The Thrift Savings Plan Has New Rules in 2025—What Every Federal Employee Should Know Before Contributing

Key Takeaways:

1. The Thrift Savings Plan (TSP) has new contribution limits and rules for 2025, which can significantly impact your retirement savings strategy.

2. Understanding these changes can help you maximize your benefits and ensure you’re on track for a comfortable retirement.

Why the Thrift Savings Plan is a Big Deal for Federal Employees

As a federal employee, the Thrift Savings Plan (TSP) is one of the most valuable tools at your disposal for building retirement wealth. Think of it as your personal pension booster. It’s tax-advantaged, includes generous government contributions for FERS participants, and offers a wide range of investment options to suit your goals and risk tolerance. For 2025, the TSP has undergone some changes you need to know to make the most of your contributions.

What’s New in 2025? Let’s Break It Down

Increased Contribution Limits

For 2025, the maximum contribution limit for the TSP is $23,500. If you’re aged 50 or older, you can contribute an additional $7,500 in catch-up contributions. What’s more, employees aged 60 to 63 can now make an enhanced catch-up contribution of $11,250, bringing their total limit to $34,750. These increases provide a golden opportunity to ramp up your savings as you near retirement.

Secure 2.0 Act Provisions

The SECURE 2.0 Act introduced several new provisions affecting the TSP in 2025. One standout feature is the ability to match Roth contributions. If you’re contributing to the Roth TSP, your matching contributions from the government can now also be designated as Roth, which wasn’t possible before. This change can help diversify your tax liabilities in retirement.

Matching Contributions: Are You Getting the Full Benefit?

FERS employees receive automatic government contributions equal to 1% of their salary, plus matching contributions of up to 4% when they contribute at least 5% of their pay. Missing out on these contributions is like leaving free money on the table. Check your TSP account to ensure you’re contributing enough to get the full match—this is the simplest way to boost your retirement savings.

Tax Advantages: Roth vs. Traditional TSP

When contributing to your TSP, you have two main tax options: Traditional (pre-tax) and Roth (post-tax). Each has unique benefits:

• Traditional TSP: Contributions reduce your taxable income now, but withdrawals are taxed in retirement.

• Roth TSP: Contributions are made with after-tax dollars, but qualified withdrawals are tax-free.

The new Roth matching contributions make the Roth TSP even more appealing, especially if you expect to be in a higher tax bracket during retirement. However, your choice should align with your current financial situation and long-term goals.

Planning for the Required Minimum Distributions (RMDs)

In 2025, the age for Required Minimum Distributions (RMDs) is 73. This means you must start withdrawing a portion of your TSP balance by April 1 of the year after you turn 73. Planning for RMDs is crucial because these withdrawals are taxable and could push you into a higher tax bracket. To minimize the impact, consider strategies like withdrawing smaller amounts early or rolling your TSP into an IRA.

Make the Most of Lifecycle Funds

Lifecycle (L) Funds in the TSP are an excellent option if you prefer a hands-off approach to investing. These funds automatically adjust your asset allocation based on your target retirement date, becoming more conservative as you get closer. In 2025, the TSP has streamlined its L Funds lineup, making it easier to select the right fund for your retirement timeline.

TSP Loans: A Lifeline or a Pitfall?

The TSP allows you to borrow against your account balance, but tread carefully. While it’s tempting to view your TSP as a safety net, taking out a loan means missing out on potential investment gains. If you’re considering a TSP loan in 2025, weigh the pros and cons carefully. Remember, you’ll be repaying yourself with interest, but your future retirement balance may take a hit.

Addressing Inflation and Market Volatility

Inflation and market fluctuations can erode your TSP savings over time. In 2025, the TSP’s investment options include funds designed to counter these risks, such as the G Fund (government securities) and the I Fund (international stocks). Diversifying your portfolio can help balance growth potential and risk. Regularly review your asset allocation to ensure it aligns with your risk tolerance and retirement goals.

Retirement Income Options: Beyond the TSP

The TSP offers several ways to convert your savings into retirement income:

• Partial Withdrawals: Take out part of your savings while leaving the rest invested.

• Annuities: Provide a guaranteed income for life but come with fees and limited flexibility.

• Monthly Payments: Withdraw a set amount each month, which you can adjust as needed.

Evaluate these options carefully. Your choice will depend on your overall retirement strategy, including Social Security and any other pensions or savings you have.

Don’t Forget About Spousal Protections

If you’re married, spousal rights apply to your TSP account. For example, if you want to withdraw funds as a lump sum, your spouse must provide notarized consent. These rules are designed to protect spouses from losing access to retirement funds, so be sure to discuss your plans with your partner.

The Importance of Regular Account Reviews

Life happens, and your retirement goals may shift over time. That’s why it’s essential to review your TSP account regularly. Update your contributions, reallocate investments, and ensure your beneficiary designations are current. An annual review—or more frequent check-ins—can keep you on track to meet your retirement objectives.

The SECURE 2.0 Act’s Impact on Catch-Up Contributions

Starting in 2025, catch-up contributions for high earners (those earning $145,000 or more) must be made as Roth contributions. This means these contributions will be taxed upfront but grow tax-free. This rule aims to encourage tax diversification and may affect how you plan your savings strategy. If you’re a high earner, consult a financial advisor to understand how this change impacts you.

Deadlines You Shouldn’t Miss

• Open Season: The TSP Open Season runs from mid-November to mid-December each year, allowing you to adjust your contributions.

• End-of-Year Contributions: Ensure you max out your contributions by December 31 to take full advantage of the annual limit.

• Roth Catch-Up Contributions: If you’re eligible, plan these contributions before the year’s end.

Mark your calendar to avoid missing these important deadlines.

Stay Informed to Stay Ahead

The TSP is a dynamic plan, and changes like those in 2025 are a reminder of the importance of staying informed. Subscribe to TSP updates and attend webinars or workshops to keep up with the latest developments. The more you know, the better equipped you’ll be to make informed decisions about your retirement.

Your Roadmap to a Comfortable Retirement

The TSP’s 2025 updates bring new opportunities and challenges for federal employees and retirees. By understanding the changes, maximizing your contributions, and making informed investment choices, you can secure a financially stable future. Don’t wait—review your TSP strategy today and take charge of your retirement journey.