The Most Common TSP Mistakes Happen Slowly—and They’re Easy to Miss Until It’s Too Late

Key Takeaways

• Many Thrift Savings Plan (TSP) mistakes develop gradually and are often overlooked until they create lasting consequences in retirement.

• Regular reviews, timely adjustments, and a clear strategy aligned with your retirement goals can prevent the most common missteps.

You Think You’re on Track, But TSP Missteps Build Quietly

When it comes to preparing for retirement, your Thrift Savings Plan is one of the most powerful tools you have. Yet some of the biggest setbacks happen not because of market crashes or major financial events, but because of small, unchecked decisions that build up over time. These mistakes can go unnoticed until you’re months from retirement—or worse, already in it.

Whether you’re still years away or fast approaching your retirement date, it’s not too late to review your TSP strategy and correct the course. But you have to know what to look for.

1. Letting Target Funds or Lifecycle Funds Do All the Work

Lifecycle (L) Funds offer a convenient set-it-and-forget-it approach, but that convenience can become a liability. These funds automatically adjust your allocation over time to become more conservative as your retirement target date nears.

But here’s the problem:

• They may not match your personal risk tolerance.

• They don’t take into account your other investments outside of TSP.

• You may end up too conservative or too aggressive based on the fund’s glide path.

Relying too heavily on L Funds without understanding their mechanics could limit your growth or create an asset allocation mismatch across your full portfolio.

2. Staying in the G Fund for Too Long

The G Fund is known for its safety and guaranteed returns, but that safety comes at a cost: growth. The G Fund is especially attractive in uncertain markets, but many public sector employees make the mistake of keeping the bulk of their TSP there for years.

In 2025, inflation remains a threat to long-term purchasing power. If your TSP is too heavily weighted in the G Fund, your savings may not keep up.

Use the G Fund strategically:

• As a near-term stability tool.

• To preserve funds needed within the next 1 to 3 years.

For longer timeframes, consider reallocating at least some of your funds to higher-growth options like the C, S, or I Funds.

3. Not Increasing Contributions with Income Growth

If you’ve been contributing the same percentage to TSP for years, your retirement savings might not be keeping up with your earnings. Every raise or cost-of-living adjustment is an opportunity to bump your contribution by 1% or more.

In 2025, the elective deferral limit is $23,500, and if you’re 50 or older, you can make an additional $7,500 in catch-up contributions. For those aged 60 to 63, there’s also a super catch-up provision allowing up to $11,250 more.

Small increases add up. Even a 1% bump annually can dramatically improve your retirement outcomes over time.

4. Missing the Roth vs. Traditional Decision

TSP offers both traditional (pre-tax) and Roth (after-tax) options, yet many contributors stick with the default pre-tax route without considering the implications.

Here’s what to evaluate:

• Are you likely to be in a higher tax bracket in retirement?

• Do you expect your TSP withdrawals to impact your Medicare premiums or Social Security taxation?

• Are you taking advantage of Roth contributions while your income is relatively low?

A mix of Roth and traditional can give you flexibility when withdrawing in retirement. Revisit this decision every few years—or whenever your income or tax outlook changes.

5. Forgetting to Rebalance

Even if your initial TSP allocation was well thought out, the market doesn’t stand still. Over time, asset classes grow at different rates, which means your actual allocation can drift far from your intended one.

Without rebalancing, you may be taking on more risk—or less growth—than you think.

Consider rebalancing your TSP at least once a year or whenever there’s a major market shift. TSP’s interfund transfer option allows you to adjust your allocations among funds to bring your portfolio back in line.

6. Ignoring Required Minimum Distributions (RMDs)

Once you reach age 73 (or 75 if born in 1960 or later), you are required to begin taking minimum distributions from your traditional TSP account, whether you need the income or not.

In 2025, failure to take your RMD results in a steep 25% penalty on the amount you should have withdrawn.

RMDs can also:

• Push you into a higher tax bracket.

• Increase your Medicare Part B premiums.

Start planning for RMDs at least 5 years before they begin. Consider strategies such as Roth conversions (while you’re still working or during early retirement) to reduce future tax burdens.

7. Withdrawing Without a Plan

Taking money out of TSP without a structured withdrawal strategy can jeopardize your long-term security. In retirement, it’s not just how much you withdraw, but how and when you do it that matters.

Avoid these mistakes:

• Taking large withdrawals in high-income years.

• Forgetting to account for taxes.

• Draining TSP before using other tax-advantaged accounts.

Build a withdrawal plan that accounts for:

• Taxes (federal and possibly state, depending on your residence).

• Sequence of returns risk.

• Longevity projections.

Consider working with a professional to design a retirement income strategy that supports your lifestyle and protects your savings.

8. Leaving a TSP Loan Unrepaid

TSP allows for loans, but unpaid loans at the time of separation or retirement are treated as taxable distributions. This means:

• You’ll owe income tax on the outstanding balance.

• You could face an early withdrawal penalty if you’re under age 59½.

If you’ve taken a loan from your TSP and plan to retire soon, either repay the balance or be ready to manage the tax consequences.

9. Overlooking Beneficiary Designations

Failing to update your TSP beneficiary form can result in unintended consequences. Your account won’t necessarily follow your will—it follows the last form on file.

Review and update your TSP beneficiaries:

• After marriage, divorce, or the birth of a child.

• After the death of a previous beneficiary.

• At least every 5 years as a best practice.

In 2025, more retirees are consolidating accounts, and failure to update beneficiaries is one of the most common—and avoidable—errors.

10. Assuming the TSP Will Cover All Retirement Needs

Even with strong contributions, TSP is just one piece of the retirement puzzle. Social Security, annuities, pensions, and taxable savings all play a role.

The danger lies in:

• Overestimating how long your TSP balance will last.

• Underestimating health care costs and inflation.

• Failing to plan for spousal or survivor income needs.

Diversifying income sources and having a full financial plan can help ensure your TSP supports—not defines—your retirement.

What to Focus On Now to Avoid Regret Later

You don’t need to overhaul everything overnight. But you do need to stop assuming that if you “just keep contributing,” your TSP will take care of itself.

Start with a check-in:

• Are your current contributions high enough to reach your goals?

• Do you understand your risk exposure across all funds?

• Have you projected income needs for 10, 20, or even 30 years?

Then, decide whether it’s time to get outside help. A licensed professional can offer guidance on:

• Portfolio allocations and risk alignment.

• Tax planning strategies.

• Retirement income planning.

Your retirement is too important to leave on autopilot.

Reclaim Control Over Your TSP Before Time Runs Out

Many TSP mistakes stem from inertia—keeping things the same for too long, assuming everything is on track, or not realizing how each decision adds up. But the earlier you notice and correct these patterns, the more control you regain.

If you’re unsure whether your TSP strategy is serving you or silently holding you back, speak with a licensed professional listed on this website. They can help you identify blind spots and develop a plan built around your specific goals.