While OPM processes a record 140,000 retirement applications in 2025, more than any year in at least two decades, federal employees face mounting concerns about market volatility and inflation protection.

According to a 2024 survey by the National Active and Retired Federal Employees Association (NARFE), 68% of FERS employees cite these as top retirement planning concerns.

The good news is a lesser-known provision of the TSP Modernization Act has quietly opened a door most federal employees don’t realize exists, and it helps protect against these concerns.

For FERS employees over 59½ and federal retirees, that door leads to a powerful diversification strategy: diversifying your TSP with physical gold backed by the U.S. Mint.

What changed in 2019 (and why it matters now)

Before 2019, the TSP operated under what retirement advisors called the “one-and-done” rule. If you were over 59½ and still working, you could take only one age-based in-service withdrawal. Use it once, even for an emergency, and you’d forfeit future access to your own money until retirement.

But Public Law 115-84, aka the “TSP Modernization Act”, eliminated that restriction entirely.

Now, FERS employees over 59½ can execute unlimited partial withdrawals. You can move money out as often as every 30 days. No penalties. No mandatory distributions.

For federal retirees, the change is equally significant. You’re no longer forced to make a single, all-or-nothing withdrawal election. You can take partial withdrawals every 30 days, giving you complete control over your retirement assets.

The government designed this flexibility so people could access their savings. But there’s another use: strategic asset reallocation.

The TSP Modernization Act allows you to move a portion of your TSP into a Gold IRA and own physical gold that protects against inflation while keeping all your tax advantages.

Most federal employees and retirees don’t know this option exists. The TSP doesn’t advertise it. Your HR office probably hasn’t mentioned it. But it’s there, written into federal law.

The G-Fund’s silent erosion

Let’s talk about the G-Fund. It’s the most popular TSP fund for a reason. It guarantees you won’t lose principal. For risk-averse federal employees, that’s comforting.

But that guarantee comes with a hidden cost.

The G-Fund’s yield is calculated using the weighted average of Treasury securities with four or more years to maturity. When inflation runs hot, the G-Fund historically delivers negative real returns. Your balance grows on paper, but your purchasing power shrinks.

Here’s what that looks like in practice. Between 2021 and 2023, inflation averaged 3.9% annually. The G-Fund yielded an average of 3.1%. That’s almost a 1% loss on the value of your savings every year.

Compound that over a decade, and you’re looking at roughly 10% erosion of buying power.

The G-Fund isn’t a savings account. It’s a slow leak. It’s mathematically designed to underperform inflation during what economists call “super-cycles.”

With rising national debt, expanded money supply, and persistent inflation concerns, this erosion matters more than ever. For federal employees approaching retirement and retirees already drawing from their accounts, protecting purchasing power isn’t optional. It’s essential.

The TSP’s structural limitations

The TSP is an excellent accumulation vehicle. Low fees. Simple structure. Automatic payroll deductions. But it also has limitations most people don’t discover until they need flexibility.

The pro-rata trap

Here’s one most federal employees don’t know about: when you take a withdrawal from the TSP, you can’t choose which fund to sell.

Let’s say your portfolio is 60% C-Fund (stocks) and 40% G-Fund (bonds). You need $20,000. You’d probably want to sell from the G-Fund and protect your stock position, right?

The TSP won’t let you. It forces a pro-rata distribution. You have to sell 60% from the C-Fund and 40% from the G-Fund.

In a down market, this means you’re forced to liquidate equities at a loss just to access cash. You have zero surgical control.

A Gold IRA works differently. You decide exactly what you want to sell and when.

The mutual fund window failure

In 2022, the TSP introduced a mutual fund window to allow more diversification. It sounded promising. In practice, high fees and restrictions have made it a disappointment.

For starters, there’s a $55 annual fee, plus a $95 maintenance fee. Then the big one: a fee of $28.75 per trade.

You can only invest 25% of your total balance. And you still can’t buy physical precious metals. You’re limited to paper assets like ETFs, which hold the same risks as the G-Fund.

The mutual fund window proves the TSP knows people want outside options. But because of those fees and restrictions, it’s impractical for most people.

A Gold IRA solves this. You get direct ownership of physical gold with no TSP middleman and no extra fees.

The Gold IRA Strategy

For FERS employees over 59½ and federal retirees, the TSP Modernization Act created a unique opportunity that didn’t exist before.

You can use an age-based in-service withdrawal (or a standard rollover if you’re retired) to move a portion of your TSP balance into a self-directed IRA that holds IRS-approved gold.

It’s known as a Gold IRA.

That means you can own American Gold Eagles (and American Silver Eagles) in your retirement account. These are coins minted and guaranteed for weight and purity by the U.S. Mint.

You’re not abandoning the safety of government-backed systems. You’re simply shifting from government paper (Treasury securities in the G-Fund) to government metal (American Eagles issued by the U.S. Mint).

Both are backed by the full faith and credit of the United States. The difference? One is designed to preserve purchasing power during inflationary cycles. The other isn’t.

Who this strategy fits

If you’re working and between ages 59½ and 65, or if you’re already retired, then this is for you. It’s a unique opportunity that very few people know about.

You’ve spent decades building your TSP balance. But the reality is because it’s based on the markets, a single market correction or another inflation spike could wipe out years of progress in months.

The TSP Modernization Act lets you move a portion of your TSP into a Gold IRA, so you can own physical gold that protects against inflation and market crashes, and keep all your tax advantages. No penalties. No taxes due at transfer.

You don’t have to move everything. Most advisors recommend keeping 60-70% in traditional TSP funds and moving 10-30% into gold for protection and diversification.

The strategy is simple: use a portion of your TSP to diversify into an asset the government mints, the central banks hoard, and that has protected wealth for thousands of years.

The bottom line

The TSP is a good plan. Low fees. Simple structure. Solid way to build a retirement portfolio.

But it’s not a complete plan. It lacks a preservation vehicle. You’re 100% exposed to the dollar and the stock market, with clear signs of economic volatility ahead.

For federal employees who’ve spent decades in public service, the question isn’t whether the system will work.

The question is whether you’ve positioned your money to withstand the things the system can’t control: inflation, market corrections, currency devaluation.

That’s why the TSP Modernization Act was created.

How to learn more

Most federal employees have no idea this option exists. TSP doesn’t advertise it. Your HR office probably doesn’t mention it. And financial advisors who only manage TSP funds have no incentive to bring it up (gold doesn’t pay fees).

That’s why National Gold Group created a free guide written specifically for federal employees and retirees, called “The TSP Gold Guide.”

Inside this free guide, you’ll discover:

• The real cost breakdown of a Gold IRA, including the one fee structure that lets you avoid ongoing charges entirely (and why most companies won’t tell you about it).
• The exact 3-step process to execute a tax-free TSP rollover, so you can move your money without triggering penalties, taxes, or costly mistakes.
• How to verify your gold is actually safe, including IRS regulations, insured depositories, and the buyback guarantee that gives you total control and peace of mind.
• How to take physical delivery of your gold or sell it back with zero fees, giving you total control and maximum liquidity.

You’ve earned your retirement. This guide shows you how to protect it.

Download your  free copy here.

The post The TSP Modernization Act’s hidden provision: What federal employees need to know about portfolio diversification first appeared on Federal News Network.

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