How to Invest in the Thrift Savings Plan (TSP)

Get the Most Out of Your TSP Account

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Whether you're just now enrolling in the Thrift Savings Plan (TSP) or you're looking for tips on investing in the TSP funds, learning how the plan works and how it benefits participants is a wise place to start.

The world of employer-sponsored retirement plans is shifting away from defined benefit plans, or what most people refer to as pensions, and toward defined contribution plans, such as the 401(k).

Even the federal government has moved away from traditional pensions to shift responsibility for retirement savings to employees. For this reason, it is more important than ever for federal employees to understand how to invest in a TSP.

TSP Investing Basics

If you're familiar with 401(k) plans, you know the basics of the TSP: It's a tax-advantaged retirement savings vehicle offered through an employer, in this case, the federal government. Therefore, federal employees, such as FBI agents, members of Congress, and service members of the U.S. Army, Navy, Air Force, Marine Corps, and Coast Guard, can take advantage of the TSP.

Contributions are based upon a percentage of pay and are made through payroll and can be on a pre-tax or after-tax (Roth) basis. If you started or resumed federal service on or after Oct. 1, 2020, you were enrolled in the TSP at a contribution rate of 5% of your basic salary. If you started federal service between Aug. 1, 2010, and Sept. 30, 2020, you were automatically enrolled at 3%.

However, there is a maximum TSP contribution dollar amount mandated by Internal Revenue Code. This limit for TSP contributions is $19,500 in 2021, unchanged from 2020. You can set aside an additional $6,500 in catch-up contributions if you're 50 or older. One exception to this maximum contribution is military service members in combat zones. In this case, the maximum contribution is $58,000 (up from $57,000 in 2020).

Traditional vs. Roth TSP Investing

Generally, pre-tax (traditional) contributions are best for people who expect to be in a lower federal income tax bracket in retirement. Deferring (putting off until later) taxes is a good idea because you can avoid paying higher taxes now but pay later, at a lower tax rate.

Traditional contributions may be the best fit for mid-career service members because they may be in a tax bracket that is higher now than it will be during retirement, when they will presumably begin making withdrawals.

Roth contributions make sense for people who expect to be in a higher tax bracket in their retirement years. In this case, it's best to include income in taxes now at a lower rate and avoid paying taxes later at a higher rate.

Roth contributions are generally best for younger service members because they may be in a lower tax bracket now than they will be later in their careers.

No matter how the contributions are made, pre-tax or after-tax, the investments within the TSP grow tax-deferred, which means participants in the TSP do not pay income tax on your contributions, any federal agency contributions, or gains while the money stays in the account. Pre-tax contributions are taxed when withdrawn, and after-tax contributions are not taxed again at withdrawal, if certain conditions are met.

How to Enroll in the TSP

Enrolling in the TSP is automatic if you joined federal service on or after Oct. 1, 2020. It can also be done online via your federal agency's electronic payroll system ( for uniformed service members, for example). Finally, you can enroll by paper form.

If you're a new employee, obtain information about the TSP online at This is also where participants can establish an account to track the performance of their TSP and associated funds, as well as make investment changes.

TSP Matching Funds

Like most 401(k) plans, TSP participants can receive matching contributions from your agency or service in addition to their own. An employer match is just as it sounds: when you contribute dollars, the employer does, too. The matching formula is a bit complex, but it's a generous one. Government employees receive an automatic contribution of 1% of pay. From there, matching funds can be received on contributions up to 5% of pay. Here's how the TSP match formula works:

  • Automatic 1% agency contribution
  • Dollar-for-dollar match on the first 3% of employee contributions
  • $0.50 for every dollar on the next 2% of employee contributions

To simplify the TSP match formula, a government employee or military service member can maximize the TSP match by contributing at least 5% of base pay. This will ensure the maximum match of 5% from the government.

Contribute at least 5% of your pay to get another 5% in matching contributions from the government.

Of course, as long as TSP participants don't surpass the annual contribution limit per year, they may contribute much more than 5% of their pay. For example, if you contribute 10% of your pay, the government match of 5% will bring your total annual contribution to 15%, which is a good goal to reach to ensure healthy retirement savings goals.

Choosing the Best TSP Funds to Invest In

There are essentially two decisions to make when enrolling in the TSP and similar retirement plans: how much to contribute and how to invest your savings.

The TSP offers several funds to choose from:

  • G Fund: This fund invests in short-term U.S. Treasury securities that are specially issued to the TSP, and is the safest investment choice in the plan. There is no risk of losing principal; however, the fund offers a means of earning interest that can keep up with inflation. There is no risk of losing principal; however, this fund offers a means of earning interest that can help an investor keep up with inflation, but not much more in the current market environment of low-interest rates. Thus, an allocation of 100% to the G Fund may be too conservative for most investors.
  • F Fund: This fund invests in bonds and it seeks to passively track the Barclays Capital U.S. Aggregate Bond Index, which covers the total bond market in the U.S. Although bonds are relatively safe investments, they still come with market risk, credit default risk, and inflation risk. That said, investors can use the F Fund in combination with stock funds like the C, S, and I funds to reduce overall portfolio volatility.
  • C Fund: This fund invests in stocks and is an S&P 500 Index fund, which means that it passively tracks the Standard & Poor's 500 Index, a broad market index that covers about 500 mid-sized and large U.S. companies by market capitalization. The C Fund is appropriate for long-term investors who want to earn returns significantly ahead of inflation and are willing to endure fluctuations in their account value.
  • S Fund: This fund invests in small- and mid-cap stocks by passively tracking the Dow Jones U.S. Completion Total Stock Market Index, which consists of U.S. stocks not in the S&P 500 index. The S Fund carries market risk because of its heavy exposure to domestic equities but is appropriate for long-term investors who can afford to have higher risk tolerance.
  • I Fund: This fund invests in non-U.S. stocks and tracks the Morgan Stanley Capital International Europe, Australasia, Far East (MSCI EAFE) Index. International investing carries currency and inflation risk in addition to the market risk that comes with stock investing. However, adding international stocks to a portfolio helps with diversification, which can decrease overall portfolio risk.
  • L Funds: These funds are life-cycle funds, also known as target retirement funds. The TSP offers 10 different L Funds, including L Income and nine other funds designed for targeted retirement dates. As the name and years suggest, the L Funds are designed to invest appropriately for people investing near the target retirement date. The L Funds are professionally managed and consist of an allocation of the TSP G, F, C, S, and I Funds. As the target date approaches, the fund managers will slowly shift the respective fund assets to a more conservative allocation, which is appropriate as investors near retirement. Sometimes life-cycle funds are called "set-it-and-forget-it" funds because an investor can choose one fund and not ever manage their own investments until retirement.

In general, unless investors are using the L Funds, it is wise to construct a portfolio of more than one fund. In fact, for purposes of diversification, some investors may choose to invest some percentage of their TSP assets in the G, F, C, S, and I Funds.

The default fund for newly enrolled unformed services TSP members who joined the uniformed services on or after Jan. 1, 2018, changed from the G Fund to an age-appropriate L Fund. TSP participants can visit to change their investments.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.