How to maximize your 2025 TSP contributions

Many federal employees seek to maximize their retirement savings contributions. They want to be informed of any changes in tax laws that could affect their retirement savings. After all, our retirement savings are like our piggy banks, and we want to make sure we save as much as possible.

Many federal employees reading this also invest in private stock ETFs and mutual fund accounts, while also investing as much as possible in their Thrift Savings Plan (TSP) accounts. Raising the cap allows for even more tax deferral and tax-deferred wages (Traditional TSP), as well as 100% compounding of after-tax gains and/or contributions, but tax-free gains (Roth TSP), which could feel so good.

Let’s explore the latest developments and offerings, as there are more options available than ever before. There are some special provisions and increases associated with these 2025 rules that federal employees should be aware of.

New TSP Max financing options in 2025

Let’s say you won’t reach age 50 or older in 2025, but you still want to contribute the maximum to your TSP. The maximum contribution limit in 2025 for those under 50 is $23,500. To make it very clear, let’s break it down by payment period:

Under 50

$23,500/26 pay periods = $904

Well, not quite; it is $903.85 per pay period. To simplify the process, we round up to the nearest dollar. In the final pay period that your pay page withdraws from, the amount will automatically be reduced from $904 to $900 to prevent excessive contributions. We want to ensure tax compliance for your TSP.

The maximum contribution limit is now $7,500 in the year you turn 50. The TSP has updated its process to make it simpler; You can add the catch-up contribution along with the maximum contribution of $904 on the same line. Let’s see the following lines for more information.

The year in which you turn 50 or older

$23,500/26 pay periods = $904

Catch up from age 50

$7,500/26 pay periods = $289

Well, not quite; it equals $288.46, but now you get it.

TOTAL Maximum TSP Contributions for 2025, Age 50 or Older

$31,000/26 = $1,193

This excludes the final payout period, 26, where the amount is reduced to $1,175 to prevent overfunding.

We understand that the final amount of $1,175 may seem unusual, but if you simply allocate a maximum financing of $1,193 from the start of Pay Period 1, you won’t have any problems.

The years you will be: Age 60-63

This section may seem unusual, but it also offers significant benefits. The rules are particularly beneficial for Individuals They will reach the age of 60 to 63 in 2025. For these people, the catch-up regulations are even more generous. The limit is now $11,250, previously it was $7,500.

Let’s note the calculation again:

Catching up: Ages 60-63

$11,250/26 = $432.69

In total Maximum TSP contributions are now a whopping $34,750 per year for those between the ages of 60 and 63 only. Again, it seems a bit arbitrary and strange, but those are the rules. They represent a valuable opportunity for those of you who can take advantage of them. Maybe the message is that the government wants you to retire at around 64, but of course that’s not necessary. Check out the calculation below:

$34,750/26 = $1,337

This again excludes the final 26^Th Payment period in which the amount is reduced automatically to $1,325. This only applies to people ages 60 to 63 during the years they are contributing to their TSP or 401K.

Let’s look at the new increases in maximum contributions to your TSP for each pay period in 2025.

1. Younger than 50 – $904
2. The year you turn 50 – $1,193
3. The years you turn 60-63 – $1,337

Special caveat

Starting in 2026, if your prior year income exceeds $145,000, you will be required to contribute to your Roth TSP instead of your traditional IRA. This change applies to contributions made in 2026 and beyond.

Why this is all important

Let’s say a federal employee who makes $100,000 per year and currently has a $100,000 balance in his TSP decides to contribute $900 per pay period for the next 15 years. For the sake of illustration, let’s say he earns a return of 8%. However, it is important to note that actual returns may vary.

scenario

• Balance of $100,000
• Financing of $900 per payment period for the next 15 years
• A 5 percent agency share, based on an annual salary of $100,000, adds an additional $5,000 per year
• 8% annual return assumed
• Ending balance = $1,088,337

This scenario is not bad at all. Imagine investing more, taking advantage of the catch-up opportunity, starting with a larger balance than $100,000, and getting a higher return.

Considering all the other advantages

Knowing that every dollar invested in the TSP will either defer your tax liability and reduce your current taxable income or enable you to build a tax-free savings account (the Roth TSP) for retirement, are compelling reasons to Maximize your contributions when it fits your budget.