Keep money in TSP?

[LoGiK]

I'm not longer working for the federal government and have transitioned into tech (I don't believe I'll move back to Government, but who knows). I'm 34 and my 401k is with Fidelity. Is there any benefit keeping 100% of my TSP money in my TSP account, or should I move 100% to Fidelity? TSP is 100% S since 2020.

Here is a fun sad depressing thing I've noticed: I worked my way from e1 - e7 over 12 years, saving 18% each paycheck. I left service April 2022, and started in the tech sector immediately. Since then, I've been maxing my 401k along with a 50% employer match. Around May 2025 I will have (assuming the market moves up) passed my TSP balance

[Bubba]

Many will suggest you leave your money in the TSP. I would suggest otherwise. It's become a clunky, politically driven place to keep your money. I really like Fidelity. They have funds that offer the same exposure as the C funds (FXAIX) and S Funds (FSMAX), but cost less and perform better. It's a no brainer to me. Others can chime in though...

[Scarfinger]

Here is a discussion on the subject.

viewtopic.php?f=21&t=18835

[Bubba]

The idea presented by the other Bubba is compelling. I forgot about that idea. It's quite good, although I'm not sure if it'll still work in some years if Congress has their way in changing the G Fund. For now its a good idea though.

[jimcasada]

When I left active duty with the Navy in 2006, I rolled over nearly all my TSP to an Ameritrade IRA, and ended up using most of that money to buy a condo later in 2010, when I needed to get a place to live upon taking my first Federal job. Took a big hit on taxes that year, but gained it all back 3 years later when I sold our condo for about 50% higher 4 years later (tax free because we lived there for over 3 years). What you want to do is really all up to you. Are you good managing your money? Do you have the time to pay attention to your investments? That was my main problem until I retired. Now, I consider managing my investments as my main retirement job.

[Scarfinger]

The TSP is trying very hard to give you reasons stay in the TSP. One upcoming change:
"Roth In-Plan Conversion Coming to the TSP...
A Roth in-plan conversion is coming to the TSP in January 2026. A Roth in-plan conversion allows TSP participants to convert pre-tax assets to Roth assets."

It sounds like you will be able to convert traditional to Roth within the TSP.

[IRQVET]

When I was a state employee in California I did this, but my reasoning was when a former governor took a loan against CAL-PERS to balance the state budget in 90's. When we got word that the state was going to default on the loan it took against its own retirement system, alot of us rushed to pull out our money and transfer them elsewhere. So thats what I did- I moved it to a USAA IRA, and then ultimately moved it again into the TSP when I became a FED.

But if your getting a 50% match in the private sector, and your compounding returns are better than the TSP, its a no brainer to me. Not that you'd get the match on the transfer- but still.

[evilanne]

Many people have recommend leaving at least the minimum amount in TSP to keep it open for the G Fund option. Once you close it you don't have option of going back unless you go back to working for the government.

If you do decide to pull out part or all of TSP, where are you going to put it? Do you roll it over to an IRA or your 401K. TSP & 401(k) offer more protection from lawsuits see https://www.investopedia.com/ask/answer ... awsuit.asp With IRAs you usually have more investment options than 401Ks which may have limited offerings similar to TSP.

I never considered leaving TSP until a few years ago when they got this new contract and dumbed it down. I have transferred a large portion of my account out with about half of my retirement $$$ with TSP and the majority with Fidelity. But right now with the options for withdrawals payments (monthly, quarterly or annually) and additional withdrawals allowed at any time, I don't think the withdrawal issue is that big of an issue. TSP's minimum payment is $50 so you adjust the amount or timing of withdrawal if necessary in retirement especially if you have outside accounts.

Maybe when RMDs become an issue but if the market really tanks, congress usually passes legislation that exempts you from having to take the RMD like in 2009 & 2020. I got a small inherited stretch IRA in 2004 and it has more than doubled with RMDs each year except 2009. The RMD changes each year so if your end of year balance decreases, so does your RMD. Even with life expectancy payments for over 6 years my balance increased with a very conservative investment profile. We put the money in over many years with 5% government match, so I think we still come out ahead in the long run, even with the proportional distributions.

[jimcasada]

Earlier last summer, I rolled about 1/5 of my TSP over to my Schwab IRA. I now consider that my "mad money" account to invest in riskier stuff, while most of my retirement savings remains relatively safe in my TSP.

[Midway]

Another issue with leaving it in the TSP will be non spouse beneficiaries. If you leave it to your kids, they have 90 days to roll it over into an IRA or something else. If you leave it to your spouse, when they pass away, their beneficiaries are sent a check. One taxable, lump sum.

[tld1911]

I guess it also depends on "if" you're able to pay the tax owed when you do the conversion. The main benefit seems to be for TSP in that it keeps your money, and going forward you won't owe any taxes on any gains after the conversion. I hope no one thought you would actually be getting out of paying taxes. Oh, and whatever the tax liability would be on the traditional money, you cannot use any of your TSP balance to satisfy the tax liability. It has to come from separate outside funds.

[bloobs]

... you cannot use any of your TSP balance to satisfy the tax liability. It has to come from separate outside funds.

I did not know that. That is not the case for IRAs where the brokerage witholds the estimated taxes from the distributions, I think.

[evilanne]

You can always withdraw $$$ from TSP to cover the taxes

[Moose]

Many will suggest you leave your money in the TSP. I would suggest otherwise. It's become a clunky, politically driven place to keep your money. I really like Fidelity. They have funds that offer the same exposure as the C funds (FXAIX) and S Funds (FSMAX), but cost less and perform better. It's a no brainer to me. Others can chime in though...

Bubba,
I have been off the board for about 4 years, I thought the TSP had the lowest cost of any organization, true or false?

[Aitrus]

Formerly true.

Started changing in the late 10's, and really changed around 2020. Now there's some that are lower, both because they started adopting TSP's approach of keeping costs low as a priority, and TSP raising prices to pay for things like a new website, etc.

TSP is not the cheapest anymore, but still very affordable. I would estimate that it's easily in the top 10 cheapest index fund investment vehicles. The difference is pretty small compared to how expensive mutual funds are.

Rough analogy: If the cheapest gas in the nation is $2.00 and the most expensive is $6.00, then the TSP would be about $2.15 (when it was formerly $1.75). It's not the lowest price, but far better than what most people see at their local pumps.