Key Takeaways:

• The TSP offers distinct fund choices and rules designed specifically for current and retired federal employees.
• Understanding TSP rules, risks, and allowed changes helps ensure your retirement investments remain aligned with your needs.

TSP Investment Options Compared: Rules, Risks, and Choosing Federal Retirement Funds

Navigating the Thrift Savings Plan (TSP) is a key part of retirement preparation for federal employees and uniformed services members. With unique rules, fund options, and considerations, understanding how the TSP works may ease common anxieties about making the right choices for your financial future. This guide explains what the TSP is, breaks down its investment options, outlines the key rules, and highlights the most important risks and decision points.

What Is the TSP?

History and purpose of TSP

The Thrift Savings Plan was created in 1986 as part of the Federal Employees’ Retirement System (FERS) Act. Its purpose is to provide federal civilian employees and uniformed service members with a retirement savings and investment vehicle broadly comparable to private-sector 401(k) programs. The TSP is managed by the Federal Retirement Thrift Investment Board, an independent agency, and operates solely for the benefit of its participants and beneficiaries.

Who is eligible to participate?

Eligibility for the TSP covers almost all federal civil service employees, including those under the Civil Service Retirement System (CSRS) and FERS, as well as members of the uniformed services. If you are a federal employee hired after 1983, you are likely enrolled in FERS, and TSP participation is a standard part of your retirement benefit. Uniformed service members became eligible to join as of 2001. Certain non-citizen employees and contractors are excluded.

How Do TSP Funds Work?

Overview of available TSP fund types

The TSP offers several distinct investment funds:

• G Fund (Government Securities) invests in government-backed securities, offering stable returns and principal protection.
• F Fund (Fixed Income Index) tracks the performance of the U.S. bond market.
• C Fund (Common Stock Index) mirrors the performance of the S&P 500 large-cap equities index.
• S Fund (Small Cap Stock Index) tracks U.S. small and mid-size companies not in the S&P 500.
• I Fund (International Stock Index) follows the performance of developed international markets outside the U.S.
• L Funds (Lifecycle Funds) allocate assets across other TSP funds based on a target retirement date, adjusting automatically over time.

Contribution and allocation basics

You can contribute to your TSP account via payroll deductions, and if you are under FERS or the Blended Retirement System (BRS), you may also receive agency or service matching contributions. Participants select how incoming contributions are divided among the funds, and you may change allocations periodically to shift your investment mix. There are specific rules governing how often and in what manner you can adjust existing balances and future contributions.

What Are the Rules for TSP Investing?

Contribution limits and deadlines

Contribution limits for the TSP are set annually by the Internal Revenue Service (IRS). In 2026, these align with limits for other tax-advantaged retirement plans such as 401(k)s. You can make traditional (pre-tax) or Roth (post-tax) contributions, subject to the same combined limits. Special catch-up contributions are allowed for participants aged 50 and older.

Withdrawal and distribution requirements

Withdrawals from the TSP are typically permitted after separation from service, though in-service withdrawals are possible under specific circumstances (such as age-based withdrawals after age 59½ or financial hardship withdrawals). Federal law imposes required minimum distributions (RMDs) for participants beginning at the mandated age (currently 73, but this may change), and there are tax consequences associated with different types of withdrawals depending on your contributions and account type.

Which TSP Funds Are Available?

Description of core TSP funds

The five core TSP funds—G, F, C, S, and I—each come with distinctive characteristics in terms of asset type, risk, and potential for value change:

• G Fund: Principal is protected; returns are relatively stable, though growth may be limited.
• F Fund: May fluctuate with interest rates and bond market performance.
• C Fund: Exposes investments to the ups and downs of the large-cap U.S. equity market.
• S Fund: Focuses on smaller or mid-size U.S. companies, traditionally more volatile but offering long-term growth potential.
• I Fund: Provides international diversification but is subject to overseas market risks.

Lifecycle (L) funds explained

Lifecycle (L) Funds are designed for participants who prefer a more hands-off investment experience. Each L Fund aims for a specific target date (such as L 2030 or L 2065), automatically shifting asset allocations to pursue higher risk and growth potential early on, then becoming more conservative as the target date nears. These funds combine the G, F, C, S, and I Funds in varying proportions.

What Are the Investment Risks?

Types of risk in TSP funds

All investing—including in the TSP—carries risk. The main types of risk you may encounter include:

• Market risk: Potential for investments to lose value due to stock or bond market declines.
• Interest rate risk: Especially relevant for bond holdings like those in the F Fund.
• Inflation risk: The chance that returns will not keep pace with rising living costs, particularly relevant for lower-return funds.
• Currency and international risk: Present in the I Fund, reflecting changes in foreign exchange rates or overseas market volatility.

How TSP handles market volatility

The TSP promotes diversification by making several fund types available. L Funds further help by automatically adjusting allocations to match your approach to retirement. Unlike some plans, the TSP does not guarantee returns or protect against all value fluctuations, so temporary decreases in account value are possible. The G Fund is protected against market loss but may not keep pace with inflation during extended periods of low interest rates.

How Do You Choose TSP Investments?

Factors federal employees may consider

Selecting TSP investments often starts with your comfort with risk, your desired retirement date, and your need for future income. Some participants prefer to manage allocations themselves among the G, F, C, S, and I Funds, while others use L Funds to automate this process. Understanding the risk level, time horizon, and potential volatility of each fund is essential.

Life stage and retirement planning context

Your age, proximity to retirement, and broader financial situation may influence your choices. Younger participants might choose funds with higher growth potential and greater risk, while those nearing retirement may prioritize preservation and stability. The L Funds are structured to reflect these typical life-stage changes, but you can adjust allocations at any time to reflect your individual goals and tolerance for risk.

Can You Change TSP Investments Later?

Interfund transfers and rebalancing

You may change how your TSP account is allocated among funds through interfund transfers. These transfers allow you to move existing balances between funds or change how future contributions are invested. Rebalancing periodically can ensure your investments remain aligned with your intended risk and return profile.

Rules for frequent fund changes

TSP policy limits excessive short-term trading to maintain the efficiency and cost-effectiveness of its funds. You are generally allowed two interfund transfers per calendar month, with any subsequent reallocations limited to moves into the G Fund only. These rules help protect all participants from the disruptive effects of frequent trades.

Frequently Asked Questions About TSP Funds

Are TSP funds insured by the government?

Only the G Fund, which is backed by the full faith and credit of the U.S. government, offers principal protection. Other TSP funds, like the F, C, S, I, and L Funds, are not insured or guaranteed, and their values can fluctuate with market performance.

What happens if you leave federal service?

If you separate from federal employment, your TSP account remains yours. You can choose to leave your money in the TSP, roll it over to another eligible retirement plan, or withdraw it, subject to applicable rules and tax considerations. Required minimum distributions do apply once you reach the mandated age, even if you are no longer employed.