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When it’s time to retire from your federal government career, you’ll likely receive benefits through the Federal Employees Retirement System (FERS) thanks to its Basic Benefits, Social Security, and the Thrift Savings Plan (TSP) pillars.

Your TSP is funded by payroll contributions that grow over time with the help of compound interest. Furthermore, you have two TSP options: Traditional and Roth. Understanding how these plans operate can help ensure a well-funded retirement.

Roth TSP vs. Traditional TSP: Knowing the Differences

Roth and Traditional TSPs share some similarities. Specifically:

• Maximum distribution limits. Both plans' annual 2025 contribution limit is $23,500, $31,000 if age 50 or older.
• Investment options. Your contributions to the TSP are allocated to various investment and “lifecycle” funds.

Here’s how these TSPs differ.

Traditional TSP: Taxable income reduction

Pre-tax dollars fund a Traditional TSP. In other words, you’re not taxed on contributions. This reduces your income, potentially lowering your taxes.

Other factors with the Traditional TSP are that:

• Your employer can match up to 5% of your contributions
• Withdrawals from the account when you retire are taxed as ordinary income
• You’re subject to Required Minimum Distributionsat the following ages:
  • 70 ½ years (if born before July 1, 1949)
  • 72 years (if born between July 1, 1949 and December 31, 1950
  • 73 years (if born between January 1, 1951 and December 31, 1959)
  • 75 years (if born after December 31, 1959)

A Traditional TSP could be a good option if you:

• Are currently in a higher tax bracket and need to reduce your income
• Need more take-home pay and don’t want to pay upfront taxes on contributions
• Are interested in employer-matching contributions

Roth TSP: Tax-free growth

One way the Roth TSP differs from its traditional cousin is that contributions come from after-tax dollars. You’re paying taxes upfront on what you put into the account.

Other differences include:

• Employers can't match your contribution amount
• There is no RMD – you can keep the money in the account for as long as you want
• Withdrawals from your account are tax-free as long as:
  • The withdrawal takes place at least five years after the first Roth contribution was made
  • You’re at least 59 ½ years old
• From an estate planning perspective, beneficiaries can inherit the account tax-free.

The Roth TSP could be a good option if you:

• Are currently in a low-income tax bracket
• Can afford to pay taxes on contributions upfront
• Are interested in a long-term earnings growth strategy
• Already have a large pre-tax retirement account balance and are looking to build up a Roth balance to promote tax flexibility in retirement.

Combining to diversify

Another option is to invest in both TSPs. This involves splitting payments between your Roth and Traditional accounts. The benefits are that:

• Contributions to a Traditional TSP can still somewhat decrease your current taxable income
• Contributions to a Roth TSP could reduce what you owe on withdrawals
• TSP diversification can provide a hedge against future tax uncertainties

If you direct part of your salary to both TSPs, be aware that your employer’s matching payments are automatically deposited to your Traditional TSP, so the pre-tax balance will always be ahead. Also, the annual contribution limit remains the same for both accounts.