Six TSP Hacks Federal Workers Are Using to Grow Their Retirement Savings

Nathan Kennedy
March 2, 2025

Key Takeaways

Federal employees can significantly boost their retirement savings with strategic use of the Thrift Savings Plan (TSP).
Implementing smart tactics like maximizing contributions, using catch-up contributions, and selecting the right investment mix can lead to substantial growth over time.

Why Your TSP Deserves More Attention Than Ever

Your Thrift Savings Plan (TSP) is a cornerstone of your federal retirement benefits. With its low costs, tax advantages, and government contributions, it’s a retirement savings powerhouse. Yet, many retirees and soon-to-be retirees don’t take full advantage of its potential. The good news? With a few smart moves, you can make your TSP work harder for you.

Maximize Contributions While You Can

One of the simplest ways to grow your TSP is by contributing the maximum allowed amount. For 2025, you can contribute up to $23,500 in elective deferrals. If you’re age 50 or older, you’re eligible for catch-up contributions, which allow an additional $7,500 annually. Those aged 60 to 63 can contribute even more with a special catch-up limit of $11,250, making the total possible contribution $34,750.

By maximizing these contributions, you not only increase your retirement nest egg but also lower your taxable income if you’re contributing to a traditional TSP account.

Take Advantage of Free Money

If you’re still working, don’t leave money on the table. Federal employees under the Federal Employees Retirement System (FERS) receive government matching contributions of up to 5% of their salary.

Here’s how it works:

The government matches 100% of the first 3% of your salary contributions.
The next 2% gets a 50% match.

Contributing at least 5% ensures you’re receiving the full match. Anything less means you’re giving up free money.

Rethink Your Investment Allocation

Your TSP offers five core funds (G, F, C, S, and I) and Lifecycle (L) Funds, which adjust automatically based on your retirement timeline. Choosing the right mix can significantly impact your account’s growth.

G Fund: Offers stability but limited growth.
C Fund: Tracks the performance of the S&P 500 Index.
S Fund: Focuses on small- to mid-sized U.S. companies.
I Fund: Invests in international stocks.
F Fund: Offers exposure to the U.S. bond market.

Lifecycle Funds are ideal if you prefer a hands-off approach. They automatically rebalance and adjust their risk level based on your target retirement date. Alternatively, if you’re comfortable managing your investments, consider creating a diversified portfolio tailored to your risk tolerance and goals.

Use the Roth Option Strategically

The TSP’s Roth option allows you to contribute after-tax dollars, with your withdrawals in retirement being tax-free. This is particularly advantageous if you expect to be in a higher tax bracket during retirement.

A balanced approach may work best: contribute to both the traditional and Roth TSP to diversify your tax liabilities. This strategy can provide flexibility when it comes time to withdraw funds in retirement, letting you manage taxable income more effectively.

Avoid Common Mistakes with Withdrawals

Once you retire, managing withdrawals effectively is crucial to preserving your savings. Here are some tips:

Beware of Required Minimum Distributions (RMDs): Starting at age 73, you must take RMDs from your TSP. Failing to do so results in hefty penalties, so plan your withdrawals accordingly.
Stick to a Sustainable Withdrawal Rate: Many experts recommend withdrawing no more than 4% annually to ensure your savings last throughout retirement.
Consolidate Accounts Wisely: If you have other retirement accounts, think carefully before rolling them into your TSP or vice versa. The TSP’s low fees make it an attractive option, but consolidating might not always be the best choice.

Leverage the Power of Compounding

Time and compounding are your best allies in growing your TSP. By leaving your investments alone and letting earnings reinvest, your balance can grow exponentially. Even in retirement, it’s wise to keep part of your savings invested in growth-oriented funds to take advantage of compounding.

Consider this: a $100,000 balance earning an average return of 7% annually will double in about 10 years, assuming no withdrawals. The longer your funds remain invested, the greater the potential for growth.

Don’t Overlook Fees and Costs

While the TSP is known for its low fees, it’s still important to keep an eye on costs. The annual expense ratio for TSP funds is significantly lower than most private-sector plans, but fees can still add up over time. Make sure you understand the costs associated with your investment choices, particularly if you’re considering rolling your TSP into another account.

Plan for Healthcare Costs

Healthcare is one of the most significant expenses in retirement. While your TSP is designed for general retirement income, it can also help cover unexpected medical costs. Consider these steps:

Use your TSP to fund an HSA: If you’re enrolled in a high-deductible health plan, you can use your TSP withdrawals to fund a Health Savings Account (HSA), which offers triple tax advantages.
Prepare for long-term care expenses: Consider setting aside a portion of your TSP for long-term care or supplemental health insurance premiums.

Stay Informed About Changes

The TSP periodically updates its rules and features, so staying informed is crucial. For example, recent changes include expanded catch-up contribution limits and improvements to online tools for managing your account. Check your TSP statements regularly and visit the TSP website for updates.

Keep Your Retirement on Track

Growing your TSP balance isn’t just about contributions; it’s about making informed decisions and staying disciplined. By taking advantage of government matches, optimizing your investment choices, and managing withdrawals wisely, you can secure a more comfortable retirement.

Remember, the sooner you start implementing these strategies, the greater your retirement savings will grow. It’s never too late to take control of your TSP and make it work harder for you.

Build a Retirement You Can Count On

Your TSP is one of the most powerful tools in your retirement arsenal. Whether you’re years away from retiring or already enjoying retirement, these strategies can help you get the most out of your savings. Take charge of your future by putting these hacks into action today.