Financial planning for federal contractors.
Contract risk, no TSP, clearance considerations.
Federal contractors are not federal employees. No TSPThrift Savings Plan (TSP)The retirement savings plan for federal government employees and military members, similar to a 401k with extremely low-cost index funds., no FERS pension, no FEHB. W-2 or 1099 income that can disappear when a contract ends. The financial planning implications are significant.
US-only. Federal contracting roles, security clearances, and the GS pay scale are US-specific.
Contractors trade benefits for higher pay. Senior cleared contractor income can be $250,000-$400,000 in roles where the federal-employee equivalent (GS-15 Step 10) caps at about $183,500. The trade-off: no pension, contract-renewal risk, and no back pay during shutdowns. Build a 6-month emergency fund, keep clearance financial-disclosure clean, and self-fund retirement aggressively.
Section 1 · Contractor vs direct employee
W-2 contractor (through a staffing firm)
- You are an employee of the contracting company, not the government.
- May have access to a 401(k) through the contracting firm.
- No FERS pension. No TSP.
- Employer-sponsored health insurance through the contracting firm.
1099 independent contractor
- You are self-employed. All self-employment taxself-employment taxThe 15.3% tax self-employed people pay on business income to cover both the employee and employer share of Social Security and Medicare.Full definition implications apply.
- Solo 401(k) or SEP IRAIndividual Retirement Account (IRA)A personal retirement savings account with tax advantages. Two main types: Traditional (tax now, pay later) and Roth (pay now, tax-free forever).Full definition for retirement.
- Health insurance from the ACA marketplace or other source.
- See gig-worker-finance.
- GS-15 Step 10 federal employee: approximately $183,500 base pay (2026, OPM scale) verify×DON'T TRUST, VERIFYClaim: 2026 GS-15 Step 10 base pay is approximately $183,500 (subject to locality pay).Verify at: OPM GS pay scale ↗Locality pay can add 15-40% on top depending on geographic area. The Executive Schedule cap may also apply..
- Senior cleared contractor in similar role: approximately $250,000 to $400,000.
- Trade-off: no FERS pension, contract-renewal risk, no federal job security, contractor work-stoppage during shutdowns is typically unpaid.
Section 2 · Contract risk management
Emergency fund target
6 months of expenses minimum, not the standard 3. Contract gaps can last 3-6 months. Some contractors maintain a 12-month cushion.
Government shutdown exposure
If your contract is funded by annual appropriations, a government shutdown can pause contract work. Contractors typically do not receive back pay (unlike federal employees, who typically receive back pay after legislation). Budget for this possibility.
Section 3 · Clearance and financial health
Security clearances consider financial responsibility as an adjudicative guideline. Excessive debt, unpaid taxes, bankruptcy can raise adjudicative concerns. The concern is not having debt; it is whether financial stress creates vulnerability to foreign influence verify×DON'T TRUST, VERIFYClaim: SEAD 4 financial-considerations adjudicative guideline applies to security clearance decisions.Verify at: SEAD 4 Adjudicative Guidelines ↗Guideline F (financial considerations) is one of 13 adjudicative guidelines used in clearance decisions..
Bitcoin and clearances
- No explicit prohibition on Bitcoin ownership.
- Large unexplained Bitcoin holdings could raise questions during polygraph or background investigation.
- Transparency: declare Bitcoin holdings honestly on SF-86 financial disclosure.
- Foreign-exchange holdings (KYCKnow Your Customer (KYC)Identity verification requirements that financial institutions use to confirm who their customers are.Full definition accounts at non-US exchanges) get specific scrutiny under Guideline B (foreign influence) for some clearance levels.
Section 4 · Retirement strategy
Without TSP and FERS pension, contractors must build their own retirement infrastructure.
Priority order
- Max employer 401(k) up to any match (contracting firms vary).
- Max Roth IRA ($7,500 in 2026), or backdoor Roth if over income limits.
- If 1099 self-employed: Solo 401(k) up to $72,000/year.
- HSAHealth Savings Account (HSA)A tax-advantaged account for healthcare costs, available with a high-deductible plan; contributions, growth, and qualified withdrawals are all tax-free.Full definition if HDHPHigh-Deductible Health Plan (HDHP)A health insurance plan with cheaper monthly cost but a bigger amount you pay yourself before insurance starts covering bills. Required if you want a tax-free Health Savings Account.Full definition-eligible.
- Taxable brokerage.
Target savings ratesavings rateThe percentage of your income that you save and invest. The single most powerful lever in building wealth.Full definition: at least 20% of gross given the lack of pension benefit. The pension a federal employee accrues over 30 years has real value; a contractor needs to save more than the equivalent federal employee to reach retirement parity.