total assets in the account. The TSP annual fees are closer to 0.25 percent. The lowest annual fee percentage is associated with the TSP “core” funds (the C, S, I, F and G funds) because these funds are index mutual funds which are usually lower than actively managed funds.

If TSP participants are concerned with the annual fees they are paying through the TSP, they are advised not to invest in the Mutual fund window. There are additional annual fees associated with the TSP Mutual fund window. For more information about the TSP Mutual fund window, TSP participants should download this guide on TSP.gov.