TSP vs. Vanguard

[setab]

All you guvment retirees riddle me this. Is there any reason to transfer money from the Thrist Savings Plan to a similar Vanguard retirement account. Once you retire, you can no longer add money to the TSP, but you can continue to move it around. Other than that, what would be the reasons to transfer? Thanks.

setab

 

[yakers]

I've thought about this a little, I suppose I need to think about it a lot more. In general the TSP is hard to beat and leaving money there in some 5 fund allocation is a good option. So are the L (lifecycle) funds. But....I have thought about moving SOME of my TSP funds into Vanguard when I retire to capture asset classes that are not available in the TSP, like REITs and EM. But I would not move TSP funds into any *similar* fund from any company, even the sainted VG or TIAA CREFF.
And other Traditional IRAs, RothIRAs and after tax investments can be used with the TSP funds to get a desired asset allocation. So I would not move out of the TSP lightly.

 

[JohnP]

  I have retained the TSP after retiring because I like the funds (90% I-Fund) and I have a few years until dipping into it at 70 for RMDs.  Basically, I like the TSP for all of it's efficiency and convenience.

  I looked at the TSP distribution options, though, and decided that at 70 I am going to move it all to Vanguard.  IIRC, the TSP distribution choices include a few equal-amounts-yearly choices and 35 convert-to-ins-co-annuities options.   With these choices, I will vote with my feet to the distribution convenience of Vanguard. 

Best regards

JohnP

 

[samclem]

Setab,
I've got a small amount in the TSP and I'm doing what yakers suggested above: Leaving it there for now but including it in my overall allocation computations. The costs are low (where alse are you going t find an intl index fund with a .06 ER?). I'll probably consolidate the $$ into another 401K plan when I start taking regular distrbutions just to simplify things. FWIW, if you are keeping cash in your tax deferred accounts (maybe you want to decrease volatity or are market timing and waiting for a "good deal"), the "G" fund within TSP is often cited as an unbeatable vehicle.

samclem

 

[grumpy]

Settab,

I left my TSP account in place for only one reason - the "G" fund. For all of the other TSP funds you can easily find equivalents at Vanguard or another fund co. I don't know of any other fund with as as high a risk free return and low expenses backed by the full faith and credit of the US gov't. It forms almost my entire fixed income allocation. I have over $100K in the G fund and intend to keep it as the anchor of my portfolio in case of stormy weather.

Grumpy

 

[setab]

I love this board! Thanks for the responses. Grumpy, I'm in the about same place you are with the TSP and couldn't think of a good reason to move my cash, which is currently in the G fund. Thought I might be missing something. Talk about set it and forget it. Thanks again.

setab

 

[grumpy]

You are welcome, grasshopper!

 

[Kwirk]

Early retirees may also want to look into how they can withdraw money from TSP. As I recall (could be wrong so check it out) you are not encumbered by the need to make "substantially equal periodic payments" (SEPP) from the TSP. This could mean a lot to somebody retiring in their early or mid 50s. I don't know that this option carries over to money transferred out of TSP.

Kirk

 

[JohnP]

Kwirk is correct that govt retirees under 59 1/2 can have access to their TSP funds without penalty without using the 72t clause.

Withdrawing money from the TSP is described here  http://www.tsp.gov/features/chapter13.html   I think that TSP is well designed for putting $ in and keeping them invested within TSP but withdrawal is made difficult. 

What are my withdrawal options?   

The TSP provides several ways to withdraw your account:
You can make a partial withdrawal of your account in a single payment.
You can make a full withdrawal of your account by any one, or any combination, of the following methods:
–  A single payment
–  A series of monthly payments
–  A life annuity 

What are the general rules for making a partial withdrawal? 

If you did not make an age-based in-service withdrawal from your account while you were still employed by the Federal Government, you can take out part of your TSP account balance and leave the remaining amount in the TSP until later.  However, the remaining amount must be withdrawn by the withdrawal deadline — generally, when you reach age 70½.  (See "How long can I leave my money in the TSP?")   

You can request a partial withdrawal in an amount of $1,000 or more.  Partial withdrawals are paid only as a single payment.  You can have the TSP transfer all or part of the payment to a traditional IRA or eligible employer plan.  Payments to you can also be directly deposited into your checking or savings account by means of EFT.  Regardless of the withdrawal amount or the balance in your account, spousal consent and notification requirements apply to the partial withdrawal.  (See "How do the rights of my spouse affect my withdrawal choice?") 

Can I change my withdrawal after I receive it? 

Once your withdrawal is processed, you cannot return it or change the withdrawal option.  However, if you elected to receive all or a portion of your account in a series of monthly payments, you can change your election to a final single payment or change where your payments are being sent.  Effective each January, you can change the fixed dollar amount you are receiving.  During that time, you can make a one-time change from TSP-computed monthly payments based on life expectancy to a fixed dollar amount.

Use Form TSP-73, Change in Monthly Payments, to request a change to your monthly payments.  You can change to a final single payment at any time; however, in order to change from TSP-computed payments to a specific dollar amount or change the dollar amount you are receiving, your Form TSP-73 must be received by the TSP by December 15 in order to be effective January 1 of the following year. 

Essentially, with TSP, withdrawal is a convoluted process involving less flexibility than I've envisioned for that time of my retired life.   I like the ease of working with Vanguard or Fidelity when I get to my tax-deferred withdrawal phase.

JohnP

 

[setab]

JohnP,

Excellent points. If you want to take your money out, it probably makes sense to transfer to another qualified account. However, if you just want a safe place to park your money and watch it grow a while, the TSP is a safe bet.

setab

 

[gingkoboy]

Setab,
What are/will you be doing with the money in TSP? Let it sit there and grow? Planning on tapping into it? Are you age 55 or over?

 

[setab]

Ginko,

I'd like to let it grow. I may take a small amount out, but plan to leave the bulk alone. Yes, I am over 55; in fact in a few more months I'll be 59 1/2.

setab

 

[gingkoboy]

Setab,

If I were in your position, I'd consider staying with TSP. The expense ratio is one of the lowest, and you do not have to pay an account fee. I definitely would not give up my "safety fund", that is the "G" fund. There is no similar fund available in the private market that compares to the "G". The fund will deliver solid returns in times of a recession. Remember what happened in 2000, 2001 & 2002? Stocks went south. The "F" (bond) fund did OK during those years, and you can duplicate that in the private market, but it could have done worse. If I were to leave the TSP, I will not be able to return. And, finally.. the TSP is considering introducing REITs into the family of TSP funds. This should be an exciting prospect to us TSPers.

In short, TSP is getting better all the time. There are upsides to moving to an IRA, and if I were to do this, Vanguard would be a strong contender. But at the moment, for me anyway, the TSP is more attractive.

 

[setab]

Ginko,

Thanks. I think that is sage advice. It is pretty much the way I was leaning, but since I am not a savy investor like some of the folks here, I just wanted to make certain I wasn't missing something. Thanks again for your input.

setab

 

[JohnP]

Setab -  This topic has been interesting on several levels - We all agree that the TSP is a great vehicle with low costs and exceptional fund choices.  

What hasn't been discussed here is that you can add money from other Traditional IRAs (even after retirement) to your existing TSP account enhancing its' efficiency to you.  

see http://www.tsp.gov/features/chapter02a.html

Can I transfer or roll over money from an existing retirement plan to the TSP?   

Yes.  Whether you are an active or separated Federal employee you can transfer or roll over money from a traditional IRA or an eligible employer plan into your existing TSP account.  If you are separated from service, you can transfer money into your TSP account unless you have already made a full withdrawal of your account or are receiving monthly payments.

The TSP can accept funds that were distributed from a traditional IRA or an eligible employer plan (or its designated financial institution).  The money that you are transferring or rolling over must be considered an "eligible distribution" under the Internal Revenue Code.  If you are considering a transfer, you should check with the administrator of the plan from which you wish to transfer the money (or your tax advisor) to ensure that the funds are eligible for transfer or rollover.

Note:  The TSP can only accept transfers that consist of before-tax money.  The money will be subject to income tax when it is eventually paid to you from your TSP account.

I have other existing IRAs that I've considered moving to my TSP - it's a possibility that you, and other retirees may want to consider.

JohnP

 

[yakers]

I have transferred two traditional IRAs into my TSP account. It took long enough, my old IRA companies (Oppenheimer & American) were not aware of the TSP so it took several letters and calls to get things sorted out. Oppenheimer had done OK for me over the years and the American Fund was quite good but I wanted to consolidate my funds and the TSP is easy to manage, even offors Lifecycle funds. Even if I move some funds over to Vanguard when I retire (to capture some other market segments) I would keep some funds in the TSP for the G fund and as long as it is open you can transfer IRA money back in if you choose. And there is no "Admiral" version of TSP funds so there is no "penalty" for a low fund level.
You do have to look at when you turn 70 as the withdrawal options are more limited. But I figure I'll just have them send me my RMA and figure out a way to spend it or squander it on the grandkid/s (currently only one, hoping for more).