Recently the WSJ posted an article about all the bookkeeping, tax filing, legal, and administrative fees necessary to operate a company’s 401(k) program on behalf of its employees. This, by the way, is on TOP of the expense ratios charged within the mutual fund investments available inside the Plan.
If you work for a small company, these administrivia fees add up (and NOT in your favor). Vanguard – the low cost provider of all things investing- estimates these charges as totaling 0.25% in a very large company plan, and 0.58% for a smaller company plan.
Comparing Retirement Day balances from large and small plans, the employee working a lifetime inside a small company (who earns 6% average annual fund returns with overall plan fees of 0.5%) accumulates $727,000, while the large company participant (0.25% plan fees) accumulates 773,000 (for a difference of $46,000 in final value).
$46,000 is a significant chunk of change. This is a full years’ retirement income for some folks.
So what if you’re a current or former Fed or Veteran? Where do you fit in?
The TSP charges you 0.029% all-in for fees, or essentially zero. So you’re paying near zero dollars in admin fees for TSP, versus a best-case employee at a large company who pays 0.25% in 401(k) admin charges.
Result: Your Retirement Day TSP balance will likely end up $46,000 ahead of a large company retiree who has an above-average 401(k) plan benefit.
Bottom Line: When you leave Federal or Military Service, don’t take all of your money out of the TSP. There’s more than 46,000 reasons to keep most or all of your Qualified Retirement Plan money in the TSP.