The Top 10 TSP Mistakes You Might Be Making


The Thrift Savings Plan (TSP) may become your most valuable asset (if it isn’t already).  To maximize your TSP, you’ll need to do more than just contribute money.  You’ll also need to steer clear of the following mistakes:

  1. Not getting the agency match:  Your agency is willing to give you free money.  All you need to do is participate up to 5% of your paystub, and your agency will match that 5%.  That’s a 100% rate of return.  Can you do better than 100% rate of return, guaranteed?  In this article I will explain whether contributing to the TSP should take precedence over paying off your debt, and I will also explain how some people contribute 5% to the TSP and yet don’t get the match!
  2. Not knowing which is better – Roth vs. Traditional:  How do you measure which is better for you?  You need to get this right, otherwise you will actually end up paying more in taxes than you needed to!
  3. Not knowing what to EXPECT from TSP funds:  You mean you didn’t know your TSP can lose 40% of its value?  Not knowing what to expect from your TSP may expose you to crazier market performance than you need.  If you get into the wrong TSP allocation, you may be getting onto a roller coaster ride which will end up costing you dearly.
  4. Not coordinating TSP with outside investments: Your TSP is probably just one of your investment accounts.  You probably also have an IRA as well as non-retirement accounts.  You need to make sure that all these accounts are working together. This way you don’t duplicate your investment efforts, put a drag on your account growth, and end up paying more in taxes unnecessarily.
  5. Not knowing if an IRA would suit you better than TSP:  Is the TSP better than an IRA?  This is important because at some point you will have the ability to roll your IRA into your TSP, or roll your TSP into an IRA.  Which one is better may make a big difference in your retirement plans.
  6. Forfeiture of your entire TSP:  Who would want to forfeit their entire TSP?  Obviously, no one.  But the TSP has a sneaky little rule to make sure you don’t just let your TSP sit in retirement.  You will need to start taking distributions when you reach the age of 70.5.  If you don’t, you can kiss your TSP goodbye!
  7. Thinking TSP is a flexible custodian:  TSP money when you need it?  Not so fast!  Your TSP is likely a source of your retirement income.  But when you need to access your TSP for money, the TSP makes it very hard and inflexible, and some of their rules put you at a disadvantage.
  8. L- funds for retirement planning:  In general, the L-funds are misleading, presenting themselves as “target date” funds that correspond to the date of retirement.  But a deeper look will show that the L-fund allocations miss the retirement planning target altogether.  This applies to all L-funds but is exceptionally problematic when it comes to the L-income fund.  Studies have been done on the L-income fund allocation that reveal that you may very well run out of money in retirement by using the L-income fund allocation!
  9. TSP annuity:  The TSP annuity is possibly the weakest federal benefit.  Not to mention, most federal employees already have two annuities, namely their Federal Pension and Social Security.  So why would you get a third annuity?  And if you really want a third annuity, you should probably compare the benefits of the TSP annuity to other commercial annuities.  Your TSP annuity is irrevocable so you will want to think long and hard before you commit to this vehicle.
  10. Not having a TSP plan!  How much money do you need to have in your TSP when you retire?  How much do you need to contribute each year to reach that goal?  What rate of growth do you need in order to reach that goal?  What allocation do you need in order to get the growth you need with the least amount of risk?  You will need to plan your TSP if you want to be able to retire.

Each mistake that I have identified above has many angles of application.  If any of these mistakes gives you pause and has you asking yourself, “What should I do to make sure I avoid this mistake?” I will have considered this post to be a success!

Stephen Zelcer is part of the GovLoop Featured Blogger program, where we feature blog posts by government voices from all across the country (and world!). To see more Featured Blogger posts, click here.

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Ernie Butler

1-877-968-3778. Your agency should have a rep. The bottom right corner of your Quarterly Statement has contact information. The website is When you login click on Participant Support.

Stephen Zelcer

Hi Gemma! The TSP or your HR are not equipped to tell what you SHOULD do with your TSP (i.e. Roth vs. Trad, L-Funds vs. Individual Funds, Best methods of deriving income). Those decisions need to be evaluated within the context of your own personal planning.
If you want to read further into these mistakes, I deal with each of these 10 mistakes at length in my TSP Mistakes email series. You can access the email series here: