All About the Thrift Savings Plan

The Good, the Bad and the Ugly

In the mid-1980s, the federal government was learning the same lesson many private companies had already faced — traditional pension plans were becoming too expensive to sustain. As a result, the Federal Employees Retirement System Act of 1986, signed by President Reagan, transitioned federal retirement benefits to a three-tiered system: Social Security, a significantly reduced pension (compared to the Civil Service Retirement System) and a defined contribution retirement savings plan known as the Thrift Savings Plan (TSP). Years later, the U.S. military would adopt the TSP to provide servicemembers with a retirement savings option as well.

The TSP is often compared to the private sector’s 401k plan. But those of us at Creative Planning who specialize in working with federal employees and military-affiliated professionals — including law enforcement and airline pilots with prior service — know the TSP is a unique animal that requires a deeper dive.

So, with that, let’s explore the good, the bad and even the ugly of the TSP.

TSP Basics

The TSP is a defined contribution plan, with contribution limits that mirror those of 401ks. For 2025, participants can contribute up to $23,500 (combined between Roth and traditional accounts), with total contributions including employer match capped at $70,000. Catch-up contributions are tiered based on age as follows:

• Ages 50-59 or over 64: $7,500
• Ages 60-63: $11,250

Federal employees receive a 1% automatic government contribution plus a 4% match on their own contributions up to 5% of their basic pay, for a total of 5% in employer contributions.¹] For service members under the Blended Retirement System (BRS), the same 1%/4% structure applies — but the 4% match doesn’t start until after two years of service. Legacy “High-3” retirees don’t receive any government match, though they may still contribute.²

Investment options include these five core index-style funds:

• G Fund – Includes short-term U.S. Treasuries (unique to TSP)
• F Fund – Tracks the Bloomberg U.S. Aggregate Bond Index
• C Fund – Tracks the S&P 500 Index
• S Fund – Tracks the Dow Jones U.S. Completion TSM Index
• I Fund – Tracks the MSCI ACWI ex U.S. Investable Market Index

TSP participants also have access to Lifecycle Funds, which are fairly conservative target-date model portfolios built from the core funds, and, since 2022, the mutual fund window, which opens the door to a broader universe of investments — with trade-offs we’ll explore.

The “Good”

1. Low Expenses

The TSP has long been celebrated for its low-cost structure, and it remains among the more affordable retirement plans available. Expense ratios in 2025 range from 0.036% to 0.051%,³ which means you’re paying just 36 to 51 cents per $1,000 invested.

2. The Unique Power of the G Fund

The G Fund is a rare asset class that offers a government-backed return using non-marketable U.S. Treasury securities with no risk of principal loss. It is a tool that doesn’t exist in the private sector and is especially useful for conservative investors or as a stabilizer. No other stable value or money market fund can quite replicate it. For many who are considering maintaining their TSP account in the long run, the ability to have access to this fund is one of the more compelling reasons to do so.

3. The Government Match: A 100% Rate of Return on Contributions

For federal civilian employees, TSP contributions are matched up to 5% as follows:

• 1% automatic match (regardless of employee contributions)
• Up to a 4% additional match (with full matching received at a 5% contribution)

For military service members, it depends on which retirement system they’re under, as detailed below.

• Blended Retirement System (BRS): This system, implemented in 2018, includes a defined contribution component via the TSP. Like federal employees, service members under BRS receive a 1% automatic contribution and up to 4% matching contributions, but key distinctions are as follows:
  • The 1% contribution starts after 60 days of service.
  • The 4% match begins only after two years of service for those who enter after January 1, 2018.
  • Vesting for the 4% match occurs immediately, while the 1% automatic contribution vests after two years.⁴

This is a meaningful benefit for service members, especially because only about 19% of military personnel typically serve long enough (20+ years) to earn a pension.⁵

• Legacy “High-3” Retirement System: This system, still in place for those who opted not to switch to BRS, is entirely pension-based. While members can contribute to the TSP, there are no matching or automatic contributions from the Department of Defense. In other words, High-3 participants are funding their TSP entirely on their own. For some, doing so makes it easier to overlook or underutilize the TSP — which can be a major missed opportunity, especially given the tax-advantaged nature of the account.

The “Bad”

Despite these strengths, there are valid reasons participants often consider rolling their TSP accounts to an IRA or other retirement plan after separation from service. We explore the downsides to the TSP below.

1. It’s Not as Cheap as It Used to Be

TSP once had a clear lead on cost. However, as the governmental bureaucracy surrounding the TSP has grown (more on that below), the costs associated with the plan have slowly begun to increase. Today Fidelity, Schwab and Vanguard offer institutional share classes of similar index funds with equal or even lower expense ratios, as detailed in the table below.

TSP Fund	Expense Ratio (2025)6	Comparable Fund	Expense Ratio
G Fund	0.037%	No direct equivalent	—
F Fund (Bond Index)	0.037%	Schwab U.S. Aggregate Bond ETF (SCHZ)	0.03%
C Fund (S&P 500)	0.036%	Fidelity ZERO Large Cap Index (FNILX)	0.00%
S Fund (Completion Index)	0.051%	Vanguard Extended Market ETF (VXF)	0.05%7
I Fund (International)	0.038%	Fidelity International Index (FSPSX)	0.03%

While these differences may seem negligible, over the span of a multi-decade retirement, even small variations in expense ratios can add up, especially when paired with improved access to planning, rebalancing and tax strategies.

For many TSP participants — especially those nearing retirement or transitioning from federal service — this raises an important consideration: should you stay in the TSP or consider rolling the funds elsewhere? There’s no one-size-fits-all answer, but the TSP’s historical cost advantage is no longer the sole reason to stay.

2. Limited Investment Flexibility

The TSP offers just five core index-style funds — which sounds simple, but that simplicity can become a constraint. These broad indices don’t allow for meaningful diversification within asset classes.

For example:

• The I Fund tracks the MSCI ACWI ex U.S. Investable Market Index. This includes both developed and emerging markets, both large and small cap, all in one bucket. But you can’t isolate exposure to just emerging markets, international small cap or specific developed regions, like Europe or the Pacific.
• Similarly, the S Fund covers both small- and mid-cap U.S. companies in one blended index, offering no ability to separate those exposures when market conditions might warrant it.

This lack of granularity makes it more difficult to:

• Execute tactical rebalancing when volatility creates opportunities
• Tilt portfolios in a way that aligns with a specific risk tolerance or investment philosophy
• Incorporate broader diversification strategies used in modern portfolio theory

While the mutual fund window, introduced in 2022, was intended to address these limitations, the implementation leaves much to be desired.

3. The Mutual Fund Window

While it does technically open the door to more than 5,000 mutual funds, the mutual fund window is neither flexible nor cost-effective for most investors, due to a litany of fees associated with using this TSP feature.

Imagine selecting a low-cost S&P 500 Index fund inside the mutual fund window, for example the Vanguard 500 Index Admiral Shares (VFIAX) with an expense ratio of 0.04%.

Now let’s examine the cost to hold this fund there:

Cost Component	Amount
Annual Maintenance Fee	$95
Annual Access Fee	$55
Per Trade Fee	$28.75
Fund Expense Ratio (VFIAX)	0.04%

If an investor places just one $10,000 trade into this fund and makes no additional transactions for the year, the total effective cost looks like this:

• $95 (maintenance) + $55 (access) = $150 in flat fees
• Fund expense: $10,000 x 0.04% = $4

That’s a total cost of $182.75 annually, or 1.83% of the investment value,⁸ for a fund that outside of the TSP could be held for less than $5 per year with no trade fees.

4. Trading Restrictions

TSP allows only two inter fund transfers per month (with unlimited moves into the G Fund). For more active participants or tactical investors, this can be a frustrating limitation — especially during volatile markets.

5. Withdrawal and Distribution Constraints

While the TSP Modernization Act of 2017 significantly improved the withdrawal rules for participants, some key constraints still exist:

• Only one withdrawal is permitted every 30 days⁹, which can create planning challenges. No other 401k plan or IRA imposes such a restriction on participants or account holders.
• More critically from a planning perspective, withdrawals must be taken pro rata¹⁰ across all invested funds. You can’t specify which funds to draw from — meaning distributions will pull proportionally from your G, C, S, F, and I Fund allocations, regardless of market conditions. This practice can dramatically increase sequence of returns risk, which can prematurely dilute a portfolio during a downturn if distributions are needed. For example:
  • Suppose a retiree has 60% of their TSP invested in the C Fund and S Fund (equities) and 40% of their TSP invested in the G Fund. During a market downturn, they want to let stocks recover and pull only from the G Fund. But TSP’s pro rata rule forces them to liquidate a portion of their stock holdings with every withdrawal — potentially locking in losses during a down year.

6. Limited Options for Beneficiaries

The TSP allows a surviving spouse to retain the account in a beneficiary participant account (BPA) or roll it into his or her own IRA. However, maintaining a BPA comes with a very significant catch. If the surviving spouse dies, their beneficiary can’t roll the BPA into their own inherited IRA, which could normally be done if that spouse had originally rolled the TSP into their own IRA. Instead, the full account is distributed as a taxable lump sum.¹¹

• As an example, suppose someone inherits a $500k TSP balance from their spouse, and elects to keep it in a BPA. They then name their adult child as a beneficiary of that BPA. If that surviving spouse subsequently dies, the ENTIRE $500k balance will be distributed to that adult child in one lump sum, which could be drastically tax-inefficient. Had the spouse elected to roll the TSP into an IRA instead, then in the same example, the adult child would be able to transfer funds to an inherited IRA of their own, where they would have 10 years to spend the account down rather than taking a lump sum distribution.

7. Tax-Exempt Contributions: A Missed Opportunity?

For military members making tax-exempt contributions in combat zones, while those contributions will be distributed tax-free in retirement, the future earnings on those contributions are still taxable.¹² By contrast, rolling tax-exempt contributions into a Roth IRA allows both contributions and earnings to grow and be distributed tax-free. For guidance, see this article by a colleague of mine, Wealth Manager Dhanise Pagulayan, CFP^®: How to Roll Over Your TSP Tax-Exempt Funds Into a Roth IRA.

The “Ugly”

Unfortunately, the TSP is ultimately governed by a federal agency and, as such, has found itself subject to the problems and pitfalls so often associated with bloated governmental bureaucracies.

1. The Converge Project Rollout

In 2022, Accenture Federal Services (AFS) and Alight Solutions — government contracting vendors — took over the administration and record keeping of TSP through the “Converge” project. The rollout was, to put it mildly, a complete disaster.

Participants experienced a range of issues, including account lockouts, missing or inaccurate balances and a widespread lack of customer support. For a system managing more than $800 billion in assets, these weren’t just teething pains — they were significant operational missteps that directly impacted participants’ access to their retirement savings.

The disruption was serious enough that a class-action lawsuit was filed in 2023 against Accenture, Alight and the Federal Retirement Thrift Investment Board. The complaint alleges that the transition resulted in data errors, account access failures and insufficient safeguards, all of which may have caused material harm to federal employees and service members. It also raises questions about whether appropriate oversight and accountability were exercised during the handoff.

While the case is still pending, it underscores the level of concern from participants and highlights the importance of stability and trust in managing such a critical retirement system.

2. Website Errors and Inaccuracies¹³

The new website is rife with issues, including:

• Examples of account projections using annual instead of monthly compounding, which is much more inaccurate
• Typos and broken features
• Incorrect beneficiary info and missing transaction histories
  • The implications of this issue can’t be overstated. If you’re a TSP participant, it’s vitally important that you check and double-check that your beneficiary is listed correctly. There are a myriad of testimonials on the internet with participants’ beneficiaries being incorrect or completely removed — especially after implementation of the Converge project.¹⁴

While AFS has publicly apologized for the missteps in this rollout, the problems for participants still remain as of the writing of this article.

3. No Account Numbers or Legacy Statements¹⁵

Since the AFS takeover:

• Statements no longer show account numbers — a basic security feature. This omission complicates rollovers or management of the TSP, where account numbers are required by receiving institutions.
• All statements prior to June 1, 2022, have disappeared from the site, with no way for participants to retrieve them online. Participants are then forced to call the TSP support line to request paper copies in the mail. Due to high demand, participants are expected to incur potential delays.

4. Limited Fraud Protection

While the TSP finally began to incorporate certain cybersecurity measures like multi-factor authentication (MFA) in 2022, there are severe limitations to participants:

• Unlike custodians, such as Fidelity or Schwab, TSP offers limited fraud reimbursement.¹⁶ If your account is compromised, the TSP lacks a clear formal process to recover your funds. A significant paperwork trail is required, and the burden of proof lies completely with the participant.

• There are no real-time active fraud detection measures. If there is suspicious activity in your account, you won’t receive alerts.

5. Rollover Difficulties

Executing rollovers out of the TSP has not only become more cumbersome but the interface and post-Converge rollout have made the experience inconsistent and difficult.

• Participants often experience delays in processing paperwork.
• The website is confusing and lacks clear instructions.
• There’s limited advisor or custodian coordination.
• There have been errors with the transfer of rollover checks. In some cases, participants have reported that the TSP coded certain transfers incorrectly, such as marking a Roth transfer as a traditional, or vice versa.

Final Thoughts

The TSP remain a powerful and often underappreciated retirement tool — particularly for federal employees and service members. Its low-cost structure, automatic government contributions and unique features (like the G Fund) can all play a meaningful role in a sound retirement strategy.

That said, the TSP isn’t without its flaws. From limited investment flexibility and cumbersome withdrawal and rollover processes to the serious implementation issues tied to the Converge project, participants deserve to understand both the strengths and the limitations of the plan.

At Creative Planning, we have a team that specializes in helping federal employees, military professionals and those transitioning into civilian or private-sector roles navigate these complexities. Whether you’re actively contributing to your TSP, approaching retirement or considering a rollover, we’re here to help you make informed, strategic decisions about your financial future.

If you’d like to better understand your options or receive a personalized analysis of your TSP alongside your broader financial picture, please request a meeting.