How much should I put in my thrift savings plan?

A Thrift savings plan (TSP) allows federal employees to increase their financial security in retirement by saving part of their income through payroll deductions. Apart from employee contributions, TSP participants also receive agency/service matching contributions up to a specific limit to boost their retirement savings.

You should contribute a minimum of 5% of your basic pay each pay period; this is the percentage needed to obtain the full agency matching contribution. When you contribute at least 5% of your basic pay to TSP, you will receive 3% dollar-for-dollar matching, 1% for the next 2% of basic pay, and 1% automatic contribution, for a total of 5% agency matching. Cumulatively, you will be contributing 10% of your basic pay to your TSP account i.e. 5% employee contribution and 5% agency contributions.

Who is eligible to participate in TSP?

The Thrift Savings Plan (TSP) is a retirement savings plan for federal government employees, and it allows participants to set aside a portion of their regular income for their long-term savings. An employee must be enrolled in an approved retirement system like the FERS or CSRS.

Participants can also be members of the uniformed services who participate in the Blended Retirement System (BRS). Uniformed services comprise the Army, Navy, Marine Corps, Air Force, or Coast Guard, and they are automatically enrolled in TSP after completing 60 days of service. 

How much should you put in a thrift savings plan?

If you began or rejoined federal service after October 1, 2020, your agency will automatically deduct 5% of your base pay from your paycheck and deposit these contributions to your TSP account. The agency/service will contribute an automatic 1% contribution regardless of the amount contributed; participants will still receive the 1% contribution even if they did not contribute to the plan.

The TSP provides matching contributions depending on the employee contributions. There is a 3% dollar-for-dollar matching on your pay, and 50 cents on the dollar for the next 2% of pay contributed to the TSP account. Therefore, 5% of your basic pay is the absolute minimum you should contribute to collect the full agency matching contributions. If you are contributing less than 5% of your basic pay, you are missing out on free money.

You can also elect to contribute more than 5% of your basic pay to your TSP account, as long as the contributions do not exceed the IRS deferral limit. If you are in the early years of your career, you could save 10 to 15 percent, including the agency matching contribution.

2023 contribution limits

The Internal Revenue Service set the elective deferral limit for 2023 to $22,500, and this limit includes the combined total of tax-deferred traditional TSP and Roth TSP contributions. If you wish to collect the agency matching contributions, you should limit your bi-weekly contributions to $866 ($22,500/26=$865.38) to maximize your contributions for 2023.

If you are age 50 or older, you can contribute an additional $7,500 in catch-up contributions, for a total of $30,000 in 2023. You will need to contribute an extra $289 ($7,500/26=$288.47) in catch-up contributions every pay period.

To maximize the catch-up contribution amount of $7,500, eligible participants will need to contribute an additional $289 ($7,500/26=$288.47). If you want to maximize the contributions for both the elective deferral limit and the catch-up contribution, you will need to make an election of $1,155 in bi-weekly contributions. The election must be made by pay period 26 of 2022, for the contributions to take effect in the first pay period of 2023.

How to change your TSP contributions

You may consider changing your TSP contributions at any time if you are not contributing enough to receive the full agency matching. You can change your contribution amount or percentage using your agency’s or service’s payroll system. Civilian payroll systems may include Employee Express, GRS, myPay, and NFC EPP, while unformed services payroll systems may include myPay or Direct Access.

Traditional TSP vs. Roth TSP: Which is better?

A traditional TSP account is funded with pre-tax contributions, and the contributions made lower your taxable income now and the money grows tax-deferred until when it is withdrawn in retirement. When you take a distribution from your traditional TSP, you will owe taxes on the withdrawal at your tax bracket rate.

With a Roth TSP, you pay taxes when making contributions to your TSP account. Since taxes have been taken out when making contributions, you won’t pay taxes when you take out your contributions and any qualified earnings. Roth TSP earnings are considered qualified if you are at least 59 ½ and five years have passed since when you made your first Roth TSP contribution.

You can also have a mix of both Roth and traditional TSP, and split contributions to both TSP accounts. If you receive automatic contributions and matching contributions from your agency/service, these contributions will be deposited in your traditional TSP balance.

What TSP Funds should you invest in?

TSP provides participants with a variety of investment options ranging from US Treasury securities to index funds. The following are the different investment options available in a TSP:

The Government Securities Investment Fund (G-fund)

The G fund invests in US Treasury Securities that are specially issued to the TSP. It is the safest TSP fund since there is no risk of losing principal.

The Fixed Income Index Investment Fund (F Fund)

This fund invests in bonds, and it tracks the Barclays Capital US Aggregate Bond Index. The F-fund is relatively safe, but it comes with market risk, inflation risk, and credit default risk.

The Common Stock Index Find (C-fund)

This fund invests in stocks, and it tracks the Standard & Poor’s 500 index, a market index that tracks 500 mid-sized and large US companies.

The Small Capitalization Stock Index Fund (S Fund)

This fund invests in small and mid-cap stocks, and it tracks the Dow Jones US Completion Total Stock Market Index.

International Stock Index Investment Fund (I Fund)

This fund invests internationally in non-US stocks, and it tracks the Morgan Stanley Capital International Europe, Austrasia, and Far East Index.

Lifecycle Fund (L Fund)

The L-fund is also known as the target retirement fund, and it consists of an allocation of the other five funds. This fund automatically shifts the allocations of investments from aggressive to conservative investments as you approach your retirement date.