Three Advantages of the TSP

The Thrift Savings Plan (TSP) is designed to closely resemble the private sector’s 401(k). Although the TSP is similar to the 401(k), its additional features, including low fees, broad diversification, and a generous government match, make it superior to most 401(k)s and a perfect wealth-building vehicle for Federal Employees.

Here’s a closer look the three advantages that make the TSP a no-brainer for most Federal Employees:

Low Cost

Since the TSP’s investment costs are subsidized by the Federal government, it is difficult for any 401(k) to compete with the low TSP fees. For instance, all TSP funds have an expense ratio of 0.042%, meaning that for every $1,000 invested, the investor pays a fee of 42 cents. In comparison, the Vanguard 500 Index Fund, a common 401(k) fund, has an expense ratio of 0.14% ($1.40 for every $1,000 invested); that’s over 3x more than the TSP fees! Although there are other “low-cost” funds, you will be hard-pressed to find a 401(k) that can compete with the TSP’s bargain prices.

It is difficult for any 401(k) to compete with the low TSP fees.


The TSP boasts ten broad-based investment options that will more than satisfy the needs of most investors. The options are comprised of five index funds and ten target-date funds (referred to as “Lifecycle” or “L” Funds). Here is a brief rundown of the options:

The G Fund owns only short-term government securities, filling the same role as a money market or short-term bond fund. In contrast, the F Fund owns longer-term fixed-income securities, tracking an index that includes not only government bonds but also corporate, asset-backed, and foreign government bonds.

The TSP has three stock funds. The C Fund tracks the S&P 500 Index, while the S Fund owns shares of small and mid-sized companies, both funds provide exposure to the aggregate U.S. stock market. The I Fund invests in international stocks in nearly two dozen countries that make up the developed markets of Europe, Asia, and the Far East.

Both TSP domestic stock funds provide exposure to the aggregate U.S. stock market.

Lastly, the L Funds are the equivalent to target-date funds. They allow you to pick one of ten different target dates and then have the investment allocation gradually changed, reducing your portfolio’s risk as you near the target date. Currently, the L Fund options are 2025, 2030, 2035, 2040, 2045, 2050, 2055, 2060, and 2065, as well as a current-income fund for those already taking withdrawals.

Although the TSP’s investment options are simple, they are comprehensive and provide an adequate level of diversification for most passive investors.

Free Money

The Federal Government will contribute up to 5% of your salary to your TSP if you contribute at least 5%. That is an incredible deal! All Federal Employees covered under the Federal Employee Retirement System (FERS) or Blended Retirement System (BRS) are eligible for the match. The breakdown is as follows:

Up to a 5% match!

Your agency will automatically contribute 1% to your TSP. In addition, the government will match 100% of the first 3% you contribute and then will match 50% of the next 2% you contribute. Who doesn’t like free money!

When you take into account the TSP’s cost-effectiveness, and broad diversification, with a great employer match, it’s easy to see why the plan deserves high praise. If you are a Federal Employee, you have a great wealth building tool at your disposal.

Get Tips On Maximizing Your Federal Employee Benefits!

Start on your path to financial freedom by getting our weekly articles full of tips on maximizing your benefits and the occasional freebie.

Privacy Policy: We do not sell or share your information with anyone.

2023 Legislative Change Notice

The SECURE ACT 2.0 passed and impacted many of the articles on this website. While the articles were correct when written, it’s impossible to re-write every article. Please consult a qualified professional (i.e., CFP®, CPA, or attorney) before implementing any strategy.

Author: Jose Armenta, MsBA, CFP®, ChFC®, EA

Hi, I’m Jose Armenta, a Certified Financial Planner practitioner. For over 14 years, I have worked with or among federal employees, from serving in the Marine Corps to my stint as a police dispatcher and now as a financial planner specializing in helping FERS federal employees. In that time, I have spoken to hundreds of federal employees about their benefits and retirement. Helping federal employees maximize their benefits, reduce taxes, and live confidently is a passion of mine. When I am not perfecting financial plans, you’ll find me at the shooting range, playing the drums, or breaching blanket forts with my three little ones.