Disadvantages to Investing in the Thrift Savings Plan

The Thrift Savings Plan is a great way for government employees and military members to invest for retirement, but there are some drawbacks.
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If you’ve read my article about the advantages of investing in the TSP, then you know that I believe the TSP is a great way for many military members and government employees to invest for retirement. However, there are also several drawbacks to investing in the TSP.

Disadvantages to Investing in the TSP

I will throw a caveat out there before I list some perceived disadvantages with the Thrift Savings Plan – the TSP is still a great investment vehicle for the majority of federal employees and military members who are eligible to participate in the TSP, especially with the new Roth TSP option, which recently became available to TSP participants.

Limited investment choices. There are only 5 investment choices (not counting Life Cycle Funds), which is a benefit and a drawback. The simplicity that makes investing in the TSP can also be a detriment to those who have a better understanding of investing or would like to further diversify beyond a few index funds. With the TSP you can not invest in REITs, or individual sectors such as technology, precious metals, healthcare, emerging markets, etc.

Limited tracking in money software. The second drawback is the inability to link to home finance programs such as Quicken, or MS Money. You can manually input your data into these programs, but there is no automatic download feature. So you must manually change it every time you invest, rebalance your portfolio, etc. That can be a pain, but it’s necessary if you want to have a clear picture of your net worth, asset allocation, performance, etc. (The TSP states the reason they do not offer this feature is to maintain low costs.) However, Personal Capital does have a working connection.

No matching funds for military. Unless you are civil service, you do not get matching funds. In that case, it is usually better to max out your Roth IRA before contributing to the TSP. (This has changed to a limited degree since the initial publication of this article; military branches have the option of offering matching funds to service members, but only do so on a limited basis – usually only as a retention bonus. All matching funds come out of personnel budgets, which limits the service branches ability to do this on a full scale basis).

Difficult to track gains. The TSP site does not track cost basis. This is important to know for tracking purposes and monitoring your investments. You can do this manually, but if you did not do this from the time you began investing in the TSP, you will never get a truly accurate picture. A work around for this would be to use your current value as a cost basis, then track from now on. This will not give you a true cost basis from inception, but it will allow you to track annual growth. (But the TSP has well known index funds so they should be easy to track manually).

Inability to contribute after government service ends. Finally, once your service with the government is through, you can no longer contribute to the plan. However, this is just like any other 401k plan. You do have the option to leave your funds within the TSP, you can roll them into a different 401k plan, or roll them into a traditional IRA. Here are some more options.

The TSP is still a great investment option!

This article is not meant to dissuade you from contributing to the TSP, or look for other alternatives. This is simply meant to point out a few areas that more advanced investors may feel are limitations.

All in all, I still think the TSP is a good way to go for government employees looking for an easy to use and inexpensive retirement system. The pros far outweigh any cons, and regularly contributing to your TSP can be a great way to prepare for your retirement.

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  1. Brent says

    I never really was quite sure what benefit one gets from the TSP. With no matching funds, it seems basically the same as an IRA, but possibly a little harder to get money out of should one need funds for emergencies. A normal IRA allows for a reasonable amount of contribution as well, which can be automatically deducted just the same, and is so easy to withdraw from that one can actually borrow the money without permission about once a year. The investment options of an IRA are almost endless, depending on where you open it. The only advantage I can think of in the TSP is a slight convenience in contributing and re-allocating the funds. It might be slightly better to have money in a TSP than an IRA if you’re worried that someone–such as a court judgement or the IRS is coming after you for garnishment–but both types of accounts are still sufficiently hard to attach for debts, and neither will provide a permanent solution for such a predicament.

  2. Joey says

    The TSP is EVIL! Do no put a single cent in it (unless they are providing matching contributions).

    The TSP holds your money hostage AND makes you pay them to do so. Imagine your employer has a bank that you use…you put money in and pay them a fee to manage (TSP fees are low – great!). However, as long as you still work for that employer you cannot take any money out of their bank. Not even just the money you put in, even if you have $0 in matching contributions. That is how the TSP works (at least for the uniformed services). You cannot roll your TSP to an IRA and you are not permitted to withdraw the Roth contributions you have made. The law allows both as do most employers 401Ks and any legit financial institution. The only options TSP provides for you to access your money is either a loan or an extreme hardship withdrawal.

    So, as long as they employ you, they get to hold your money hostage. Why are their rules so much more restrictive than the law and common-practice for the rest of the country? How are their practices even legal?

    Aside from matching contributions, you are better off putting your money anywhere else (including under the mattress). Their rates do not justify their restrictions.

    • Ryan Guina says

      Joey, What works for one investor may not work for another. Telling everyone to stay away does them a disservice and is irresponsible. People should only save for retirement with money they will not need in the near future. That is the difference between retirement investing and short or medium term savings.

      Taking in-service distributions is allowable under law, but there are many nuances, and not all employer plans allow this (I have worked for several civilian employers, none of which allowed this; from my understanding, in-service distributions is more the exception than the rule). It’s also advisable that people seek out the advice of a tax professional to ensure they don’t make a costly mistake.

      I recommend people who are considering retirement plan distributions read the
      (IRS 401(k) Resource Guide – Plan Participants – General Distribution Rules) for more specific information.

      If the TSP is not for you, then consider investing in an IRA (which also has early withdrawal penalties), or in a non-retirement investment account, also called a taxable investment account. Using a taxable investment account will give you access to your money at will. However, it’s also important to do more research to better understand the tax implications of buying and selling securities (I recommend learning more about short term and long term capital gains, for instance, and the wash sale rule, if you are more inclined to look for additional tax benefits when selling securities for a loss).

    • Brent says

      As soon as I quit my employment with my regular employer, I moved my funds to a Roth IRA. I haven’t had to pay any fee at all to my brokerage to maintain the funds. Not even a few cents. I thought of another advantage of 401k’s I didn’t mention above; you can remove the money from one at age 55 instead of 60 as with an IRA, as long as you quit the employment at that time. Does TSP allow this? The author does make a good point in that if someone is completely unfamiliar with investing, the TSP plan is a quick, easy way to pass the funds into experienced hands, and saving money for retirement should NEVER be discouraged–even if one can point out other options that are technically correct. I probably qualify unofficially as a professional investor–as I’ve supported myself with stock trades and reserve service for many years now, so I may be a bit arrogant, but it seems like all an inexperienced person needs to do is just open up a brokerage IRA, choose a nice fund, allot auto-deposit, and then forget about your money. Ask your uncle, the banker, which stocks or funds to buy into.

  3. Martha Nelson says

    I have one son in the army now and one son going in the Army next month. They have been looking into TSP. What fund would be best for young men (18 & 20) to invest in? Both are interested in the TSP ROTH IRA.

    • Ryan Guina says

      Hello Martha, Thank you for contacting me. If they are just starting out and this is their only investment, then I would start with an L-Fund, which is a LifeCycle fund that automatically rebalances based on a set asset allocation. This makes it easy to have a diversified investment portfolio without having to do much work. This is a great starting point for beginning investors. But I would encourage them to take the opportunity to learn more about investing so they can make more informed decisions in the long run. I hope this is helpful!

  4. lorna says

    can anyone help me here. I invested in the plan before i understood it was unlike a traditional IRA or investment. I was told it was exactly the same…. we all know it is not. I am still in Military service and would like to invest my funds elsewhere and have been told i cannot withdraw the money and put it into a different account. this seems like a scam and i have stopped contributing to the tsp. is there anyway to remove the money and roll it into a non military IrA or other? i don’t approve of them having my money and not being about to move it. this is a scam and i am a responsible investor. do you have any advice?

    • William Paulson says

      See my comment to Marty above. I have just retired, and have moved all of my IRA money managed by another company to my TSP account because TSP offers index funds with an extremely low 0.029% annual cost. Where else can you get such a low cost, which promotes a higher retirement nest egg as the years go by? Carefully compare the costs charged by others before concluding that TSP is a scam.

  5. Marty says

    The TSP is lacking in other capacities. The TSP investor can only get into the MARKETS ( the 5 ” investment choices , other than the ” life cycle funds ) ONE time per month, and OUT one time per month ! In other words , say the market is in ” BULL ” mode , ok , naturally you want to be “IN ” the market . If the market ” swings ” to the downside for a correction , then of course you want to ” PROTECT ” yourself from losses and get on the ” side-line “. If the Market ” swings up or down several times in the month trying to get IT’S “direction ” on which way the investors are going ( especially the INSTITUTIONS ) , YOU GET HURT BECAUSE YOU HAVE TO SIT ON THE SIDE-LINE TILL THE NEXT MONTH ; ( that’s if you ” pulled out on the down-side and now you can’t get back in on the ” UP-SWING ” ) so therefore you ” sit ” on the side-line when you know you wanted to get back in because the ” correction ” is over and the BULLS are running the market higher . This is BS ! You should be able to get in and out AS MANY TIMES AS YOU FEEL IT’S WORTH IT TO YOU ! The TSP won’t let you do this !!!! The least the TSP should allow you to do is put in a “STOP ” , and therefore this will keep you from just ” sitting there ” losing money , or bailing out to the side-line . This crap of ” Set it and Forget is not the way to go . You will either lose a lot of your money ( and take years to recover under this scenario ) or if you just sit on the side-line , you won’t have hardly any more Money ( other than what you contribute and the employer match ) , when it comes time to retire . This TSP ” set-up ” is a scam by a big financial institution to collect a lot of ” FEES ” ; therefore they are the one making all the money . Talk and then ” SCREAM ” at your congressman about this ! It’s YOUR $ $ $ $ $ .. You Should Have Control Of Your $$$ & Do Whatever U Want

    • William Paulson says

      You are upset because TSP does not easily support market timing. The object in investing is to avoid market timing, which generally doesn’t work. Rather, investors should develop a long-range approach to investing and stick to it, without going in and out of various funds. Also, what other retirement program comes close to matching TSP’s 0.029% cost?

  6. Dale N Bickenbach says

    The TSP is still what I consider one of, if not the best, mutual fund plan I have. Yes, it would have been nice if I could have added to it after leaving Civil Service under the CSRS a decade ago; however, what is there still grows back. More important a change to the withdraw methods would be nice. I took a sum out years ago to fund a property. Now, I can only withdraw the total amount when I want to withdraw funds. Multiple withdraws at my discretion would be good. Still, I am very happy to have funds in the TSP, and reading an article on how funds have power on Wall Street in CNN Money.com I would like to know the value of the TSP funds in 2014 and how it uses its investment influence.

  7. USPS Letter Carrier says

    “site is unclear whether or not you still have to be an active participant in the TSP in order to make rollover contributions”

    Summary of the TSP 2014 pdf:
    “You can transfer money into the TSP only if you have an existing TSP account.”

  8. Austin says

    Tsp allows us to contribute the full $16,500 into the Roth IRA which is a huge benefit compared to civilian IRAs. Take advantage of this

    • Ryan Guina says

      Austin, it seems like there is a misconception with your statement. Military members can contribute the same amount to an IRA as anyone else. The TSP is a separate investment vehicle than IRAs. The civilian equivalent would be a 401k. Many civilian employers offer Roth versions of their 401k plans, much like the TSP offers a Roth version of the TSP. The limits for 401ks and and the Thrift Savings Plan are the same.

      In other words, the plans available to military members and civilians are similar in the following ways: both can contribute the same amounts to IRAs, and the civilian 401k plan and the military or civil service Thrift Savings Plan have the same contribution limits.

  9. Trudy Piper, CFP (R) says

    One brief comment regarding G Funds: by focusing primarily on low cost/low risk you may be overlooking the fact that you could still be losing money due to inflation. It may not feel like you are losing money but if your G Fund is yielding say 1.74% and inflation is 2.50%, you are not doing as well as you think in real return. Hope this helps you as you consider leaving money in G funds while in a low interest rate environment.

  10. Pete says


    I’m 60 yrs old and just retired from federal service. I currently have some money saved on my TSP and is currently on “G” Fund. I would still like to have the money earn without envolving too much risk. What’s the best thing for me to do with the money: Leave it there or roll it over to an IRA. If it is the IRA, which one, Roth or traditional.

    • Ryan Guina says

      Hi Pete, The G fund is government bonds, which have the lowest risk and lowest fees out of the various Thrift Savings Plan funds. If you are happy with that in your portfolio, then there is no reason to move your funds from the TSP to an IRA or other retirement account. However, you may find that your portfolio won’t grow much at all, so you may decide to move some of the funds into something that has slightly more risk, but also a greater chance to grow more than your G Fund.

      Please keep in mind that it is impossible to give perfect advice based on the amount of information you have provided. Since you have just retired, this would be a great time to visit with a financial planner to go over your portfolio and investments to give you an idea of how long your investments will last and if there is a more optimal way to invest your funds. I recommend visiting with a fee only financial planner, as they have less incentive to “sell” you funds that earn them a commission. You can read more about finding a financial advisor, and interviewing a financial planner.

      Regarding rolling your funds over into an IRA, this will depend upon your investment goals. If you want more control over your investments, then an IRA is the way to go. If you want the lowest risk and lowest fees, then the G Fund is about as stable and low cost as you can get. The question regarding a Roth or Traditional IRA is best determined first by deciding if you should roll your TSP into an IRA, then looking at your total financial portfolio to determine how most of your investments are taxed, when you will need the money, and other factors. This is an advanced topic, and one you should take to a professional financial advisor if you decide to roll your TSP into an IRA.

  11. Romeo says


    We actually CAN contribute to our TSP after leaving the military. I recently learn how to do so myself, so I’m not bragging, just providing additional info.

    To do so, the money must be considered an “eligible rollover distribution” for Federal income tax purposes. In other words, if we contribute to a traditional IRA during a year, file taxes, and wait to the money to clear as being eligible for rollover, we can sink this money into our TSP.

    This info can be found in the “Summary of the Thrift Savings Plan” August 2010 newsletter, pg 7.

    Why would we do so? Well, I’d gladly pay only .028% on $16,500 for the next twenty years as opposed to 0.82% for even the least expensive mutual funds.


    • Ryan Guina says

      Romeo, thanks for the information. You are correct, you can make rollover contributions to your TSP under some circumstances. (the site is unclear whether or not you still have to be an active participant in the TSP in order to make rollover contributions).

      I probably wasn’t clear in the article, but I was referring to making new contributions. For example, I still have my TSP, but I cannot make contributions to the account with money earned elsewhere. Thanks for the comment!

      • Romeo says


        No problem. Like I said, I just learned it myself. It’s good to know about this loophole, especially for people who leave the service but still want to take advantage of the extremely low costs in the TSP funds.

  12. Christina says

    While TSP data still can’t be imported into Quicken, balances, gains, and losses can be tracked online on Mint.com.

  13. Ryan says

    Brooke, I agree that it is a pain to transfer or rollover 401(k) plans with every PCS, but that is a much better option than cashing it out! The penalties are ferocious! However, It’s just not possible to combine a spouse’s money with the TSP though because, like an IRA or 401(k), they are only designed for the individual.

    Then think about what would happen in the case of a divorce (I’m not implying anything for your situation, but that is the reality of many marriages nowadays)… How would the money be split? What if there was an agreement that one spouse would make all the retirement contributions from his/her check while the couple lived on the other check? It would work great until there was a need to split the money later.

    I think it would just get to complicated.

  14. Brooke says

    I wish they would let us put a spouse match in…since our spouses have to follow us around, it’s a headache to have them have to rollover their 401(k) money everytime we PCS. It would be nice if I could auto-deduct money from my paycheck and put it in my spouse’s 401(k) (or TSP, whatever), and we could also port it when we PCS. I don’t even know where to start with this idea, though.

  15. Matt Melton says

    Well put:

    “No matching funds for military. Unless you are civil service, you do not get matching funds. In that case, it is usually better to max out your Roth IRA before contributing to the TSP.”

    There is some talk about altering the 20 yr pension for matching contributions. This is a poor way to implement the change. The government should keep the system the way it is and let the “market timers” make up the difference in annual returns 😉

  16. Ryan says

    Kirk, great comment.

    The Roth is great for younger military members because it gives them longer tax free growth and more tax diversification. Since they are already in a low tax bracket, the TSP won’t lower it.

    In my opinion though, anyone just starting out can’t go wrong with either the TSP or a Roth IRA. The point is to get started. I also think the TSP is a great place to begin because there aren’t too many investment options, which can be overwhelming to new investors.

  17. Kirk says

    Good points here. In some cases, especially younger military members, a Roth IRA is a better choice than the TSP even though the TSP has extremely low costs for its funds.

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