Last week, I met with a client who is contributing to the Thrift Savings Plan (TSP)—the federal government’s version of a 401(k). Like many TSP participants, they weren’t sure if they were making the most of their options.
Whether you’re a federal employee under FERS (Federal Employees Retirement System), or a service member under the BRS (Blended Retirement System), the TSP is one of the most powerful retirement tools available. But to get the most out of it, you need to know the rules—especially around matching and pension choices.
1. Don’t Leave the Match on the Table
If you’re under FERS or BRS, you may be eligible for up to a 5% government match on your contributions:
- The first 3% is matched dollar-for-dollar
- The next 2% is matched at 50 cents on the dollar
This match starts automatically under BRS after 60 days of service—but only if you contribute.
🟡 Important: If you’re a military member and opted into the High-3 retirement system, you do not receive TSP matching contributions. The High-3 system provides a larger government pension in exchange for giving up the TSP match.
What’s the difference?
- High-3 Retirement System: Offers a defined pension based on your highest 3 years of base pay, with no TSP match.
- BRS (Blended Retirement System): Offers a smaller pension (2% multiplier vs. 2.5% under High-3) plus government matching contributions to your TSP. This is the current retirement plan for most active duty and reserve service members joining after January 1, 2018.
- FERS (Federal Employees Retirement System): Offers a defined pension based on your highest 3 years of base pay and the TSP matching contributions.
If you’re not sure which system you’re in—or how it affects your long-term retirement income—it’s worth reviewing the numbers.
2. Understand the TSP Fund Options
The TSP offers five core funds, plus Lifecycle (L) Funds that mix these based on your target retirement date. These funds are passively managed by BlackRock under contract with the Federal Retirement Thrift Investment Board (FRTIB). They track broad indexes and have extremely low costs, often under 0.05%. Here’s the lineup:
- G Fund – Government Securities Investment Fund
- Invests in special U.S. Treasury securities issued to the TSP
- Offers a guaranteed return backed by the U.S. government
- No risk of loss, but very low returns
- F Fund – Fixed Income Index Investment Fund
- Tracks the Bloomberg U.S. Aggregate Bond Index
- Broad exposure to U.S. investment-grade bonds
- Subject to interest rate and credit risk
- C Fund – Common Stock Index Investment Fund
- Tracks the S&P 500 Index
- Includes 500 of the largest U.S. companies
- Great for long-term growth, but comes with market volatility
- S Fund – Small Cap Stock Index Investment Fund
- Tracks the Dow Jones U.S. Completion Total Stock Market Index
- Covers U.S. companies not in the S&P 500 (i.e., small- and mid-cap)
- More volatile, but complements the C Fund for broader U.S. exposure
- I Fund – International Stock Index Investment Fund
- Tracks the MSCI EAFE Index (Europe, Australasia, Far East)
- Offers developed international market exposure
- Currency risk and limited emerging markets exposure
- L Funds – Lifecycle Funds
- Automatically adjust your allocation between the above five funds
- Designed to reduce risk as you approach retirement
- Easy to use but may not be tailored to your unique financial situation
All TSP funds are institutional in cost and execution, which is a major advantage compared to many retail 401(k) plans.
3. Roth vs. Traditional Contributions
You can choose between Traditional (pre-tax) and Roth (after-tax) contributions:
- Roth is ideal if you’re in a lower tax bracket today and want tax-free withdrawals in retirement
- Traditional may reduce your taxable income now and defer taxes until retirement
You can even split your contributions between both options to diversify your tax exposure.
4. Revisit Your Allocation Over Time
Your financial life isn’t static—your TSP strategy shouldn’t be either.
- Rebalance at least annually
- Increase your contribution rate as your income grows
- Consider how your TSP fits alongside IRAs, spousal accounts, pensions, and taxable investments
5. Your TSP Is Just One Piece of the Puzzle
A strong TSP strategy helps—but you also need to think bigger:
- Pensions (FERS, BRS, or High-3)
- Social Security or military retirement benefits
- Tax-efficient withdrawal strategies
- Long-term care and healthcare planning
- Estate and legacy planning
Your Next Step
The TSP is a great tool—but it’s even better when it’s part of a bigger plan.
At Cinder Wealth, we help federal employees, military families, and professionals turn their TSP into a long-term wealth strategy. Stay up to date on the TSP here.
📅 Not sure your allocation or contributions are aligned with your goals? Let’s connect and build a strategy that works for your life.
