Can I transfer my TSP to Vanguard?
As long as you work for the government, you cannot transfer your savings to another account. However, when you have another job, you are free to transfer your TSP to a number of other retirement accounts.
What many people are aware of, but overlook, is the fact that the TSP has the lowest administrative fees in the 401(k) business. Even lower than Vanguard, which prides itself on minimal fees. For lots of math-challenged people (like me), low fees are less important than performance.
With a direct rollover, you instruct the TSP to send your TSP assets directly to your new employer's plan or to an IRA—and you never have to handle the money yourself. With an indirect rollover, you start by requesting a lump-sum distribution from TSP and then take responsibility for completing the transfer.
Consider leaving your funds in the TSP unless you don't want to deal with extra paper work or you want more investment options. Otherwise, consider rolling your TSP account assets into your new 401(k) plan if you have one, or one of the other following options.
If you want your TSP balance to be able to generate an inflation-indexed annual income of $ 10,000, most financial planners will suggest that you have a $ 250,000 balance by the time you retire.
You can keep some or all your savings in your TSP. You can transfer assets to your new employer's plan, if allowed (check with a new employer's benefits or human resources office). You can roll over your plan assets into an IRA. Or you can cash out your balance.
Vanguard's Balanced Index Fund Admiral Shares invest in stocks and bonds, and thus are a somewhat comparable investment to the TSP. Their expense ratio is among the lowest in the world at 0.07% per year, which is still almost double what the TSP charges.
Alternatives to the C Fund are iShares Core S&P 500 ETF (IVV) or Vanguard S&P 500 ETF (VOO). A mutual fund version of the C fund could be Fidelity 500 Index Fund (FXAIX). All of these funds have low costs equivalent to the C fund.
Beyond this, the TSP is better if your taxes are high today and you expect them to be much lower in retirement. It is better to use your deduction against the higher tax rate. The Roth IRA is better the further away you are from retirement.
The TSP says you should allow up to 10 days from the time you submit your withdrawal request until payment is sent. You will be notified when your payment has been disbursed.
Should I keep my money in TSP after retirement?
Leave it in the TSP and let it grow
Depending on when you begin retirement, you can simply leave the money in the TSP let it continue to grow. If you do not need to access it yet, it might be wise to let it be. Similar to other retirement accounts, you will need to begin minimum withdrawals at age 72.
Direct and indirect rollovers
Generally, you have 60 days from when you received it to make the rollover. If you wish to roll over the entire amount of the distribution you received from your other plan and the plan withheld money for income tax, you will have to add the amount withheld from other funds.
How much should I have in my TSP at age 50? By 30, you should have half of your annual salary saved. By 40, you should have double your salary, and by 50, you should be drawing about four times your salary from retirement savings.
If you want to avoid paying taxes on the taxable money in your TSP account for as long as possible, do not to take any distributions until the IRS requires you to do so. By law, you are required to take required minimum distributions (RMDs) beginning the year you turn 72.
Peak membership in the seven-figure TSP Millionaires Club was December last year. At that time there were 112,880 people with accounts ranging from $1 million to $8.4 million. The Club shrank to 100,364 as of March this year.
The Bottom Line
Certainly, becoming a TSP millionaire is easier said than done. But it's not impossible, and the number of government workers joining the millionaire ranks is increasing. The steps above can help you get there, too. You could also benefit by working with a FERS-experienced financial adviser.
Because we're making the payment directly to you and not to your other retirement plan or IRA, we are required to withhold 20% of your payment for federal income taxes. This means that in order to roll over your entire payment, you must use other funds to make up for the 20% withheld.
1. Leave Money in the TSP. You can leave the money in your Thrift Savings Plan account until April 1st of the year after you turn 70 ½. After that, you must start taking distributions.
You would use a form TSP-75 for an age based withdrawal and have your financial adviser complete the part of the form that deals with transferring money out of the TSP. Once you are separated, you are allowed to take multiple “single withdrawals” (using form TSP-99) as long as each withdrawal is at least $1,000.
While they may not have as many funds to choose from, TSP participants do have one big advantage over most 401(k) investors: lower fees. The total expense ratio, which covers both investment and administrative fees, is 0.055% for individual TSP funds.
Can I convert my TSP to a Roth IRA?
The TSP does not allow for ROTH conversions. The TSP will allow you to change the tax status of your contributions from Traditional to ROTH which will affect contributions moving forward.
| TSP Investment Funds 8/31/1990 - 8/18/2022 | TSP G Fund | TSP S Fund |
|---|---|---|
| Change (1-Day) | 0.01% | 0.46% |
| YTD Return | 1.56% | -15.82% |
| 1-Year Return | 2.11% | -14.98% |
| 3-Year Return | 1.53% | 11.31% |
*Vanguard average mutual fund expense ratio: 0.10%. Industry average mutual fund expense ratio: 0.55%. All averages are asset-weighted. Industry average excludes Vanguard. Sources: Vanguard and Morningstar, Inc., as of December 31, 2021.
Investing through the TSP mutual fund window will cost you $150 in annual fees plus $29 per trade. Your initial investment in the mutual fund window must be at least $10,000, and it must come from money already in one of the other funds.
Investment in the I Fund offers the opportunity to experience gains from equity ownership of non-U.S. companies. Because it represents the stocks of companies in many developed countries (excluding the U.S.), it is an excellent way to diversify the stock portion of your TSP allocation.
You do earn TSP dividends. In fact, you'd get the same amount of dividends that you'd get from any similar stock index fund. However, in the TSP's effort to reduce administrative expenses, the dividends are automatically reinvested.
| TSP | Vanguard | |
|---|---|---|
| Fund | Benchmark | Fund |
| F Fund | Barclays Capital U.S. Aggregate Bond Index | VBTIX |
| C Fund | S&P 500 Index | VIIIX |
| S Fund | Dow Jones U.S. Completion TSM Index | VIEIX |
Dave Ramsey's advice is to save 5% into the TSP to get the full match, then max out a Roth IRA, and then put more into the TSP if you are able to save more after that.
The administrative cost for TSP is a minuscule 0.068%! Regardless of whether you are using target date funds, the C fund, or any other TSP funds, this is the percentage removed from your account each year by the federal government to pay for the investment advisory services that manage the investment options in TSP.
Total expense ratio (Net admin + Investment) 0.043%
Are TSP funds mutual funds?
TSP funds are similar to mutual funds because they also allow investors to pool money and purchase shares of a portfolio containing hundreds of investment holdings. The difference is that our low-cost TSP funds are designed specifically for TSP participants.
To create a total stock market fund in the TSP, like VTSAX, you need to hold a market cap weighted ratio of 5 percent C fund to 1 per cent S fund. The 500 stocks of the C fund has a market capitalization of about 5x that of the 2500+ stocks of the S fund.
