How TSP Contributions Affect Your Federal Paycheck

Traditional TSP

How does a traditional TSP contribution change your take-home pay?

When you elect traditional TSP, your contribution is subtracted from your gross pay before federal income tax withholding is calculated. This means every dollar you contribute reduces your taxable wages on your W-2 (Box 1). If you are in the 22 percent bracket, a $500 biweekly contribution lowers your federal tax by roughly $110 that pay period — so your net paycheck drops by about $390, not the full $500.

However, traditional TSP does not reduce your Social Security or Medicare taxes. Your contributions still appear in W-2 Boxes 3 and 5 (Social Security and Medicare wages). This is identical to how a private-sector traditional 401(k) affects a paycheck.

The trade-off: you pay less tax now, but every dollar you withdraw in retirement is taxed as ordinary income.

How does Roth TSP affect your paycheck differently?

A Roth TSP contribution is deducted after federal income tax (and after FICA). Your taxable wages remain unchanged, so your income tax withholding stays the same whether you contribute or not. Dollar for dollar, a Roth contribution reduces your take-home pay more than a traditional contribution of the same size.

The payoff comes in retirement: qualified Roth TSP withdrawals — both contributions and earnings — are completely tax-free, provided you are at least 59½ and the Roth account has been open for at least five years.

Traditional vs Roth TSP: side-by-side comparison

Agency matching contributions always go into your traditional TSP balance, even if you contribute entirely to Roth. This means you will always have some traditional balance that is taxable upon withdrawal.

2026 limits

What are the 2026 TSP contribution limits?

The $24,500 limit is shared between traditional and Roth TSP — you cannot contribute the maximum to each. Catch-up contributions are also shared. If you are 50 or older, your combined maximum is $32,500. If you turn 60 through 63 in 2026, the enhanced catch-up replaces the standard catch-up, giving you a combined maximum of $35,750. For more on catch-up rules across all plan types, see catch-up contributions after 50.

How does the TSP agency match work?

If you are a FERS employee (including FERS-RAE and FERS-FRAE), your agency makes two types of contributions to your TSP account:

1. Automatic 1 percent: Your agency deposits 1 percent of your basic pay each pay period, regardless of whether you contribute anything yourself. This money vests after three years of federal service (two years for some positions).
2. Matching contributions: Your agency matches 100 percent of the first 3 percent of basic pay you contribute, plus 50 percent of the next 2 percent.

Worked example: $80,000 salary, 5 percent contribution (illustrative)

• Your biweekly contribution: $80,000 × 5% ÷ 26 = $153.85
• Agency automatic (1%): $80,000 × 1% ÷ 26 = $30.77
• Agency match on first 3%: $80,000 × 3% ÷ 26 = $92.31
• Agency match on next 2% at 50%: $80,000 × 2% × 50% ÷ 26 = $30.77
• Total going into TSP each pay period: $153.85 (yours) + $153.85 (agency) = $307.70
• Annual total: approximately $8,000 ($4,000 yours + $4,000 agency)

If you choose traditional TSP and your marginal federal rate is 22 percent, that $153.85 contribution reduces your income tax by about $33.85 per pay period. Your actual take-home pay drops by roughly $120, not $154 — making the effective cost of contributing substantially less than the headline number. For a detailed breakdown of all federal paycheck deductions, see our FERS deductions guide.

What are the TSP fund options?

TSP offers five individual investment funds and a series of Lifecycle (L) funds. Each individual fund tracks a different asset class:

The L Funds (Lifecycle funds) are target-date funds that automatically blend the five individual funds and shift toward more conservative allocations as you approach your target retirement year. If you prefer a hands-off approach, choosing the L Fund closest to your expected retirement year is a reasonable starting point.

You can change your fund allocation at any time through the TSP website or the ThriftLine. There is no fee for interfund transfers, but TSP limits you to two transfers per calendar month into the G, F, C, S, or I funds (transfers into an L Fund do not count toward this limit).

Common TSP mistakes that cost federal employees money

• Contributing less than 5 percent: You forfeit the full agency match. On an $80,000 salary, contributing 3 percent instead of 5 percent costs you roughly $1,600 per year in missed matching funds (illustrative).
• Keeping everything in the G Fund: The G Fund preserves principal but historically offers returns barely above inflation. Over a 30-year career, the difference between G-only and a diversified stock allocation can be hundreds of thousands of dollars in retirement savings. Review your allocation at tsp.gov.
• Forgetting catch-up contributions: If you turn 50, 60, 61, 62, or 63 during the year, update your election to take advantage of higher limits. Your payroll office will not do this for you automatically. See our catch-up contributions guide for details.
• Not designating a beneficiary: Without a TSP beneficiary designation on file, your account follows the statutory order of precedence, which may not match your wishes — especially if you are divorced or remarried.
• Ignoring the Roth option early in your career: New federal employees in lower tax brackets often benefit most from Roth TSP, locking in today’s lower rate. Compare the two approaches with our Roth vs traditional calculator.

Military service members who contribute to TSP face additional considerations around combat zone tax exclusion and deployment. If you are transitioning from military to civilian federal service, the military retirement pay tax guide and combat zone tax exclusion page cover those scenarios.

For a broader look at how all paycheck deductions work — not just TSP — see paycheck deductions explained, or enter your salary in our paycheck calculator to see the full picture.