Understanding How The TSP Agency Match Works

The Thrift Savings Plan (TSP) was created to provide federal employees with Uncle Sam’s version of a private sector 401(k) but with lower fees and a higher 5% employing agency match. Unfortunately, far too many federal employees were not contributing enough each pay period to qualify for their 5% agency match. When you crunch the numbers, this is a considerable amount of money to lose. That’s why it’s important to understand how the agency match works.

Agency Automatic 1% Contributions

Each pay period, your agency or service will contribute an amount equal to 1% of your basic pay to your TSP account. Also known as non-elective contributions, you don’t need to make employee contributions to your TSP account to receive the automatic agency 1% contribution. Since it is non-elective, it’s not deducted from your pay and doesn’t reduce your pay for income tax purposes.

“It’s simple, really. If you’re not taking full advantage of the 5% agency match, you’re walking away from free money - literally.”

Federal Employee Contributions

If you began or rejoined federal service on or after October 1, 2020, you were automatically enrolled in the TSP with 5% of your basic salary as your employee contribution. This change was made to help ensure newly hired workers benefited from the 5% agency match. (If you began or rejoined federal service between August 1, 2010, and September 30, 2020, you were automatically enrolled at 3%).

Each pay period, your TSP contribution is deducted from your basic salary in the amount or percentage that you elected when you first started contributing. This means that if you were hired before the dates above, you elected the percentage of your pay. If you elected a TSP contribution of less than 5%, you’ve already lost a good amount of free money.

How Agency Matching Contributions Work

Your agency will match up to the first 5% of your pay that you contribute each pay period. The first 3% will be matched dollar-for-dollar. The next 2% of your employee contribution will be matched at 50 cents on the dollar. When you add in the magic of compound interest, you can see why the 5% agency match is considered free money. Keep in mind that your Roth TSP contributions also get the agency match however the matching portion is deposited into your traditional TSP balance for tax purposes.

Maximize Your TSP Nest Egg

It’s simple, really. If you’re not taking full advantage of the 5% agency match, you’re walking away from free money - literally. To learn more about maximizing your TSP nest egg, connect with an FRC® trained advisor.