The Thrift Savings Plan (TSP) is a crucial component of Federal employees’ retirement planning, offering tax-advantaged savings and investment options. Several important changes and updates took effect on January 1, impacting contribution limits and investment opportunities.
Here’s what TSP participants need to know in 2025:
2025 Contribution Limit Increases
- Elective Deferral Limit: The IRS announced that the annual contribution limit for 401(k) plans, including TSP, will be $23,500, an increase from $23,000 in 2024.
- Catch-Up Contributions for Ages 50 and Older: Participants turning 50 or older in 2025 can contribute an additional $7,500 beyond the regular limit, allowing for a total contribution of $31,000. This option is designed to help employees accelerate their retirement savings as they approach retirement age.
- Catch-Up Contributions for Ages 60-63: Under the SECURE 2.0 Act, participants aged 60 to 63 will have a higher catch-up contribution limit of $11,250, providing an enhanced opportunity for those nearing retirement to boost their savings.
Lifecycle (L) Funds Overview
For those that don’t feel secure in investing within individual funds on their own, TSP offers Lifecycle (L) Funds, which are target-date funds designed to simplify investment decisions by automatically adjusting the asset allocation as the participant approaches retirement. Each L Fund corresponds to a specific retirement time horizon, becoming more conservative over time.
- L Income Fund: Designed for participants who are currently withdrawing or plan to withdraw from their accounts soon. It focuses on preserving assets while providing a low level of growth.
- L 2025 Fund: Aimed at those planning to retire around the year 2025. It seeks a moderate level of growth with a moderate emphasis on asset preservation. As of July 2025, the L 2025 Fund will merge into the L Income Fund as it reaches its target date.
- L 2030, L 2040, L 2050, etc. Funds: Each fund targets a specific retirement date, with asset allocations becoming progressively more conservative as the target date approaches. For example, the L 2030 Fund aims for moderate-to-high growth with low emphasis on preservation, adjusting its allocation quarterly to reduce risk as 2030 nears.
Watch this short overview video, Your TSP Investment Options: The Lifecycle Funds.
Individual Investment Funds
Beyond the L Funds, TSP offers five individual funds, each with a distinct investment focus. These funds allow for employees and retirees to invest their TSP into individual fund accounts to make investing more customizable and flexible.
- G Fund: Invests in short-term U.S. Treasury securities, aiming to preserve capital while generating returns above inflation.
- F Fund: Tracks the Bloomberg U.S. Aggregate Bond Index, providing exposure to the U.S. bond market.
- C Fund: Mirrors the performance of the S&P 500 Index, offering exposure to large-cap U.S. equities.
- S Fund: Tracks the Dow Jones U.S. Completion Total Stock Market Index, focusing on small to mid-sized U.S. companies.
- I Fund: Follows the MSCI EAFE Index, providing exposure to international stocks from developed markets.
Understanding Share Prices and Contributions
- Share Prices: The share price of each fund represents the value of one share in that fund. These prices fluctuate daily based on market performance and the underlying assets of the fund.
- Contributions: When you contribute to TSP, your money is used to purchase shares in your selected funds. The number of shares purchased depends on the contribution amount and the current share price.
Example:
If you contribute $1,000 to the C Fund with a share price of $92.3577, you will purchase approximately 10.83 shares ($1,000 ÷ $92.3577 per share).
Mutual Fund Window
For participants seeking broader investment options, TSP offers a mutual fund window. Eligible participants can invest a portion of their TSP savings in a selection of mutual funds beyond the core TSP funds. This option allows for greater diversification but comes with additional fees and eligibility requirements.
Key Considerations for TSP Participants
- Stay Informed: Regularly review TSP communications and updates to understand how changes may impact your retirement planning.
- Assess Investment Choices: Evaluate whether the L Funds or individual funds align with your retirement goals, risk tolerance, and time horizon.
- Contribution Strategies: Consider maximizing contributions, especially if you’re eligible for catch-up contributions, to take full advantage of tax-advantaged growth.
If you wish to review the Rates of Return to date, visit https://www.tsp.gov/fund-performance/. By understanding these updates and investment options, TSP participants can make informed decisions to enhance their retirement readiness in 2025 and beyond. To follow your TSP investments and journey, log into your TSP frequently via www.TSP.gov or by using the TSP App.