TSP 2025 Performance Review: I Fund's Historic 32% Return and What It Means for 2026
TSP's I Fund delivered its highest return ever at 32.45%. Here's how all TSP funds performed in 2025, why international stocks dominated, and what federal employees should watch in 2026.
2025 was a year for the record books—especially if you held the I Fund.
The TSP International Stock Index Fund (I Fund) delivered a 32.45% return in 2025, the highest in its 24-year history. Meanwhile, the C Fund clocked 17.85%, and even the bond-heavy F Fund bounced back with 7.21%.
It was the third consecutive year of strong returns for TSP stock funds. And in June, TSP crossed a major milestone: $1 trillion in total assets.
Here's what happened, why, and what it means for your 2026 strategy.
2025 TSP Fund Returns at a Glance
| Fund | 2025 Return | Description |
|---|---|---|
| I Fund | 32.45% | International stocks (MSCI ACWI ex USA) |
| C Fund | 17.85% | Large-cap U.S. stocks (S&P 500) |
| S Fund | 11.38% | Small/mid-cap U.S. stocks |
| F Fund | 7.21% | U.S. bond index |
| G Fund | 4.44% | Government securities |
The I Fund didn't just win—it dominated. Its 32.45% return crushed the previous record of 30.04% set in 2009.
Lifecycle Fund Performance
If you're in a Lifecycle fund, here's how they stacked up:
| Fund | 2025 Return |
|---|---|
| L Income | 9.36% |
| L 2030 | 15.17% |
| L 2035 | 16.27% |
| L 2040 | 17.31% |
| L 2045 | 18.20% |
| L 2050 | 19.07% |
| L 2055 | 21.87% |
| L 2060 | 21.88% |
| L 2065 | 21.88% |
| L 2070 | 21.89% |
Longer-dated funds outperformed because they hold more stocks (especially international) and fewer bonds. The L 2025 fund merged into L Income after reaching its target date.
Why the I Fund Had a Historic Year
Three factors drove international stocks past U.S. markets in 2025:
1. The Falling Dollar
The U.S. dollar index fell 9.4% in 2025—its worst year since 2017. When the dollar weakens, your international investments become more valuable when converted back to U.S. dollars.
This currency effect alone added several percentage points to I Fund returns.
2. The Valuation Gap
Heading into 2025, non-U.S. stocks were roughly 35% cheaper than U.S. stocks based on forward price-to-earnings ratios. Investors finally noticed.
Money flowed out of expensive U.S. tech stocks and into undervalued European and Asian markets. The AI trade, which had been concentrated in U.S. megacaps, spread globally to chipmakers and tech companies in Japan, South Korea, and Taiwan.
3. Regional Stories
Europe: German defense spending reforms sent European defense stocks soaring. Rheinmetall gained 154%. Monetary and fiscal policies became more favorable, igniting a catch-up trade.
Japan: The Nikkei 225 gained 26%. After decades of deflation, mild inflation finally arrived. Corporate governance reforms continued, and Japanese tech companies rode the AI wave.
But Wait—Only 3.3% of TSP Is in the I Fund
Here's the plot twist.
Despite the I Fund's historic performance, only 3.3% of total TSP assets were allocated to international stocks as of February 2025. Two decades of disappointing returns had trained federal employees to avoid it.
The C Fund remains dominant, holding the bulk of TSP stock allocations. Many investors missed the international rally entirely.
This isn't necessarily wrong—past performance doesn't guarantee future results, and the I Fund has had plenty of bad years. But it's a reminder that diversification across all equity funds (C, S, and I) is what the Lifecycle funds do automatically.
TSP Hits $1 Trillion
In June 2025, total TSP assets crossed $1 trillion for the first time. Some key stats:
- Average FERS balance: $196,688 (up from $175,700 in late 2023)
- Average all participants: $134,633
- FERS participation rate: 95.7%
- Contributing 5%+: 87.6% of FERS employees
The auto-enrollment default of 5% has been a success. Each salary quintile saw only 2.2% or fewer participants opting out.
Signs of Financial Strain
Not all the news was good. The 2025 data also showed increased financial stress among federal employees:
- Loan usage rose to 8.6% (the 40-49 age group led at 12%)
- Hardship withdrawals increased to 3.9%, the highest in five years
- Mid-career employees (ages 40-49) had a 5.58% hardship usage rate
Whether this reflects broader economic pressures, housing costs, or other factors, it's worth noting. If you're considering a TSP loan, understand the trade-offs—you're removing money from the market and paying it back with after-tax dollars.
What About Other Asset Classes?
For context, here's how some other asset classes performed in 2025:
| Asset | 2025 Return |
|---|---|
| Gold | +64.6% |
| Silver | +148% |
| Bitcoin | -6.5% |
| MSCI ACWI ex-USA | +29.2% |
| S&P 500 | +16.4% |
Gold and silver had exceptional years as investors sought inflation hedges and safe havens. Bitcoin, after its 2024 rally, pulled back.
None of these are available in TSP directly, but they provide context for understanding how your TSP funds compare to the broader investment landscape.
What's Coming in 2026
Several major changes affect TSP in 2026:
In-Plan Roth Conversions (January 28, 2026)
For the first time, you'll be able to convert traditional TSP to Roth directly within TSP—no need to roll over to an external IRA. Key details:
- Up to 26 conversions per year allowed
- Converted amount is taxable income in the year of conversion
- Accessed through My Account on tsp.gov
This is a big deal for tax diversification strategies, especially if you expect to be in a lower tax bracket now than in retirement.
Mandatory Roth Catch-Up for High Earners
If your 2025 wages exceeded $150,000, your 2026 catch-up contributions must be Roth. This affects:
- High-step GS-14s and GS-15s in most localities
- SES employees
- Some GS-13s in expensive areas
The $8,000 catch-up (or $11,250 for ages 60-63) can no longer be traditional TSP if you're a high earner. Your regular $24,500 can still be either.
New Lifecycle Fund: L 2075
For younger employees, TSP added the L 2075 fund in June 2025. If your retirement is 50+ years away, this fund maintains maximum stock exposure for the longest time.
What Should You Do?
A few takeaways from 2025:
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Don't chase last year's winner. The I Fund had a historic year, but that doesn't mean it will repeat. International stocks also had terrible years in 2011-2015. Diversification matters.
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Lifecycle funds did the work. If you were in an age-appropriate L Fund, you automatically held I Fund exposure and benefited from the rally without having to time anything.
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Check your allocations. If you haven't looked at your TSP in years, make sure your fund choices still match your risk tolerance and time horizon.
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Understand the Roth changes. The in-plan conversion option opens new tax planning strategies. Talk to a financial advisor if you're unsure whether converting makes sense for your situation.
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Avoid hardship withdrawals if possible. The rising hardship rate suggests more federal employees are tapping TSP for emergencies. Building a separate emergency fund keeps your retirement on track.
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Sources
- TSP.gov Fund Performance
- FedSmith: TSP Performance Soars In 2025 With One Up 32%
- FedWeek: I Fund Leads in Third Straight Strong Year for TSP Stock Funds
- Government Executive: TSP Shows Steady Growth and Healthy Fund Performance
- TSP Bulletin 25-3: 2026 Contribution Limits
- CNN Business: US stocks had a remarkable 2025. But international markets did much better
Related Resources
- TSP Calculator: Model your TSP growth and withdrawal scenarios
- TSP Guide 2026: Complete guide to the Thrift Savings Plan
- 2026 TSP Contribution Limits: What changed and how to maximize contributions
- FERS Retirement Calculator: Plan your full retirement picture
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