What Is the TSP Match and How Does It Work?

The Thrift Savings Plan (TSP) serves as a retirement savings and investment program for federal employees and uniformed service members, operating similarly to a 401(k) plan. This defined contribution plan offers participants the ability to save for retirement through payroll deductions. The “TSP match” refers to contributions made by the employing agency directly into an employee’s account, supplementing an individual’s personal savings.

Core Components of the TSP Match

The TSP match consists of two distinct types of contributions from the employing agency, designed to bolster savings. One component is the Agency Automatic (1%) Contribution, where the employing agency contributes an amount equal to 1% of an employee’s basic pay each pay period. This 1% contribution is automatic and does not require personal contributions. These funds are deposited from the first payday, though Blended Retirement System (BRS) members joining on or after January 1, 2018, typically receive these contributions after 60 days of service.

The second component involves Agency Matching Contributions, which are contingent upon an employee’s own contributions. For eligible employees, the agency provides a dollar-for-dollar match on the first 3% of basic pay contributed by the employee. Following this, the agency matches 50 cents on the dollar for the next 2% of basic pay contributed. This structure means that if an employee contributes at least 5% of their basic pay, the agency will contribute an additional 4% in matching funds. When combined with the Agency Automatic (1%) Contribution, an employee contributing 5% of their basic pay can receive a total agency contribution equivalent to 5% of their basic pay.

These agency contributions are calculated based on an employee’s “basic pay,” which typically includes base salary and certain types of locality pay, but generally excludes bonuses, overtime, or allowances. These employer contributions are separate from an employee’s own contributions and are not deducted from the employee’s pay. The agency matching contributions will cease if an employee stops their own contributions, but the Agency Automatic (1%) Contribution will continue.

Eligibility and Vesting Requirements

Eligibility for the TSP match primarily extends to federal employees covered under the Federal Employees’ Retirement System (FERS) and uniformed service members under the Blended Retirement System (BRS). FERS employees, generally those hired on or after January 1, 1984, are eligible for both the Agency Automatic (1%) Contribution and Agency Matching Contributions. Similarly, BRS members are eligible for both types of agency contributions, although those who entered service on or after January 1, 2018, will begin receiving matching contributions after two years of service. In contrast, employees covered by the Civil Service Retirement System (CSRS) are not eligible for agency contributions.

For the TSP, participants are immediately vested in their own contributions and any Agency Matching Contributions. This means that the funds contributed by the employee, and the corresponding agency matching funds, are immediately owned by the employee and will not be forfeited if they leave federal service. However, the Agency Automatic (1%) Contribution is subject to a vesting schedule. Full vesting in the 1% automatic contribution typically occurs after three years of federal civilian service for FERS employees, and two years for uniformed service members. If an employee separates before meeting this vesting period, those contributions and any earnings will be forfeited.

Employee Contribution Strategy for the Match

To secure the maximum agency matching contributions, employees should aim to contribute at least 5% of their basic pay to their TSP account. This contribution level ensures they receive the full 4% agency matching contribution. Failing to contribute this minimum percentage means foregoing a portion of this valuable employer contribution.

Employees planning to contribute the maximum allowable amount to their TSP annually should spread their contributions evenly across all pay periods. If an employee reaches the Internal Revenue Service (IRS) annual elective deferral limit too early, personal contributions will cease for the remaining pay periods. Since agency matching contributions are tied to per-pay-period contributions, hitting the limit prematurely will result in missing matching funds. To avoid this, employees can calculate the per-pay-period amount needed to reach the annual limit by dividing the IRS limit by the total number of pay periods, then adjust their contribution percentage.

Employees can adjust their contribution percentages through their agency’s payroll system or the TSP website. Contributions can be made to a traditional TSP or a Roth TSP, or a combination. Regardless of whether contributions are made to a traditional or Roth TSP, the agency matching contributions are always deposited into the traditional TSP balance. This distinction impacts the tax treatment of the matching funds upon withdrawal in retirement, as traditional TSP withdrawals are taxable, while qualified Roth withdrawals are tax-free.