Retirement Planning Retirement PlanningRetirement Planning
Advice on how to prepare for life after government.

Need Money? Look to the TSP

This is the second in a series of three columns on how to free up a little more spending money -- or increase the amount you’ll have available when you retire. Last week, we looked at life insurance coverage. Now let’s examine the Thrift Savings Plan.

First, it’s important to consider how sacrificing now can really pay off for you down the road. If you contribute $250 a month to the TSP, you reduce your taxable income by $250. This could add up to a tax savings of $50 to $75 per month. Look at it this way: You’re saving $250 every month, but reducing your take-home pay only by $175 to $200.

If you think you will be in a higher tax bracket in retirement and if you have some time for the money to accumulate a substantial amount of earnings, then you might consider using the Roth TSP option to save. Unlike regular TSP contributions, you’ll pay taxes on these now, but the withdrawals later will be tax-free as long as you meet certain conditions. Here’s more information about the Roth TSP option.

Keep in mind that even though the money you put in the TSP is set aside for retirement, it’s still your money. If you leave federal service, everything you have contributed to the TSP, along with matching agency contributions, belongs to you immediately. You can keep the funds in the TSP or withdraw them -- it’s up to you. There is a vesting requirement before the automatic agency 1 percent contribution to your account belongs to you, but even that is only three years.

This money can really add up. An employee under the Federal Employees Retirement System who saves 5 percent of a $60,000 salary (that’s $3,000 a year, or $250 a month) receives an additional $3,000 a year in agency automatic and matching contributions -- for a total account investment of $6,000. If you continue saving at that rate and earn an average 6 percent return, you’ll have more than $230,000 in 20 years. If you want to change any of the variables in this equation to see how your savings could add up, use the TSP’s online calculator.

A Word on Loans

One way to get quick money from your TSP account is to take out a loan. But remember, the simple truth is, while your money is out on loan, it’s not generating a return for you to use in retirement. You must pay yourself interest on the outstanding loan, but you’re missing growth potential. (Although I suppose if your money would have been in a fund that suffered a loss over the period of the loan, you could look at it as coming out ahead.)

Consider this: The payment on a $50,000 TSP loan would be $863 a month, assuming you’re paying the loan off in 60 months at 1.375 percent interest. That would add about $30 in interest back to your account each month.

At this rate, you would pay $1,780 in interest over the five-year loan repayment. (And TSP loan interest is not tax-deductible.) Also, you are making these payments using after-tax dollars. But the worst part of a TSP loan for some employees is they stop making contributions while making loan payments since they can’t afford both.

The TSP has more information on its website about investment options and loans.

Correction: The original version of this column said that If you think you will be in a lower tax bracket in retirement, the Roth TSP might be a good option. It's actually a good option if you anticipate being in a higher tax bracket. The column has been updated to correct the error.

Tammy Flanagan has spent 30 years helping federal employees take charge of their retirement by understanding their benefits. She runs her own consulting business at and provides individual counseling as well as online training for the National Active and Retired Federal Employees Association, Plan Your Federal Retirement as well as the Federal Long Term Care insurance Program. She also serves as the senior benefits director for the National Institute of Transition Planning Inc., which conducts federal retirement planning workshops and seminars.

For more retirement planning help, tune in to "For Your Benefit," presented by the National Institute of Transition Planning Inc. live on Federal News Radio on Mondays at 10 a.m. ET on WFED AM 1500 in the Washington-metro area. Archived shows are available on

Close [ x ] More from GovExec

Thank you for subscribing to newsletters from
We think these reports might interest you:

  • Sponsored by G Suite

    Cross-Agency Teamwork, Anytime and Anywhere

    Dan McCrae, director of IT service delivery division, National Oceanic and Atmospheric Administration (NOAA)

  • Data-Centric Security vs. Database-Level Security

    Database-level encryption had its origins in the 1990s and early 2000s in response to very basic risks which largely revolved around the theft of servers, backup tapes and other physical-layer assets. As noted in Verizon’s 2014, Data Breach Investigations Report (DBIR)1, threats today are far more advanced and dangerous.

  • Sponsored by One Identity

    One Nation Under Guard: Securing User Identities Across State and Local Government

    In 2016, the government can expect even more sophisticated threats on the horizon, making it all the more imperative that agencies enforce proper identity and access management (IAM) practices. In order to better measure the current state of IAM at the state and local level, Government Business Council (GBC) conducted an in-depth research study of state and local employees.

  • Sponsored by Aquilent

    The Next Federal Evolution of Cloud

    This GBC report explains the evolution of cloud computing in federal government, and provides an outlook for the future of the cloud in government IT.

  • Sponsored by LTC Partners, administrators of the Federal Long Term Care Insurance Program

    Approaching the Brink of Federal Retirement

    Approximately 10,000 baby boomers are reaching retirement age per day, and a growing number of federal employees are preparing themselves for the next chapter of their lives. Learn how to tackle the challenges that today's workforce faces in laying the groundwork for a smooth and secure retirement.

  • Sponsored by Hewlett Packard Enterprise

    Cyber Defense 101: Arming the Next Generation of Government Employees

    Read this issue brief to learn about the sector's most potent challenges in the new cyber landscape and how government organizations are building a robust, threat-aware infrastructure

  • Sponsored by Aquilent

    GBC Issue Brief: Cultivating Digital Services in the Federal Landscape

    Read this GBC issue brief to learn more about the current state of digital services in the government, and how key players are pushing enhancements towards a user-centric approach.


When you download a report, your information may be shared with the underwriters of that document.