There are some items about the TSP I do not like (limited investment choices), but the pluses of the TSP far outweigh the minuses.  In fact, as long as I live, I swear I will NEVER pull 100% of my funds out of the TSP.

Why? Even if you leave Federal Service before your minimum retirement age (i.e. you resign or quit), you are still eligible for LIFE to retain the benefit of your TSP account (as long as you keep a minimum account balance of $200 in the TSP).

Here’s why you should NEVER completely exit your TSP:

  • At retirement, the TSP can be easily be converted to an annuity, with industry-leading low expenses.
  • If you are no longer working for Uncle Sam, you may roll money OUT out of the TSP at any time to an IRA or your current employer’s 401k (in tax jargon this is a “Trustee-to-Trustee transfer”, a non-taxable event).  If this is your case, roll some money out of the TSP if you would like more flexibility in investment choices (IRA) or if you like the investment options and expenses of your current employer’s Qualified Plan (i.e. 401k).
  • The TSP will permit you to roll retirement funds back IN to the TSP at any time from an IRA or Qualified Plan.
  • TSP has the G fund, which is the best vehicle anywhere to park your short-term money. The G-fund gives you guaranteed returns equivalent to a 3-year CD combined with the liquidity of a money market fund. There’s no other financial product like it available.

Bottom line: even if you leave the employment of Uncle Sam, don’t leave the TSP.

For further reading on the many methods of withdrawing TSP funds: Withdrawing Your TSP Account After Leaving Federal Service

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5 thoughts on “Thrift Savings Plan and You: Best Friends Forever.

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  3. What about the fact that the TSP forces us not only to take from ALL funds proportionately, but ALSO from traditional as well as ROTH money? This is crazy! All we’ve saved over the years in low fees with the TSP will quickly be wiped out, plus greatly reduce its longevity, with this setup. Not to mention, ROTH money should be the last money taken out.

    The TSP is a great place to invest but not to pull from during retirement. For these two reasons alone, I am strongly considering rolling a large portion of it over into an IRA.

    I would like to hear your comments.

    Reply
    • Natalie –

      Thanks for reading Gubmints!

      Your assessment is pretty close – If you choose FULL TSP withdrawal, TSP forces pro-rata withdrawals from your Traditional and Roth balances. You relinquish control of the timing (and taxation) of your withdrawals.

      It’s not intuitive, but there IS a workaround. When you retire, you can choose a PARTIAL withdrawal, then choose 0% (or whatever you prefer) Traditional TSP withdrawal/rollover and 100% withdrawal/Rollover of your TSP Roth balance (to a Brokerage Roth IRA Account). Moving your Roth TSP Balance to an Individual Roth IRA will allow you to choose if/when to withdraw Roth ‘Monies’ from your Brokerage Roth Account. Look at section VI (Traditional Withdrawal portion) and section VIII (Roth portion withdrawal) on TSP Form 90: https://www.tsp.gov/PDF/formspubs/tsp-90.pdf.

      I would never advise removing 100% of retirement monies from TSP, if for no other reason than TSP has the best short-term fund anywhere on the planet (G Fund). You can use this for your short-term (year-to-year ‘safe money’) living expenses in retirement.
      Plus, TSP offers top-notch annuity rates and fees that are tough to beat if you ever want to ‘annuitize’ your Full TSP Withdrawal in retirement.

      Important Stuff to know:
      1) You only get 1 chance to do a Partial Withdrawal from TSP in your lifetime- Your next withdrawal from TSP must be a ‘Full’ Withdrawal.
      2) If you don’t want to be taxed on the withdrawal/rollovers, make sure you have Individual IRA accounts (of both appropriate ‘Traditional’ and ‘Roth’ types) set up with your favorite Brokerage/Mutual Fund house.
      3) Keep SOME money in TSP. You can always roll money back in to TSP at ANY TIME (from other Qualified Plans) and take advantage of TSP’s G Fund and/or ADJUST the AMOUNT of your Full Withdrawal every year.
      4) If you retire from Federal Service in the Calendar Year of attaining your 55th birthday (or later), you can start withdrawing TSP monies WITHOUT TAX PENALTY. You don’t have to wait until age 59.5 as you would with an IRA. You can’t do this if you roll your entire TSP balance to an IRA at, say, age 56.

      Oh, and make SURE you read my post on TSP Withdrawals at Separation (if you have not already) – http://wp.me/p2Nyqo-hn

      Reply

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