Blog / Retirement Planning
Is Your TSP Ready to Pay You? How to Take It Out of Park
Plenty of federal employees have saved diligently for 15 or 20 years and then parked the money. Here is how to tell if your TSP is stuck in park and how to put it back in drive.
Protection funds and growth funds
The G Fund and F Fund are the protection side of the TSP. The C, S and I Funds are the growth side: the C Fund tracks the S&P 500, the S Fund tracks small and mid-sized U.S. companies, and the I Fund tracks international stocks. The Lifecycle (L) Funds blend them by target date. Check current and historical returns on tsp.gov before you change anything.
The G Fund trap
The G Fund never loses value, which is why people run to it after a bad quarter. If your balance drops $8,000 and you move to the G Fund, that $8,000 loss becomes permanent. When the market recovers, the C, S and I Funds recover with it and you are left watching.
“I just had somebody move their money out of the G Fund today. They'd been in it a year and a half and only made about 2%. It's never too late.” — Raphael Jones
The G Fund makes sense for money you will spend soon. For money you won't touch for years, it usually loses ground to inflation.
Changing your mix: two different buttons
- Interfund transfer moves money you have already saved between funds.
- Contribution allocation decides where new paycheck contributions go.
You can change one without the other. Once you retire, only the interfund transfer remains, so decisions about your existing balance matter more.
Don't leave the match on the table
FERS employees get an automatic 1% agency contribution plus matching on up to 5% of pay, for 5% total. If you contribute all your savings to the Roth TSP, the match still arrives; it goes into your traditional balance.
How withdrawals are taxed
Every dollar from the traditional side counts as ordinary income. If you earn $100,000 and pull $60,000, the IRS taxes you like someone who earned $160,000. Single withdrawals and installments paid over less than 10 years carry 20% mandatory federal withholding when paid to you, and you may owe more or get some back at tax time. State tax is separate.
Roth TSP withdrawals are tax-free once you are 59½ and five years have passed since your first Roth contribution. Building a Roth cushion of $25,000 to $30,000 before you retire gives you a tax-free source to cover the months before your first full annuity payment.
Early access: the age-55 rule
Withdrawals before 59½ usually carry a 10% penalty. The exception: if you separate in or after the year you turn 55, TSP withdrawals are penalty-free. For federal law enforcement officers, firefighters, air traffic controllers and other public safety employees, that age is 50, or any age after 25 years of service.
RMDs: plan them before the IRS does
If you were born 1951–1959, required minimum distributions start at 73. Born 1960 or later, they start at 75. Leave a large traditional balance untouched and RMDs can push you into a higher bracket in your late 70s. Moving money to the Roth TSP is not an RMD; it is a conversion.
Your five-minute TSP checkup
- How many years until you retire?
- What percentage sits in the G and F Funds?
- What percentage of pay are you contributing? Is it at least 5%?
- How much is traditional and how much is Roth?
- Which RMD age applies to you, 73 or 75?
Questions from the live audience
How much of my TSP should be in the G Fund when I retire?
It depends on when you need the money. Money you plan to spend in the next year or two can sit in the G Fund. Money you won't touch for years usually belongs in growth funds, because your FERS pension already covers much of your income.
Can I choose which TSP funds my withdrawals come from?
Yes. The TSP lets you choose which funds a withdrawal comes from, or take it proportionally.
What happens if the market drops right when I retire?
If you don't need to take all your money out, you can wait for the market to recover just as you did while working. That is why we keep a protected bucket for near-term income.
Can I stay in the Lifecycle funds after I retire?
Yes. Many retirees use L Income, and others choose a later-dated L Fund to keep more growth if they won't need the money soon.
Your numbers, not an example
See what this looks like for your TSP and pension.
The first call is free. We gather your service date, salary, TSP balance and goals, then show you where the gaps are.
Schedule A MeetingFed Legacy is an independent financial services firm helping federal employees create retirement strategies using a variety of insurance products. Any reference to protection benefits, safety, security, steady and reliable income, or lifetime income streams refers only to fixed insurance products. Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Annuities may be subject to fees, surrender charges and holding periods, and are not FDIC insured. This content is educational and is not tax or legal advice. Fed Legacy is not affiliated with OPM, the FRTIB or any federal agency.