6 Mistakes Federal Employees Make With Their Thrift Savings Plan

The author outlines some common potential mistakes federal employees could be making with their TSP accounts.

A Thrift Savings Plan (TSP) is a type of retirement plan that only federal employees and law enforcement community members, including the Ready Reserve, can use. It is a defined-contribution plan that gives federal workers more or less similar benefits like normal retirement plans for people working in the private sector.

The TSP is a bit similar to a 401(k) plan. Both TSP and 401(k) have similar policy structures and payment limits. However, instead of a 401(k), a TSP is provided to a federal employee. Therefore, you cannot have a TSP and a 401(k) at the same time.

Despite all the benefits and easy management of the Thrift Savings Plan, many federal employees still make a few mistakes while investing in their TSP accounts.

Let’s see some of the mistakes that federal employees make in their Thrift Savings Plan:

1. Consider not contributing to TSP

As a federal employee, 5% of your bi-weekly paycheck is set to be contributed to your Thrift Savings plan. By donating 5% of your salary to your TSP, your agency contributes a maximum of 5% to your plan, thereby doubling your monthly donations. So, you end up adding more money to your TSP by just contributing half the amount.

Deciding to opt-out of the TSP is a rookie mistake for a freshly hired employee. The earlier an employee begins investing in the TSP, the longer the money in the TSP has to grow. It will also be tax-deferred for regular TSPs and tax-free for Roth TSPs.

2. Donating no more than 5% of one’s income

If having a simple and comfortable retirement is your ideal dream, then a 5% contribution may not be enough. Say that a 5% contribution plus the 5% matched by your agency (totaling a 10% contribution) is insufficient for an employee’s future.

Individuals should save at least 15% of their annual earnings for retirement (split between your contributions and company). This means that you as an employee must save at least 10% of your wages each year to save at least 15% (with a 5% contribution from the employee’s agency) for the year. This is only available to federal employees under the Federal Employees Retirement System (FERS).

3. Investing solely in the G fund

Most federal employees prefer to invest in the Government Securities Investment Fund, aka the G Fund. It is because they believe it’s a safer option. The fund invests in short-term US Treasury securities exclusively issued to the TSP, ensuring that the federal government provides principal and interest payments. The G fund can be a safe bet even when the stock market is in turmoil.

Unfortunately, putting all of your money into the G Fund may expose your retirement funds to inflation risk. However, dividing your money among two or more funds (there are five different core funds to choose from) could provide improved diversification as well as better potential growth. Both of these benefits will help you to counteract the corrosive effects of inflation and help maintain your purchasing power in retirement.

4. Giving up on 401(k) retirement plans after joining the Federal government

As a federal employee, when you transfer from one employer to another, there are a lot of changes. Understandably, you may not have known that an employer-sponsored certified retirement plan like a 401(k) plan can be directly transferred into the employee’s TSP account after they leave their job. In the long run, leaving money from your retirement fund in a 401(k) and not keeping track of it can have terrible consequences.

5. Playing “catch-up” after starting late in the TSP

Many federal employees who start saving for retirement later in their careers or stop contributing to the TSP for a long time mistakenly believe they may make up for “lost time.” This is not true. On the other hand, the stock market does not operate in this manner. If a TSP participant does not participate for an extended period, they forfeit the investment returns that would have been earned if the money had been invested.

6. Not using your TSP to pay off your debt

Federal employees and uniformed service members can get a loan from their Thrift Savings Plan called a TSP loan. They can borrow money from their retirement plan with this type of loan. A TSP loan is usually simple to borrow. If you intend to use the funds for residential purposes, you may need to complete additional paperwork.

TSP loans let you borrow up to $50,000, as long as you have enough money saved in your TSP fund. You’ll have a maximum of 5 to 15 years to pay back the money. You will have a fixed interest rate, depending on what the money was used for. You can have the money deducted from your paycheck to make the payments.

With the help of a TSP loan, you can eliminate payday loan debt, credit card debt, medical debt, etc. It can also be used to make payments on your student loans or mortgage installments.

Hence, taking a loan from your TSP fund might not be a good idea if you are planning to leave your job. If you leave a government job with an outstanding TSP debt, you must repay the full loan amount within 90 days. If the loan amount is not paid back on time, the IRS will treat the entire amount as a chargeable distribution and tax the total as earned income. Additionally, TSP borrowers under the age of 59 may be subject to a 10% premature withdrawal penalty.


The Thrift Savings Plan is integral to all federal and law enforcement employees. If understood and put to use correctly, the TSP has a lot of benefits to give its users. It’s crucial to keep these mistakes in mind and rectify them as soon as possible. You never know how much money you might be missing out on because of these mistakes.

Lyle Solomon has extensive legal experience as well as in-depth knowledge and experience in consumer finance and writing. He has been a member of the California State Bar since 2003. He graduated from the University of the Pacific’s McGeorge School of Law in Sacramento, California, in 1998, and currently works for the Oak View Law Group in California as a principal attorney.