For Federal Employees the TSP is the third component of the FERS retirement System along with the FERS annuity and Social Security. Investing in your TSP is an important way for you to build up a valuable nest egg for your retirement. Under “traditional” investing the dollars going in are pre-tax meaning that you don’t pay tax on deposits for now which reduces your tax liability on the growth and deposits until you or your heirs withdraw that money out. There is a rule with retirement accounts of deferred taxation called a Required minimum distribution forcing you to withdraw from the account/s once you turn 70 1/2 and forced you to pay taxes as if it were income.
The other option in the TSP is the Roth TSP which does not give you a tax deduction however it grows and is withdrawn tax free without restriction.
Actively employed participants, although not retirees, may invest annually an amount up to an IRS- set dollar cap called the elective deferral limit which is tied to income and filing status. Your agency will contribute an amount up to 1 percent of your basic pay each pay period. Once you start making your own investments the agency matches the first three percent of basic pay a dollar for each dollar you invest and then the next two percent of basic pay the agency match is 50 cents for each dollar you invest up to five percent after that there is no match.
There are more conditions that are more specialized that can be reviewed on the TSP website www.tsp.gov.