The TSP: the federal employee's unfairly good retirement plan

The Thrift Savings Plan is the 401(k) for federal employees and the military, and it's quietly one of the best retirement plans in the country: expense ratios most index funds can't touch, an automatic match, and the G Fund — an investment that literally does not exist anywhere else. It's also spartan, occasionally confusing, and full of decisions (especially at separation) where the default choice isn't the best one.

What makes the TSP special

• Cost: expense ratios run in the neighborhood of 0.05% — a few dollars per year per $10,000 invested. Over a career, that's tens of thousands of dollars not paid in fees versus typical 401(k) funds.
• The match (FERS employees): the government contributes 1% automatically, then matches your next 4% (dollar-for-dollar on 3%, 50 cents on the dollar for 2%). Contribute 5% and you get 5% free — contribute less and you're declining salary.
• The G Fund: government securities that pay intermediate-term Treasury yields with zero risk of losing a penny. Higher yield than cash, no price volatility. No mutual fund or ETF on the open market offers this deal.
• Both Roth and traditional balances, standard 401(k)-style contribution limits, and catch-up contributions from 50.
• Uniformed services members under the Blended Retirement System get matching too — a big deal for troops who won't serve 20 years for a pension.

The fund lineup in one paragraph each

C Fund tracks the S&P 500. S Fund covers the rest of the U.S. market (small and mid caps). I Fund tracks international stocks. F Fund tracks the U.S. bond market. G Fund is the special stable-value option above. L Funds are target-date blends of the other five that get more conservative as the year approaches — a perfectly good set-and-forget choice. A classic DIY mix is C + S in roughly a 4:1 ratio to approximate the total U.S. market, plus I for international and G or F for the safe portion.

Getting the details right while employed

1. Contribute at least 5% from day one to capture the full match — the automatic 1% alone doesn't need your help, but the other 4% does.
2. Spread contributions across all pay periods: match money arrives per-paycheck, so maxing out in October means forfeiting the match for November and December.
3. Choose Roth vs. traditional the same way you would in any 401(k): Roth when your current bracket is low (early career, military members in combat-zone tax exclusion — a legendary deal), traditional in peak-earning years.
4. Rebalance occasionally or just use an L Fund — the TSP makes interfund transfers easy and free.
5. Deployed military: combat-zone pay contributed to Roth TSP goes in tax-free and comes out tax-free. It's one of the few genuinely never-taxed dollars in the code.

Leaving federal service: keep it, roll it, or split it?

At separation you can leave money in the TSP, roll it to an IRA or new employer plan, or take withdrawals (once eligible). The case for staying: unbeatable costs, the G Fund, and strong legal protections. The case for leaving: the TSP's withdrawal and beneficiary rules are clunkier than an IRA's, fund choices are limited, and Roth conversions can't be done inside it. Many separated feds land on a hybrid — keep the TSP for its G Fund and low costs, roll a portion to an IRA for flexibility. One rule stands regardless: don't roll out just because a commissioned advisor 'recommends consolidating.' Compare fees line by line first.

The lineup at a glance

A worked allocation for orientation: a 40-year-old FERS employee comfortable with market risk might hold 55% C, 15% S, 20% I, and 10% G/F — roughly a global stock portfolio with a small stabilizer. At 58, planning to retire at 62, the same person might glide toward 45% stocks and 55% G/F, letting the G Fund serve as the cash-like bucket that funds the first years of withdrawals without selling stocks in a downturn. Neither mix is magic; the point is that the TSP's five building blocks plus the L Funds cover essentially every reasonable strategy at a price nothing retail can match (illustrative allocations, not advice).

The bottom line

The TSP pairs the lowest costs in the retirement industry with a match worth 5% of salary and a one-of-a-kind stable fund. Contribute at least 5% every pay period, get out of the G Fund while you're young and back into it as you approach retirement, and think twice — then twice more — before rolling it into anything with a higher fee line. Federal employees complain about plenty; this plan shouldn't be on the list.