Thrift Savings Plan (TSP): A Guide to Retirement for Veterans

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Last updated: 17 Jan 2020

Thrift Savings Plan (TSP)

The Thrift Savings Plan isn’t a secret. Any federal employee and member of the Armed Forces (Army, Marine Corps, Navy, Air Force, Coast Guard) can participate. All servicemembers receive a presentation and a chance to opt-in during basic recruit training.

As of 2018, members are automatically enrolled to contribute 3% of their base pay. You can stop or change this anytime. Sadly, most members do not take advantage of this opportunity and opt-out right away.

The most common reasons:

  • Don’t have a clue about investing
  • Saving money isn’t a priority
  • Retirement isn’t a priority
  • Lacking money management skills

Most Armed Service members are young and the military provides a consistent paycheck. They feel rich for the first time in their life! Why save money and invest for the future when you buy whatever you want?

Not all servicemembers are alike and some opt-in to contribute. But they don’t adjust their fund contributions and usually let it sit.

Before September 2015, all funds auto-deposited to the G Fund (we will cover the funds later). Which is the least volatile fund but has the LOWEST historical return. Barely keeping up with inflation and there’s so much more.

I have created this guide to inform you of your TSP benefits. I dive into the various investment options and costs so you can make an informed decision about retirement.


The purpose of the TSP is to give you a long-term retirement savings and investment plan. Saving for your retirement through the TSP provides many advantages.

The TSP is a retirement savings and investment plan for Federal employees and members of the uniformed services. This includes the Ready Reserve.

Congress established the Federal Employees’ Retirement System Act of 1986, which offers the same types of savings and tax benefits that private corporations offer their employees under 401(k) plans.

The TSP is a defined contribution plan. Meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency, if you are eligible to receive agency contributions) put into your account during your working years, and the earnings accumulated over that time.

This is important because as soon as you leave the service, you cannot continue contributing! 

If you leave the service and get hired as a federal employee, you will have the ability to continue contributing. Something I highly recommend if you leave the service early so you can continue to grow your retirement nest egg.

Traditional or Roth TSP

This is personal preference and related to income taxes.

When you contribute into Traditional TSP, you defer paying Federal and State income taxes on contributions. However, when you withdraw, you are subject to Federal and applicable State income tax.

The thinking behind traditional TSP is that income tax deferral is advantageous because you’re expecting to be in a lower tax bracket in retirement. That means you’re expecting to pay less income taxes on your TSP withdrawals in retirement. If that’s the case, then tax deferral may be advantageous.

Pro Tip: Do not get Roth TSP and Roth IRA confused. Both are very different!

Disclaimer: I use M1 Finance for a Roth IRA because I can control which stocks, bonds and funds I have in my account. My Roth IRA consists of REITs and High Yield Dividend stocks because dividends do not count against your annual contribution limits. More info here!  

The Breakdown

The TSP offers you two tax treatments for your employee contributions when you make a contribution election:
1. Traditional TSP— If you make traditional contributions, you defer paying taxes on your contributions and their earnings until you withdraw them.
Simple: Your initial contributions will be tax-free. But taxed upon withdrawal for contributions and earnings.
2. Roth TSP— If you make Roth contributions, you pay taxes on your contributions.
Simple: Your contributions are initially taxed, but your contributions and earnings are tax-free at withdrawal.
You can contribute to both Traditional IRA and Roth IRA. They each have different contribution limitations. See 2020 contribution limits.
The Thrift Savings Plan began accepting Roth TSP employee contributions in May 2012. All employee contributions made before May 2012 were traditional contributions.

→If you want to make Roth contributions, you must elect to do so on MyPay.

Traditional (pre-tax) contributions occurs before your income gets taxed.
This is very important! Why?
Because, this lowers your current taxable income and gives you a tax break. If you are a FERS or Blended Retirement System (BRS) participant, your contributions automatically go into your traditional balance.
Roth (after-tax) contributions occurs after your income gets taxed.
This is important! Why? When you withdraw funds from your Roth balance they are tax-free, since you already paid taxes on the contributions.

Key Takeaways

Traditional: Contributions occur before taxes.

Roth TSP: Contributions occur after taxes.


Something to consider is contributing to your traditional TSP. Why? Besides the matching offered through the program (discussed later) — the tax advantages are huge! Your contributions lower your current taxable income which gives you a tax break.

Example: Your taxable income was $45k. Yet, since you contributed $10k to your traditional tsp now your taxable income is $35k. For anyone who has paid taxes, this is a huge adjustment.


The IRS announced the employer sponsored retirement plans (such as TSP and 401k) increased to $19,500 for elective deferral (employee) contributions for 2020. This is up $500 from 2019.

Individual Retirement Accounts (IRAs, both Roth and Traditional), bumped up to $6000 for the year. At $500 contribution a month, you could max your Roth IRA for the year.

Ok, what does that all that mean?

Each year the government announces whether the contribution limits have increased, stayed the same, or decreased for the current year. This is important because if you have calculated an auto-deposit to reach the max contribution limit for the year, it needs adjustment.

Note: You can contribute to retirements accounts until April 15th of the following year. So this year – 2020 – if you haven’t maxed your Roth IRA, you could keep adding money to it until April 15, 2021.

Matching – FREE Money!

Most federal employees receive automatic contributions of 1% and agency-matching contributions of 5% of base pay. In 2018, servicemembers received the same matching privileges. If you’re a FERS employee, you’re vested in automatic contributions after three years, or after two years if you hold certain congressional-related positions.

What does that mean?

This means you’ll always keep the 1% automatic TSP contribution you receive from your employer after that time. The TSP will match up to 5% of your contributions, and you’re always vested in matched contributions.

Regardless of your Traditional or Roth election, you’ll receive matching contributions in your TSP. Those contributions will be pre-taxed, and will go into a Traditional TSP account.

For servicemembers, as of 2018, the Blended Retirement System (BRS) offers matching. After the first 60 days in the service, all servicemembers become enrolled in the TSP and receive an automatic government contribution of 1% of basic pay into their account each month. Additionally, they will be automatically enrolled to contribute 3% of their basic pay to the TSP each month (they can change or stop this at any time).

After two years of service, the government will match the member’s contributions up to an additional 4%.  So, after 2 years of service, members can receive 5% government matching contribution on top of what they contribute each month.

So, if a member contributes 5% of their basic pay, the government will match it for a total of 10% contribution each month. The BRS TSP match can be worth thousands $$ per year if optimized correctly. The limiting factor is you have to contribute 5% each month because the match is paid monthly.

So, you do not want to max out your contributions (the annual elective deferral limit) in the first 6 months of the year. You must space out your contributions for the full year if you want to receive the full annual match. If you are somebody who front loads their TSP contributions – under the BRS, this is no longer optimal.

Don’t worry about going over the annual $19.5k limit. As long as you don’t have another employer retirement account (401k, 403b, self 401K). The DFAS computers will limit your final contribution to ensure that you max out the account without going a penny over.

Example Formula

If you want to maximize your TSP contribution for the year ($19,000) and receive the full 5% TSP match you are eligible for. You must contribute at least 5% to the TSP every month.

The formula is pretty simple. Take your 2020 maximum elective deferral contribution limit of $19,500.

Divide by 12 months = $1625.

Then divide $1625 by your monthly base pay to get a percentage of contribution.

For example, if your base pay is $5000/month, $1625/5000 = 32.5%.

Round up to 33% because you can only elect contributions in whole percentages.

If you contribute 33% of your $5000 base pay, you will deposit $1650 each month into your TSP – either Roth or Traditional.


For dual military members, maximizing annual contributions should be a priority.

Military members who were grandfathered into the old system (non-BRS). One strategy is to have one of the members (either spouse) elect max contributions until they reach their max for the year and switch.

Duel income is fantastic and with proper planning, you can easily live off one income. You have to remember that contributions are ONLY taken from taxable income such as base pay, incentive pay, special pay, and bonus pay.
Even if you contributed 100%, you would still receive your BAS and BAH. For those members enrolled in the BRS, front loading isn’t ideal to take advantage of the 5% match. It might be easier to just swap 100% contributions.
But you and your spouse could calculate your income based on the $19.5k contribution limit and contribute each month. You would still max out your contributions for the year and would have a percentage of your base pay combined for bills, food, entertainment, etc. along with your BAH and BAS.


As I mentioned before, the TSP program is cheaper than most 401(k) plans offered by major platforms and companies. What are the fees?

Every retirement program offered by institutions have fees which are represented by the expense ratio. The TSP expenses are the costs of administering the TSP. The gross expenses include:

  • The costs of operating and maintaining the TSP’s record keeping system,
  • The cost of providing participant services, and
  • The printing and mailing of notices, statements, and publications.

Expenses are offset by the forfeitures of Agency/Service Automatic (1%) Contributions of FERS and BRS participants who left Federal service before they were vested to include other forfeitures, and loan fees. Because these amounts are not sufficient to cover all of the TSP’s expenses, TSP participants share in the remainder of the costs.

As of 2019, the average net expense is $0.40 per $1,000 invested. Essentially, you’re paying a measly 40 cents for every $1,000 invested annually. Expense ratios may also be expressed in basis points. This is common for most funds.

One basis point is 1/100th of one percent, or .01%. Therefore, the 2020 TSP net expense ratio of .040% is 4.0 basis points. Expressed either way, this means that expenses charged to each TSP account in 2020 is approximately 40 cents per $1,000 invested.

Company Funds Average Expense Ratio
TSP Plans 0.04%
Vanguard Plans 0.11%
Industry Average 0.62%

Simple Investment Options

In today’s world of information overload, you may feel overwhelmed making a choice between thousands of mutual or index funds when planning your retirement.

The TSP offers major market sectors through five funds: the G, F, C, S, and I funds. You can allocate and diversify between the funds as much as you want. All the funds, except the G fund, are managed by Black Rock, the world’s largest asset manager.

In addition to these five funds is your sixth option: the L Fund, or lifecycle fund.

⇒Click on each hyperlinked title below to read the TSP report on each fund.

G Fund

The Government Securities Investment Fund consists of short-term U.S. Treasury securities that are only issued to the TSP.  Contributions to this fund are protected against inflation, and are guaranteed to never lose principal.

For members who’ve opened their accounts and never elected to allocate your funds, this is what you were invested in automatically prior to September 2015.  

With that in mind, you need to login and allocate your contributions spread throughout the F, C, S, and I Funds. Or, make it simple and select an L Fund.


Because the interest compounded will be very minimal and your money will grow SLOWLY. For long-term investing, medium to high risk funds are ideal because the rate of return is much higher. There is the risk of greater losses – however, in the long-term, those losses will be superseded by the overall gains. Later, I will discuss some options and my opinions.

Historically this fund has maintained a return higher than T bills and rate of inflation.

This is a low risk, very low return fund. 

10-Year Return: 2.30%
Lifetime Return: 5.03%

F Fund

The Fixed Income Index Investment Fund tracks the Barclay’s Capital U.S. Aggregate Bond Index. This passive index fund is designed to beat inflation and the average return of a money market fund.  Unlike the G fund, money in the F fund is exposed to market risk, credit risk, and prepayment risk.

Black Rock manages this fund and selects the securities in the following categories: Credit, Asset-Backed securities, and Government (or Government-Related) securities.

This is a low risk, low return fund.

10-year return: 3.73%
Lifetime Return: 6.45%

C Fund

The C Fund has an exceptional record of matching the S&P, and even performs better. The C Fund is a common stock index fund that tracks the S&P 500, similar to Vanguard’s S&P 500 ETF (Ticker: VOO).

Since the S&P 500 represents 81% of the U.S. stock market’s worth, some investor elect a mixed allocation with the S Fund to invest in the total U.S. stock market.

This is a medium risk, high return fund.

10-Year Return: 13.17%
Lifetime Return: 10.01%

S Fund

This passive index fund tracks the Dow Jones U.S. Completion Total Stock Market (TSM), which includes the domestic stocks not part of the S&P 500.

There are over 3,000 stocks outside the S&P, so the S Fund follows a methodology that invests in companies with a market capitalization greater than $1 billion while selecting some businesses with a smaller market cap.

This is a medium risk, high return fund.

10-Year Return: 13.17%
Lifetime Return: 10.01%

I Fund

The I Fund is an internationally focused stock fund that tracks the MSCI EAFE (Europe, Australasia, Far East) index and satisfies the international recommendation of most portfolio asset allocations.

This would be considered a developed market fund that has the U.K., Japan, France, Germany, and Switzerland as the top five nations percentage-wise. About 65% of the fund comes from Europe, and the remainder are from 6 nations in the Australasia/Far East region.

This is a medium risk, medium return fund.

10-Year Return: 6.48%
Lifetime Return: 4.09%

Lifecycle Funds

There are FIVE active Lifecycle Funds: L Income, L 2020, L 2030, L 2040, and L 2050.

New Lifecycle funds will be added for distant target dates as needed.

These Lifecycle funds follow the principle of target-date-retirement funds found in the private sector. As you grow older, the L fund seeks to protect your investments and earnings by automatically adjusting the asset allocation based on the year you selected.

Tip: You should select the L Fund year that coincides closest to when you will reach the age of 59 1/2. If you withdraw from your accounts prior to 59 1/2, you incur a withdrawal penalty – usually 10%.

L Fund Plan Choice If your target date is:
L 2050 2045 or later
L 2040 2035 through 2044
L 2030 2025 through 2034
L 2020 2020 through 2024
L Income If you are already withdrawing your account in monthly payments or expect to begin withdrawing before 2020

Let’s say you select the L 2050 Fund. Contributions will be allocated into high-risk, high-reward funds but as the years progress and it gets closer to the year 2050, it will reallocate (percentage skewed) to low-risk, low-reward funds such as the G Fund.

The L Funds allocate between G through I Funds as mentioned above. This is perfect for those who want a low stress investment journey. It’s a set-it and forget-it type investment. 

I highly recommend the L Funds because it takes the thought out of reallocating your funds depending on the current market reactions.

Effective as of September of 2015, when you join the TSP program and make no election on a fund, it will automatically enroll you in the L fund that’s closest to the year you will turn 62.

The L Income Fund is for those people at or near retirement who need their money before 2020. The guiding principle of this fund is to protect your earnings from market swings and inflation.

You can invest in one or all of the L funds, but experts recommend you just pick one and stick with it.

Free Transfers and Zero Transaction Costs

So now that you know the different investment options offered through the TSP — how do you allocate your money and adjust it once it’s been withdrawn from your paycheck?

There are two transactions inside the plan that allow you to control the path of your investments: Interfund Transfers and Contribution Allocations. These two options are FREE. Most institutions charge a fee every time you want to reallocate or transfer funds. Some charge you over 100$ per transaction!

Interfund Transfers

Interfund transfers allow you to move money around inside your account after it has already been deposited. TSP members can move the funds between all five letter funds and lifecycle funds or adjust allocation ratios.

You can make two transfers each month FREE of charge for a total of 24 in a calendar year.  Over a 30-year investment span that equals to 720 free transfers (or trades).

You can’t move a specific dollar amount, but rather you will be required to adjust the percentages allocated to each fund. All this means is that you’ll have to do a little math to determine what percentage to adjust.

After your first two transfers of the month, you may only move funds into the G Fund. So you’ll need to wait until the start of the next month to be able to move money into the other letter funds or lifecycle funds.

Tip: If you chose an L Fund, do not transfer or reallocate funds. Set-it-and-forget-it.

If you have a Roth and Traditional account, the interfund transfer will apply to both accounts, because you are not allowed to adjust the two independently.

Knowledge: You cannot convert any portion of your existing traditional TSP balance to a Roth balance. Why? Because traditional contributions are pre-tax as opposed to Roth contributions.

These transactions can be done on the TSP website or through their phone system, called ThriftLine.

Follow the steps below to perform an Interfund Transfer!

Under “My Account” on the left side, select “Interfund Transfers” under Online Transactions menu.

Next, select “Request Interfund Transfers.” 

Lastly, enter the percentage for the interfund transfer next to the desired funds. Select continue. Review and select Submit. Confirmation window will pop up and you’re done!

Contribution Allocations

Pre-designate where your money will go as it comes out of your paycheck. As mentioned before, if you never set your contribution allocations, they will either be going into the G Fund or the Lifecyle fund that is closest to the year you turn 62.

The allocation plan stays the same until you change it, and all of your contributions (agency matching, special pay, automatic contributions, etc.) will go through the allocation plan you’ve created.

These transactions can be done on the TSP website or through their phone system, called ThriftLine.

Follow the steps below to perform a Contribution Allocation!

Under “My Account” on the left side, select “Contribution Allocations” under Online Transactions menu.

Next, select “Request Contribution Allocation.” 

Lastly, enter the percentage for the future contributions next to the desired funds. Select continue. Review and select Submit. Confirmation window will pop up and you’re done!

Rollovers from Your Other Accounts

If you already have a TSP account, you can roll tax-deferred (Traditional) IRA’s into the TSP. This is a great option for those wanting to maximize their low-fee funds.

If you have a Roth 401(k), 403(b), or 457(b), you may be able to roll those funds into the TSP, but you cannot rollover/transfer any Roth IRAs or Roth distributions.

The money you rollover won’t count towards your contribution limits, and you’ll have to open a TSP account prior to rolling anything over to it.

Keep in mind that it can take up to a few weeks to actually open your account and access it for the first time. The TSP governing body requires user authentication via snail mail, so if you want to do a Roth or Traditional transfer, wait until you have your TSP account up and running prior to initiating the process.


If you choose not to utilize the L Funds, most experts recommend 80% C fund and 20% S fund. Or, if you want international exposure– 70% C fund, 20% S fund and 10% I fund.

There are many combinations and please DO YOUR OWN RESEARCH to decide which is best for YOU!

With the low costs and the simple index funds that cover all the markets, the TSP program is a fantastic investment opportunity for military members and federal employees. As always, have a plan and stick to it.

Was this TSP Guide helpful for you? Let me know in the comments below.

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