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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