The TSP and an IRA are both amazing tools to grow your money, but they are not created equal, especially while you are still working. Which is better at building wealth?
Note: This article will focus on TSP vs. IRA while you are working.
Benefits of Using Just the TSP During Your Career
Great Low-Fee Funds
One of the biggest benefits of using the TSP while you’re working is simplicity. There are only 5 basic funds (G, F, C, S, and I Funds) and the L Funds which are combinations of the 5 basic funds. Even though the funds are very different, over time each of the 5 funds have made positive returns.
The Match
The second-biggest advantage of using TSP during your career is the employer match. Many of you may know that by contributing 5% of your paycheck into the TSP, your employer will also pay 5% of your salary into the TSP. This is a great deal!
If you were to avoid the TSP and just invest in an IRA during your career, you will NOT receive the employer match.
If you’re not familiar with how the government matches your contributions, here is a table:
| % of Salary That You Contribute | Your Agency’s Contribution | Total % Contributed to Your TSP |
| 0% | 1% | 1% |
| 1% | 2% | 3% |
| 2% | 3% | 5% |
| 3% | 4% | 7% |
| 4% | 4.5% | 8.5% |
| 5% | 5% | 10% |
| More than 5% | 5% | Your Contribution + 5% |
Contribution Limit
The last major benefit of using the TSP during your career is the contribution limit. The TSP has a much higher contribution limit than an IRA. In 2024, the TSP allows anybody under the age of 50 to contribute $23,000 during any one year, while the IRA only allows $7,000. The TSP allows anybody age 50 and above to contribute $30,500 to their TSP, while the IRA only allows $8,000.
In 2025, the contribution limits for the TSP will increase to $23,500 for anyone under age 50, $7,500 ($31,000 total) for ages 50+, and $11,250 for ages 60-63 ($34,750 total) while the IRA limit will remain $7,000.
Here is a great table that shows the contribution limits for the TSP:
| Age | 2024 Contribution Limit | 2024 Amount Per Normal Pay Period | 2025 Contribution Limit | 2025 Amount Per Normal Pay Period |
| Under 50 Years | $23,000 | $885 | $23,500 | $904 |
| 50+ Years | $30,500 | $1,173 | $31,000 | $1,192 |
| 60-63 Years | N/A | N/A | $34,750 | $1,337 |
Downsides of an IRA During Your Career
Earnings Limits
Regardless of your income level, you can always use the TSP (traditional and/or Roth). However, the same is not true for IRAs. Once your income is over certain limits, then you no longer get tax deductions for putting money into a traditional IRA, and once you’ve crossed other income limits, you can’t contribute into a Roth IRA at all.
For example, per the 2024 limits, if you are single and your modified adjusted gross income (MAGI) is $161,000 or more, or if you’re married and your MAGI is $240,000 or more, you’re ineligible to contribute to a Roth IRA.
But if you only save into the TSP, you don’t have to worry about earning limits at all.
Lots of Options
Having more options is not always a good thing. Compared to the TSP’s 5 core funds (G, F, C, S, and I), IRAs have thousands of options.
And while IRAs have many great investment options, they have tons of bad options you have to wade through. So if you don’t know what you are looking for, then you can easily find funds that perform worse and have higher fees than the TSP’s options.
You’ve Maxed Out The TSP; Now What?
Given all these reasons, the TSP kicks IRAs’ butt 99% of the time while you are still working, but are there situations where an IRA would make sense?
As a general rule, I wouldn’t use IRAs until you’ve maxed out your TSP and want to save even more. Once you are maxing out the TSP, an IRA can be a great way to save a little extra money, but just keep an eye out for the earnings limits that come with IRAs.
Conclusion
Believe it or not, I am actually a big fan of IRAs. They can be a great tool if used correctly and at the right time, but for most federal employees, using IRAs while working just adds a layer of complexity that isn’t needed and doesn’t help.
However, IRAs become a lot more useful in retirement. If you would like to see information about using an IRA in retirement, see this video.
If you have any other questions, feel free to check our website or schedule a meeting with us.
