If You’re Not Paying Attention to These 2025 TSP Updates, Your Retirement Plan Might Be Outdated

Key Takeaways

• New TSP rules and contribution limits for 2025 could impact your withdrawal flexibility, especially if you plan to retire soon.

• Understanding age-based milestones, tax rule changes, and TSP withdrawal adjustments is critical to keeping your retirement plan current.

TSP in 2025: What’s Changing and Why It Matters

The Thrift Savings Plan (TSP) remains a cornerstone of retirement security for public sector workers. In 2025, several updates are reshaping how you contribute, withdraw, and plan for the future. If you’re approaching retirement or already managing withdrawals, now is the time to revisit your strategy. Relying on outdated assumptions could lead to unexpected tax liabilities, withdrawal delays, or reduced growth potential.

Updated Contribution Limits in 2025

The IRS has increased the contribution limits for TSP participants in 2025:

• The annual elective deferral limit is $23,500.

• The catch-up contribution for participants aged 50 and over is $7,500.

• A special super catch-up contribution for those aged 60 to 63, under the SECURE Act 2.0, adds an extra $11,250.

This means if you’re aged 60 to 63, you may contribute a total of $34,750 in 2025. These expanded limits provide a critical opportunity to increase your retirement savings during your highest-earning years. But unless you proactively elect the new limits with your payroll office, you may miss out.

Age-Based Milestones That Matter in 2025

TSP rules intersect with key age milestones. Here’s how they affect you this year:

Age 50 and Over

You qualify for catch-up contributions. However, these are no longer a separate election. You must simply make a total contribution above the standard limit, and TSP will categorize the excess automatically.

Age 55

If you separate from federal service in or after the calendar year you turn 55, you can take penalty-free TSP withdrawals, even if you’re under age 59½. This rule is critical if you’re planning early retirement.

Age 59½

You become eligible to take in-service withdrawals without the 10% early withdrawal penalty. This can offer flexibility if you’re transitioning to phased retirement.

Age 62

This is the point when the FERS Annuity Supplement ends, even if you don’t claim Social Security yet. If you’re relying on TSP withdrawals to bridge income, you’ll want to revisit your monthly distribution strategy.

Age 73

Required Minimum Distributions (RMDs) now begin at age 73. TSP calculates and distributes your RMDs automatically, but you still need to understand how this affects your taxable income.

Required Minimum Distributions in 2025

Under current rules, TSP participants must begin taking RMDs by April 1 of the year following the year they turn 73. So if you turned 73 in 2024, you must take your first RMD by April 1, 2025. If you turn 73 in 2025, your first RMD will be due by April 1, 2026.

Be aware that taking two distributions in one calendar year (April 1 and December 31) could bump you into a higher tax bracket. You can avoid this by taking the first RMD in the year you turn 73 rather than waiting until the April deadline.

Withdrawal Rule Refinements

TSP withdrawal options have become more flexible in recent years, but 2025 brings more clarity on usage:

• You can now make multiple partial withdrawals in retirement.

• You can choose monthly, quarterly, or annual installment payments.

• You may change the amount and frequency of installment payments at any time during the year.

However, the IRS still limits how you structure withdrawals to meet RMD requirements. Make sure your automatic installment plan aligns with your RMD obligations, or you could face penalties.

Tax Withholding and Roth TSP Adjustments

For 2025, you need to be aware of tax handling on traditional and Roth withdrawals:

• Traditional TSP withdrawals are subject to federal income tax. The default withholding is 20% for eligible rollover distributions and 10% for installment payments unless you elect otherwise.

• Roth TSP withdrawals are tax-free if you’ve met the 5-year rule and are age 59½ or older.

If you’re planning to convert traditional TSP assets to Roth outside of TSP (via rollover to an IRA), be aware of the income tax implications. These conversions may impact your Medicare premiums or eligibility for other tax credits.

Spousal and Beneficiary Considerations in 2025

Spousal beneficiaries now have more streamlined options. A surviving spouse can:

• Leave the inherited TSP in a beneficiary participant account

• Roll it over to their own TSP or IRA

• Take a full distribution

Non-spouse beneficiaries do not have the same flexibility. They generally must withdraw the account under the 10-year rule unless they qualify as an eligible designated beneficiary (such as a minor or disabled individual).

Naming your beneficiaries correctly in your TSP account is still critical. Even if your will or trust says otherwise, TSP pays out based on the beneficiary form on file. If you haven’t reviewed it recently, 2025 is the year to do so.

TSP G Fund and Market Volatility

The G Fund, considered the safest TSP option, continues to offer protection against loss of principal. However, its returns remain modest compared to other TSP funds. With inflation still elevated, over-allocating to the G Fund may erode purchasing power in retirement.

In 2025, Lifecycle (L) Funds have rebalanced slightly to accommodate market conditions, but you still need to tailor your investment mix based on your time horizon and risk tolerance. A hands-off approach may not serve you well in this shifting environment.

SECURE Act 2.0 Provisions Affecting TSP

Several provisions from the SECURE Act 2.0 are fully active in 2025:

• Emergency Withdrawal Access: You may now withdraw up to $1,000 per year for emergency expenses without penalty. However, you must repay or wait three years before taking another.

• Matching for Roth Contributions: Agencies now deposit matching funds for Roth TSP contributions into a traditional TSP account. These remain taxable upon withdrawal.

• 529 Plan Rollovers: Beginning this year, leftover 529 college savings plan funds may be rolled into a Roth IRA, subject to limits. Though not directly part of TSP, this could affect how you manage overall retirement assets.

TSP Loan Cautions

If you have an outstanding TSP loan when you separate from service, it must be repaid within 90 days. Otherwise, it is considered a taxable distribution and may be subject to a 10% penalty if you’re under age 59½.

In 2025, more retirees are opting to pay off loans before retirement to avoid unnecessary tax hits. With interest rates still relatively high, carrying a TSP loan into retirement may not be the best strategy.

Cybersecurity and Account Access Enhancements

TSP’s online platform has undergone updates in 2025 to enhance security and usability. These include:

• Multi-factor authentication (MFA) required for all users

• Enhanced login tracking and alerts

• Simplified navigation for withdrawals and investment changes

If you haven’t logged in since 2024 or earlier, expect a different experience. You may need to reset your credentials and verify identity. Doing this now can prevent delays when you need to make urgent changes.

What You Should Do Next

With all these changes in play, reviewing your TSP strategy in 2025 is not optional. Consider the following actions:

• Reassess your contribution levels, especially if you’re eligible for catch-up or super catch-up.

• Confirm your beneficiary designations are current.

• Review your withdrawal plan in light of RMDs and tax implications.

• Adjust your investment mix if your risk tolerance or retirement timeline has changed.

• Log in to your account to ensure access is current and MFA is set up.

Keep Your TSP Plan Current and Effective

The rules shaping your TSP aren’t static. And in 2025, several key updates could affect everything from how much you save to how and when you withdraw it. Treat your retirement plan like a living document that requires regular updates.

Getting outdated information or missing rule changes can cause irreversible tax and income consequences. If you’re unsure whether your plan still works for your goals, it’s worth having it reviewed.

For tailored guidance on your TSP and overall retirement strategy, get in touch with a licensed professional listed on this website.