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Government Employees: How To Choose the Right Investments in Your TSP

Government Employees: How To Choose the Right Investments in Your TSP

October 04, 2021

The Thrift Savings Plan is a tax-deferred retirement savings plan offered to federal employees and members of the U.S. military. The TSP gives employees the same benefits as many private-sector retirement plans while providing additional advantages, including tax benefits and matching agency contributions. Here is everything you need to know about investing in a TSP. 

TSP Basics

The TSP is much like any retirement plan except that the U.S. government is the administrator and the tax structure varies slightly.  Employee contributions are based on your income. Contributions can be made on a pre-tax or after-tax basis. After-tax contributions are made to a Roth account. New federal employees are automatically enrolled in the TSP at a contribution percentage of 3%. However, employees are encouraged to increase their contributions if it is financially viable to do so. 

Employees who are 59 and older can begin making withdrawals from their TSP while they are still employed. Younger employees can also take a loan from their TSP account if they pay it back within a certain period. 

Choosing the Best TSP Funds 

When enrolling in the TSP, you must decide how much to contribute and which investments to add to your portfolio. You can select investments yourself, or you can elect to have an advisor do it for you. You can choose from the following TSP funds: 

  • The G Fund: This fund is considered the investment choice with the lowest risk among the TSP fund options. While investment returns are historically very low, this fund invests in short-term US Treasury securities and there is very little risk of losing money in this fund.
  • The F Fund: This fund invests in bonds, which are also generally considered low risk compared to other investments. However, they still come with default and inflation risk.
  • The C Fund: The C Fund is considered an S&P 500 Index fund. It primarily invests in stocks, and it can make for a good option for long-term investors who are not concerned with seeing immediate returns.
  • The S Fund: This fund invests in small- and mid-cap stocks. This fund is considered moderately risky because it involves domestic equities modeled after the Dow Jones U.S. Completion Total Stock Market Index. The S fund might be a good option for long-term investors who have a high-risk tolerance.
  • The I Fund: This fund invests in international stocks. Non-U.S. stocks typically come with a higher risk than domestic stocks because the investor is exposed to other risk factors such as currency values and government policies.
  • The L Fund: The L fund comprises ten different funds, including funds for those with targeted retirement dates. This fund invests in life-cycle funds and is a good option for those who are nearing retirement.

Employees can choose to invest in one fund or a combination of a few funds. 

Are you a federal government employee who wants to make the most of your TSP contributions? We work with several federal employees to help them choose the best TSP fund options for them. We can customize a long-term strategy for young professionals or a short-term plan for those reaching retirement age. Contact us today to set up an appointment with a financial advisor.