Retirement Planning
July 24, 2023

5 Common Thrift Savings Plan Problems and How to Solve Them

Stewart Willis

As a federal employee or a member of the uniformed services, you are entitled to the exclusive thrift savings plan (TSP). This is a federal employees’ retirement system (FERS) retirement program similar to a 401k plan.

Having a retirement saving plan is always a good idea. However, there are some thrift saving plan problems you might run into if you haven’t focused much on retirement planning

While a thrift savings plan is a promising means of saving for the future, it can also present some challenges. Any financial tool or vehicle for retirement comes with its potential risks.

1. Lack of Investment Diversification

Investing in the thrift savings plan can be both a boon and a bane for you. On the one hand, the TSP offers only five investment choices, making it straightforward for those new to investing. 

However, this simplicity is a thrift savings plan problem because it limits diversification opportunities. More experienced investors who seek to expand their portfolio beyond a few index funds would not find this favorable.

The solution to this thrift savings plan problem is to look at other retirement accounts for more investment options. You can roll over your thrift savings plan to a Roth IRA for a more comprehensive portfolio, for example. It is in your best interest to consult with a financial advisor to diversify your investments.

If you need help with your financial management and retirement planning, working with a fiduciary is in your best interest. A fiduciary will help you make intelligent choices that support more enjoyable golden years.

2. Not Choosing the Best Thrift Savings Plan

When querying about thrift savings plans, most people refer to a traditional savings plan, a tax-deferred retirement savings account. This can leave you with a hefty tax bill in the future if your retirement income is high. This could place you in a higher tax bracket. At some point, you must pay taxes on the funds in a traditional thrift savings plan.

The solution to this thrift savings plan issue is to use an after-tax retirement account. There is an option for you to contribute to a Roth thrift savings plan. After-tax dollars fund this type of thrift savings plan and you can make tax-free withdrawals. All other aspects of this plan are the same as a traditional thrift savings plan.

Senior couple frustrated while reviewing paperwork

3. Contributions Can Only Be Made During Service

Thrift savings plans are federally backed government retirement plans. One of the major benefits is the low administrative costs and the ability to take loans. However, if you leave your government job, you can no longer contribute to your plan. If your account has more than $200, you can hold onto your thrift savings plan and let your funds grow.

The solution to this thrift savings plan problem is to seek an alternative for your retirement accounts. Private retirement accounts like Roth IRAs are generally more flexible and you can contribute regardless of your employment status. If you get a private sector job, you can still have a 401k and an IRA.

4. Required Minimum Distributions

One of the main thrift savings plan complaints is the required minimum distributions. They start from the time you are 73. You don’t determine the withdrawal amount you're required to take. It is determined by your age, and as you grow older, the percentage of withdrawal increases. 

Unnecessary RMDs increase your taxable retirement income. Again, higher income could increase your tax bill if your RMD is large. This is still a Roth thrift savings plan problem because you can't take advantage of the tax-free growth. 

The solution to this thrift savings plan complaint is to invest in retirement accounts that don’t have RMDs. Retirement is different for everyone and you should seek financial solutions that work with what you need.

5. Neglecting Updates

As life goes on, things change and update. This includes our retirement goals and or financial objectives. You should review your circumstances and ensure that your thrift savings plan still provides the necessary value. It’s quite common to stay out of the loop on the latest changes with your thrift savings plan.

The solution to this thrift savings plan problem is to get more involved with your finances. Some think paying your contributions alone will set you up for a decent retirement. You don’t want to face unnecessary challenges during retirement because you overlooked simple tax-saving strategies earlier on.

At Asset Preservation Wealth and Tax, we offer comprehensive financial planning. Our 360-degree approach allows us to provide clients with a tailored plan backed by experts. Our team comprises highly experienced tax professionals and financial advisors who are dedicated to helping you succeed.

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Stewart Willis is the founder and president of Asset Preservation Wealth & Tax, a financial planning firm in Phoenix, Arizona. Investment advisory services offered through Foundations Investment Advisors, LLC, an SEC registered investment adviser.

The commentary on this blog reflects the personal opinions, viewpoints and analyses of the author, Stewart Willis, providing such comments, and should not be regarded as a description of advisory services provided by Foundations Investment Advisors, LLC (“Foundations”), an SEC registered investment adviser or performance returns of any Foundations client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment, legal or tax advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Personal investment advice can only be rendered after the engagement of Foundations for services, execution of required documentation, including receipt of required disclosures. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Foundations manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Any statistical data or information obtained from or prepared by third party sources that Foundations deems reliable but in no way does Foundations guarantee the accuracy or completeness. Investments in securities involve the risk of loss. Any past performance is no guarantee of future results. Advisory services are only offered to clients or prospective clients where Foundations and its advisors are properly licensed or exempted. For more information, please go to and search by our firm name or by our CRD # 175083.

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