The Thrift Savings Plan (TSP) is the only component of FERS retirement income that clients directly control, which makes contribution errors especially costly.

Avoid Front-Loading Contributions and Losing the Agency Match

Many higher-earning federal employees attempt to maximize their TSP by front-loading contributions early in the year, reasoning that money invested sooner has more time to grow. The logic is understandable, but this comes with serious consequences.

TSP matching is calculated per pay period, not on an annual basis. Federal employees receive an automatic 1% agency contribution regardless of what they contribute. Beyond that, the government matches 100% on the first 3% contributed, and 50% on the next 2%. Contributing 5% per pay period secures the full match of 5%, which is effectively is from the agency each pay period.

The fix is straightforward: contributions should be paced evenly across all 26 pay periods. The 2026 elective deferral limit is $24,500, which works out to approximately $942 per pay period for employees under age 50. For clients in catch-up age ranges, the combined regular and catch-up contribution amounts should be similarly spread.

2026 TSP Contribution Limits

Age Group	2026 Annual   Limit	Per Pay Period   Target
Under 50	$24,500	~$942
50–59 and 64+	$24,500 +   $8,000 = $32,500	~$1,250
60–63 (SECURE 2.0 Enhanced)	$24,500 + $11,250 = $35,750	~$1,375

Source: IRS Publication 560; SECURE Act 2.0. Amounts subject to annual cost-of-living adjustments.

TSP Contribution Pacing

If you have clients who received a bonus or pay increase earlier this year, it may be worth confirming their contribution rate hasn’t quietly pushed them toward an early max-out. A mid-year contribution pacing check, comparing year-to-date deferrals against remaining pay periods, takes minutes and can preserve a full quarter of matching contributions. This is a high-value, low-effort touchpoint that reinforces your role as a proactive federal benefits advisor.

Hear From an Actual Fed Options Client:

“Thank you for explaining to the employee that [the prospect] could save $1,400 by not naming her daughter as an insurable interest to keep her on FEHB. After getting confirmation from HR that they gave her bad information so many years ago, she really thought that that would be the only way to keep her disabled child on the FEHB plan. You saved me the time of looking it up myself, and the employee was excited to know our team knew the rules. I was able to help the employee with the rest of her planning needs after addressing that major concern.”

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Six common TSP errors that reduce federal employee retirement outcomes — a planning reference for advisors working with FERS clients.

Advisor Takeaway

The Thrift Savings Plan (TSP) is the primary defined-contribution retirement vehicle for most federal employees, but several recurring misunderstandings consistently surface in client portfolios. Advisors working with FERS and CSRS clients should be aware of the following planning gaps as each one affects long-term accumulation, tax efficiency, or estate outcomes.

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Undershooting the Agency Match

Under FERS, agencies automatically contribute 1% of basic pay to the TSP regardless of employee contributions. Agencies also match employee contributions dollar-for-dollar on the next 3% of basic pay, and 50 cents on the dollar for the following 2%, yielding a total potential agency contribution of 5% of basic pay. Employees who contribute less than 5% forgo some portion of this match, and this can create a gap that compounds significantly over a full career. Advisors should confirm contribution rates during onboarding and verify that FERS clients are capturing the full matching contribution.

Remaining in the Default G Fund

Employees auto-enrolled in TSP are placed in the Government Securities Investment Fund (G Fund) by default. The G Fund preserves principal and is exempt from market volatility, but it has historically produced lower returns than equity-weighted allocations over longer time horizons. Many employees remain in the G Fund indefinitely without reviewing their investment election. Advisors should confirm that TSP fund allocations are intentional and consistent with the client’s time horizon and broader portfolio strategy. Investing in the G Fund can incur serious inflation risk if none of the other TSP core funds are neglected.

Taking TSP Loans Without Understanding the Full Cost

TSP offers two loan types: a general purpose loan (repayable within 5 years) and a residential loan (repayable within 15 years, available for primary residence purchase). While TSP loans avoid early withdrawal penalties, they carry planning risks advisors should flag. Repayments are made with after-tax dollars, but the repaid amounts re-enter a traditional TSP account as pre-tax funds, meaning those dollars will be taxed again at distribution. Additionally, any outstanding loan balance not repaid within 90 days of separation from federal service is typically declared a taxable distribution and could be subject to a 10% early withdrawal penalty if the employee is under age 55 when they retire. Advisors should encourage clients to exhaust other liquidity options before accessing TSP through a loan.

Why 55?

Thanks the SECURE Act 2.0, if a federal employee retires at 55 or older, they can start taking qualified from withdrawals from their TSP. If they retire under 55, however, then they must waiting until they are 59.5 to avoid the IRS age-based penalty for early withdrawals from retirement funds.

Withdrawals at Age 50 for Special Provisions Employees

For employees in Special Provisions positions such Law Enforcement Officers (LEOs), Firefighters (FFs), and Air Traffic Controllers (ATCs), the penalty-free window opens at age 50. This provision is a meaningful planning tool for clients who retire before 59½ and need to bridge income from TSP without incurring the 10% early withdrawal penalty.

Overlooking the Roth TSP

The Roth TSP option has been available since 2012 but remains underutilized in many federal employee portfolios. Unlike a Roth IRA, the Roth TSP has no income limit. Any federal employee, regardless of earnings, can direct contributions to the Roth TSP. Contributions are made after-tax, and qualified distributions in retirement are exempt from federal income tax. Advisors should evaluate whether a traditional-only TSP strategy remains appropriate given the client’s current marginal tax rate versus expected rates in retirement. A split contribution approach may benefit employees in lower-to-moderate tax brackets, particularly those earlier in their federal careers. However, even if all employee contributions are made to the Roth TSP, all matching contributions must be put in a traditional account.

Outdated or Missing Beneficiary Designations

TSP beneficiary designations follow a statutory order of precedence and are not governed by the terms of a will or trust. If no Form TSP-3 is on file, TSP distributes account assets in the following default order:

• designated beneficiary on file,
• widow or widower,
• child or children equally,
• parents equally or the surviving parent,
• estate executor or administrator,
• next of kin.

Many employees have not updated their TSP-3 since initial enrollment, and some have never submitted one. Advisors should verify that a current TSP-3 is on file with the TSP record keeper and that it reflects the client’s current estate planning intent, particularly following marriage, divorce, the birth of a child, or other major life events.

If you’re a financial advisor, retirement planner, or insurance agent – connect with us to learn how Fed Options can take your firm to the next level when it comes to helping federal employees with their benefits.

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Why advisors must treat the MFW like a scalpel, not a sledgehammer, and why outside investment options might be a better choice for broadening portfolio diversity.

The TSP Mutual Fund Window: A Powerful Tool… or a Costly Detour?

When the Thrift Savings Plan launched the Mutual Fund Window (MFW) in 2022, it promised access to more than 5,000 outside mutual funds, including ESG screens, real estate strategies, emerging markets, sector‑specific tilts, and everything in between, including mutual funds with exposure to China and Hong Kong. For federal employees hungry for diversification beyond the G, F, C, S, and I Funds, it looked like a great opportunity to expand their TSP portfolio.

But four years later, adoption remains microscopic. Fewer than 10,000 participants, which is around 0.1% of all TSP participants, actively use the MFW. And the reason is simple: the MFW is powerful, but it is also unforgiving and costly.

Advisors must evaluate it with precision, because misuse can quietly erode returns through fees, complexity, and operational constraints.

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The Gatekeeper Rules: Who Actually Gets In?

The MFW is voluntary, but not universally accessible. Before a client can even open an MFW account, they must clear three hurdles:

• $40,000 minimum total TSP balance
• $10,000 minimum initial transfer
• 25% cap on how much of the TSP can sit in the MFW at any time

These rules alone eliminate many early‑career employees and restrict high‑balance clients from executing full outside‑fund strategies.

Why Adoption Is So Low: The Hidden Frictions

The MFW’s low usage has three main underlying causes: math, behavior, and logistics.

Core Fund Sufficiency: The five core TSP funds already provide broad‑market exposure at ultra‑low cost. For most federal employees, that’s enough.

Choice Overload: With 5,000 funds available, the MFW introduces complexity that can lead to over‑diversification, performance chasing, or market timing… especially without advisor oversight.

Structural Limits: The 25% cap makes it difficult for investors who want a meaningful allocation to outside investment strategies.

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The Fee Reality: Expenses and Overtrading Can Erode Growth

The MFW’s fee structure is where the real danger lies. Unlike the core funds, which are famous for rock‑bottom expenses, the MFW layers multiple fixed and variable costs.

TSP Mutual Fund Window Fee Schedule

Fee Type	Amount	Frequency/Condition
Administrative Fee	$55	Annually
Maintenance Fee	$95	Annually
Trade Fee	$28.75	Per trade
Expense Ratios	Varies	Set by fund provider

For a client who transfers the minimum $10,000 and executes just two trades, the fixed platform and trading costs total $189.50. This creates an immediate 1.9% fee drag before the mutual fund expense ratios are even considered.

On small allocations, this drag compounds into a long‑term performance penalty.

Operational Constraints: The Fine Print Advisors Must Know

The MFW is expensive to use, and from an operational stand point, is also very rigid.

• Payroll contributions cannot go directly into the MFW. Clients must contribute to core funds first, then manually transfer (and pay trade fees).
• Interfund Transfer (IFT) limits apply. After two IFTs in a month, additional transfers can only go to the G Fund. So if you transfer from one core fund to the MFW, that counts as one of their IFTs for the month.
• No direct distributions from the MFW. Loans, withdrawals, and RMDs require selling MFW assets and moving them back to core funds first… and then you need to sell those assets to access the cash.

When clients need liquidity, rebalance frequently, or manage retirement‑phase distributions… getting money out of the window is not easy. An outside investment account, whether it’s an IRA or a non-retirement brokerage account, provide much more flexibility with likely lower costs.

Advisor Strategy: When the MFW Makes Sense

OPM explicitly recommends that federal employees consult a financial advisor before using the MFW, and for good reason – so use this to your advantage. Providing advise on the MFW can build trust with federal prospects and clients, so it’s important to know exactly how it works.

The MFW works best when:

• The client has a large TSP balance, making fixed fees negligible
• The goal is targeted exposure unavailable in the core funds
• The advisor actively monitors trading behavior and fee impact
• Overtrading is what can ultimately nullify any advantage that the MFW provides. If your client or prospect wants to use it for “day trading,” then an outside account is likely the way to go.

For high‑balance clients seeking specialized diversification, the MFW can be a valuable sleeve. For everyone else, it’s often an expensive distraction.

In Any Case, Precision Wins When it Comes to Investing

The mutual fund window is neither good nor bad. It might be misunderstood, so Advisors who master its rules, fees, and constraints can help federal clients use it strategically rather than accidentally.

 

To effectively manage a federal client’s retirement portfolio, financial professionals must understand the mechanics, underlying indices, and strategic roles of the five core TSP funds.

3 TSP Allocation Options for Federal Workers

The Thrift Savings Plan is the federal government’s version of a 401(k), and for most federal employees, it represents the largest source of long‑term retirement wealth outside of their FERS pension. The TSP offers three broad investment avenues: the Lifecycle (L) funds, the Mutual Fund Window, and the five individual core funds. While the L Funds provide a simple, target‑date approach, they are composed of the five main options and may be too conservative or too risky, depending on which L Fund an employee is invested in. The Mutual Fund Window opens the door to thousands of outside funds, the significantly higher fees can erode long‑term returns, especially if investors trade too much or treat it as a “set it and forget it” investment.

By understanding the structure and behavior of the five core funds, financial professionals can design portfolios that align with a client’s risk tolerance, retirement timeline, and income needs. Combined with an outside account like an IRA, the TSP can supercharge retirement income for federal employees.

Fixed Income and Capital Preservation: The F and G Funds

For employees nearing retirement or those with a lower risk tolerance, some assume the G and F Funds provide a relatively safe haven for cash to grow a modest amount, or do they…

Government Securities: The G Fund

The G Fund is completely unique in the investment world. It grows according to the interest rate of U.S. Treasury securities issued exclusively to the TSP, and by law, the fund can never post a negative return. But because of this, the return rate rarely gets over 5% (the last time it was that high being 2001), and in fact has a 10-year average of 2.87% (as of 5/2026). The monthly return of the G Fund is also what the TSP uses to determine the interest rate for loans.

The 2 main risks involved is inflation and IOUs. Inflation can quietly erode purchasing power over a 20‑ to 30‑year retirement. But the government IOUs are a bit more of an immediate concern. You see when the national budget debt ceiling is hit, then the government issues IOUs for interest. If this is not a concern for the employee, then it could be considered a safe harbor for savings. Therefore, advisors must caution clients against shifting entirely into the G Fund as they approach retirement. Especially, since some savings accounts and certificate deposits outside of the TSP have been more competitive in recent history. If the employee is able to make in-service withdrawals, there are usually better financial solutions for feds, such as an annuity or managed portfolio.  

Many feds “move everything to G” when markets experience an increased volatility. This can be especially damaging to their future retirement situation because by the time they’ve bought back in, they’ve missed out on significant gains.

The F Fund: Fixed Income Investment Index

The F Fund provides a more traditional fixed‑income opportunity. It tracks the Bloomberg U.S. Aggregate Bond Index and includes a diversified mix of investment‑grade bonds. While it carries modest volatility compared to the G Fund, it offers broader fixed‑income exposure and some think this index can serve as a stabilizing force during equity downturns.

Equity funds provide have been known to provide more opportunity for growth but that comes with market risk. This funds 10 year average is lower than the G Fund siting at 1.79% (as of 5/2026).

Schedule a meeting now to learn how Fed Options can help take your financial firm or agency to the next level when it comes to helping federal employees plan for retirement.

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The Growth Engines: C, S, I Funds for Equity Investments

To outpace inflation and build long‑term wealth, advisors should incorporate the C, S, and I Funds, representing the equity side of the TSP. Without completely understanding the indices that each one tracks, though, you can end up leaving your client’s investment strategy vulnerable to preventable losses, especially if unmanaged.

The C Fund: US Domestic Large Cap Stocks

The C Fund tracks the S&P 500 and represents large‑cap U.S. companies. It is often the primary growth engine of a TSP portfolio, delivering strong long‑term returns with moderate volatility. For many federal employees, the C Fund is the anchor of their allocation with exposure to domestic common stocks from companies with a large market cap.

The S Fund: Small and Medium US Stocks

The S Fund expands that exposure by tracking the Dow Jones U.S. Completion Total Stock Market Index, which includes small‑ and mid‑cap companies not found in the S&P 500. It includes stocks from around 4500 US  companies. This fund historically delivers higher growth potential but also experiences the largest swings and deepest drawdowns. It doesn’t behave like a true small cap fund, though, so it is important not to be misled by the “S” in S fund.

The I fund: New Facelift for International Equities

The I Fund rounds out the equity lineup by tracking the MSCI ACWI IMI ex USA ex China ex Hong Kong Index. This provides exposure to developed and emerging markets outside the United States, offering essential geographic diversification. While international markets can behave unpredictably and some political risk, the I Fund helps reduce home‑country bias and broaden long‑term opportunity. The biggest criticism against the I fund historically used its index. In 2024, however, the TSP gradually shifted from the old index to the aforementioned one. While it excludes China and Hong Kong, it includes a lot more countries than it did before and, unlike its predecessor, does invest in emerging markets.

Together, the C, S, and I Funds form the best opportunities for growth, and understanding how they operate, including the risks associated with each, can boost portfolios over a long stretch of time.

Help Feds Get the Most Out of their TSP

Educating federal employees on the distinct roles of the G, F, C, S, and I Funds is one of the most impactful services an advisor can provide. Misunderstanding these options can lead to portfolios that are either too aggressive near retirement or too conservative to sustain long‑term financial security. Advisors who know the TSP’s core funds inside and out can build portfolios that are efficient, intentional, and aligned with each client’s unique retirement trajectory.

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Reviewing the end of Roth RMDs, in-plan conversions, and the new mandatory contribution rule that went into effect this year.  

Refresher: What Is the Roth TSP?

The Roth Thrift Savings Plan allows federal employees and uniformed service members to contribute after‑tax dollars to their retirement plan. Like a Roth IRA, qualified withdrawals, including earnings, are tax‑free if:

• The participant is 59½ or older, and
• The Roth TSP has been open for at least five years

With the removal of RMDs and the upcoming catch‑up rule changes, the Roth TSP is becoming an increasingly central tool in long‑term tax planning for federal employees.

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What Makes a Roth TSP Different from a Roth IRA?

For years, the differences between a Roth TSP and a Roth IRA came down to two major rules:

• Income limits
• Required Minimum Distributions (RMDs)

Federal employees have always been able to contribute to the Roth TSP regardless of income, while Roth IRAs phase out contributions at higher income levels. And until relatively recently, Roth TSPs were still subject to RMDs, unlike Roth IRAs. But since tax year 2024, that second difference is gone. Roth balances inside the Thrift Savings Plan no longer require RMDs, aligning the Roth TSP with Roth IRAs for the first time.

Therefore, the biggest remaining contrast between the Roth accounts now is that you can’t contribute to a Roth IRA if income is above a certain level ($168,000 for single filers and $252,000 for joint filers in 2026), but no there are no income restrictions

Plus, thanks to SECURE Act 2.0, two additional TSP contribution changes are now shaping how federal employees plan for retirement.

We’ll also look at how in-plan TSP Roth conversions might work for your financial plan.

Learn how Fed Options can elevate your firm or agency to next level – Schedule a free consultation.

No More RMDs for Roth Accounts in the Thrift Savings Plan

Beginning in the 2024 tax year, Roth TSP accounts are no longer subject to lifetime RMDs. This is one of the most significant improvements to the federal employee savings plan in years.

Historically, RMDs were required because TSP withdrawals had to be taken pro‑rata from Traditional and Roth sources. That rule made it impossible to isolate Roth dollars from distribution requirements. But now, the rules are far more flexible. Withdrawals must still be taken proportionately from the funds (G, F, C, S, I) you’re invested in. But you can now choose how much comes from Traditional vs. Roth. This gives federal retirees significantly more control over:

• Tax‑efficient withdrawal sequencing
• Managing taxable income in retirement
• Preserving Roth dollars for long‑term, tax‑free growth

For advisors, this opens the door to more nuanced income‑planning strategies, especially when coordinating TSP withdrawals with Social Security, pensions, and outside IRAs.

Catch‑Up Contributions Must Go to Roth TSP for High Earners

2026 will be the first tax year where all catch‑up contributions for federal employees earning above a certain threshold must be made after‑tax into the Roth TSP. So, for IRAs, high income could restrict access to a Roth account, but with the TSP (for catch-up contributions at least), high income mandates the use of a Roth account.

Here’s the rule:

• If a federal employee’s federal salary exceeds $145,000 (indexed), their catch‑up contributions (age 50+) must be put in a Roth TSP.

Important clarifications for advisors:

• Only federal salary counts toward the $145,000 threshold
• Spousal income does not matter
• Outside income does not matter
• If a federal employee’s AGI is high but their federal salary is below the threshold, they may still make Traditional catch‑up contributions
• All agency matching contributions remain Traditional, regardless of employee choice

This rule will push many high‑earning federal employees toward larger Roth balances, which is a point advisors should proactively model for tax‑diversification and bracket‑management purposes.

Increased Catch‑Up Amounts for Ages 60–63

Another SECURE Act 2.0 change that went into effect for the 2025 tax year gives federal employees ages 60 to 63 a temporary “super catch‑up” window.

For 2025:

• Standard catch‑up (age 50+): $8000
• Additional age‑60–63 catch‑up: $11,250 ($8000 + additional $3,250)
• Regular TSP contribution limit: $24,500

This means employees ages who turn 60 – 63 this year can contribute up to $35,750 total in 2026.

This is a powerful planning window for late‑career savers, especially those preparing for early retirement, VERA offers, or RIF exposure.

Enroll in the Federal Benefits Basics Course to start learning about federal benefits online, at your own pace.

When Feds Should Consider Utilizing New In‑plan TSP Roth Conversions

Now fully available inside the Thrift Savings Plan since the end of January 2026, in-plan TSP Roth conversions allow federal employees to convert existing Traditional TSP balances into Roth TSP dollars without rolling funds out into an IRA first. The converted amount is added to taxable income for the year, so clients must have outside cash available to cover the tax bill.

A Roth conversion is generally most attractive when a client expects to be in a higher tax bracket later, but is currently in a low‑income year (such as the gap years between retirement and Social Security), wants to reduce future RMD exposure from Traditional accounts, or wants to build a tax‑free income “bucket” for long‑term planning and estate efficiency. Conversions are less appealing when the tax hit pushes the client into a higher bracket, triggers IRMAA surcharges, or strains liquidity.

The key is modeling the tax impact over multiple years so the conversion becomes a strategic move, not an expensive surprise. This is key area where federal employees need guidance from a financial professional they trust.