How Much Is TSP Matching & How Does It Work?

The Thrift Savings Plan (TSP) is a retirement savings and investment vehicle for federal employees and members of the uniformed services, similar to a private sector 401(k). Employer contributions are a key component of the TSP, providing a valuable boost to savings and encouraging employees to save for retirement.

Understanding TSP Matching

TSP matching refers to employer contributions that supplement an employee’s savings within their TSP account. This mechanism acts as an incentive, enhancing retirement fund growth. It is important to distinguish between two types of employer contributions: the automatic agency contribution and agency matching contributions.

The automatic agency contribution is 1% of an employee’s basic pay, contributed by the agency regardless of employee contributions. This 1% is deposited into the Traditional TSP account. Agency matching contributions are contingent upon the employee’s personal contributions, providing an additional layer of employer funding.

The Matching Formula

Agency matching contributions are determined by a specific formula, designed to maximize employee savings. For employees covered by the Federal Employees Retirement System (FERS), the agency matches the first 3% of an employee’s basic pay contributed dollar-for-dollar.

For the next 2% of an employee’s contribution, the agency matches at a rate of 50 cents on the dollar. If an employee contributes an additional 2% (totaling 5%), the agency contributes 1%. To receive the maximum agency matching contribution of 4% of basic pay, an employee must contribute at least 5% of their own basic pay. This 4% matching contribution is in addition to the automatic 1% agency contribution, resulting in a total potential agency contribution of 5% when the employee contributes at least 5%.

Meeting Eligibility Requirements

To receive TSP matching contributions, an employee must actively contribute to their TSP account. Unlike the automatic 1% agency contribution, which is provided regardless of employee contributions, matching funds are directly tied to employee participation.

Vesting schedules dictate when an employee gains full ownership of employer contributions. For TSP matching contributions, employees are immediately vested, meaning these contributions and their earnings are always theirs to keep. The automatic 1% agency contribution has a separate vesting period, often requiring two or three years of federal civilian service, depending on the employee’s position and retirement system. If an employee separates from federal service before meeting this vesting requirement for the automatic 1% contribution, those funds and their earnings may be forfeited. Matching contributions cease upon separation from federal service.