Thrift Savings Plan (TSP)

[nash031]

I'm kind of surprised so many people who responded consider the biggest asset of the TSP to be the G fund. It has historically performed better than any other similar interest bearing account, however, the yield over the last few years has been been lower than 2%. I'd consider the low cost other funds to be a lot better value than the G fund. Once you are within 5 years of retirement or fully retired I can understand the fear of losing part of your nest egg, but, for most of us, this is only a part of our retirement income. Our pensions are virtually risk free, so the TSP is a place to take some risks. But, again, each to his or her own investment process.

While I can see your point about taking risk in TSP, I think you're misleading yourself regarding the G fund. The value in the G fund is that it is basically guaranteed in all but extremely high inflation situations to match or beat inflation, and it has very low costs. There is no other fund out there that can guarantee its price will not fall, and has practically no risk. So, its yield has been low the last few years because inflation has also been low. Thus, the value of the G fund is for capital preservation.

Now, is that enough to maintain a TSP account open? Probably won't be for me because I'll have a COLA pension to give me similar "guarantees" and I will be equity heavy in retirement assets, probably far more so than those who do not have a similar pension. As you said, personal preference...

 

[ChrisC]

While I can see your point about taking risk in TSP, I think you're misleading yourself regarding the G fund. The value in the G fund is that it is basically guaranteed in all but extremely high inflation situations to match or beat inflation, and it has very low costs. There is no other fund out there that can guarantee its price will not fall, and has practically no risk. So, its yield has been low the last few years because inflation has also been low. Thus, the value of the G fund is for capital preservation.

Now, is that enough to maintain a TSP account open? Probably won't be for me because I'll have a COLA pension to give me similar "guarantees" and I will be equity heavy in retirement assets, probably far more so than those who do not have a similar pension. As you said, personal preference...

True. That upsized COLA pension permits one to take as much or as little risk as possible, after all, the game is won in most cases with that pension. But if one is not 100 percent in equities across all retirement accounts, then an optimal bond fund to be in is the G-Fund, hands down. There are also other considerations at play for proper allocations and where to place your retirement funds, particularly whether to place all your equity positions in Roths, whether your investment mix is designed primarily for your heirs, whether you intend to make QCDs to satisfy RMDs, etc. And, unfortunately, TSP distribution/withdrawal rules adds complexity to these considerations.

 

[beowulf]

While I understand the appeal of the G fund and have most of my TSP in it at the moment, the G fund, in the long term, is a losing proposition. Unless you are invested in mutual funds, stocks, ETFs or similar things, you are going to fall behind. If you want it as an ironclad, no risk investment, that's fine. But it seems some here have 100% of their TSP in the G fund. If you look at performance of the funds on the TSP website, the 10 year return through the end of 2016, was 2.63%. The C fund over the same period was up 7%, S fund was 8.13% and the F fund was 4.15% and the I fund was 1.02%. Those are annual returns, not the total over 10 years. For the past 12 months, the G fund has returned 2.19%. For the C, S, F and I funds, the returns were 16.24%, 15.31%, .78% and 18%. These numbers are from the TSP website.

Total safety comes at a high price. Those of us who are CSRS and worked a full career as a fed can probably take more risk, but each to his own. The G fund is a good hedge, but too much money in it seems very high risk to me. If I roll my TSP to my IRA I intend to have a portion in fixed income - I think the VG money market fund is paying about 1.2%. The final decision has yet to be made. It's going to be an all or none one. I don't want monthly withdrawals, so, if I stay, I only have 2 years more to go unless the withdrawal rules are liberalized. FYI, over the last 12 months, I withdrew about 4% from my IRA. Despite that, I have about 10% more in it than 12 months ago.

 

[ChrisC]

I think you're missing a point, again. I don't believe anyone here has said they have their entire retirement funds in the G-Fund. For me, when I look at all of our investable retirement funds, including my spouse's accounts, there's no better place to park an allocation to bond funds than the G-Fund. So, in my case, we might have a 80-20 percent equity to non-equity mix across our total investment portfolio, including taxable accounts and cash, where 15% would be consigned to the G-Fund. Others here make the case that with a COLA adjusted pension, more risk in equities can be taken and the G-Fund is less important in asset allocations -- this is a very fair point.

 

[beowulf]

No problem. Chris. I understand and agree it's a great place to park money you don't need. I've been doing it since 2003 when I retired. But my 70/30 G fund to C,S and I allocation netted me a gain of about 4.5% on the entire account during the past 12 months. BTW, timo2 mentioned that he has 100% of his TSP in the G fund. According to the TSP website, 43% of the 4.7 million participants have their ENTIRE account in the G fund. The folks on the RE site seem to be a lot more investor savvy than the average person, but 43% who are unwilling to take any risk? Many of whom are probably in FERS? That's not going to work well for them in the long run.

That, however, is not my issue. The problem for me is that, and anyone else with a TSP, is, that in the year you turn 70 1/2, you have to start taking RMDs. If you become 70 1/2 after June 30, you can postpone your RMD to the next year, but you will be forced to take 2 RMDs in the following year. Even if I were eligible to do that, which I'm not, I wouldn't.

It's very simple. Under current rules (which may or may not change at some unknown point in time), unless you take monthly payouts, you are only allowed two withdrawals for the rest of your life. One partial and one full. Since I'm not going to take the monthly option, unless the rules change, I will only have 2 more years until the full withdrawal. Given that, if the G fund is the only reason I'm staying in the TSP, it's simply not a good enough reason. For those below the age of 70 1/2, it's a completely different story, unless they want to take more than one partial withdrawal and don't want to start monthly payouts.

I just noticed Amethyst's question and the answer to it. Unless you take monthly payments, the correct answer, today, is NO. No, you can't take out RMDs from the TSP every year. The one partial and one final withdrawal rule applies to RMDs as well as any other withdrawals.

 

[evilanne]

I'm planning on doing a partial withdrawal from TSP in the near future but I plan on keeping most of the money in TSP as I like the simplicity of the Funds. Once you are required to take RMDs, TSP seems much simpler IMO than an outside IRA for a few reasons: (1) they automatically calculate your RMD each year, which is basically the same in any traditional IRA account.(2) you don't have to decide what stocks/bonds/funds to buy when you set up your IRA or what to sell each year when you make your RMD (3) you don't have to worry about taking proper RMD amount, which is taxed at 50% if you don't take it as required and (4) there is no equivalent to the G Fund in a brokerage and it's risk free rate of return is higher than you will get in a money market If you don't like the idea of changing $ amount annually, you can choose life expectancy option and they will calculate it based age and end of year balance similar to RMDs (prior to 70.5 they use a different IRS table which results in slightly higher distribution rate). The rules are a little restrictive but still workable IMO.

 

[Kwirk]

I moved all funds from my TSP account to a VG IRA.

When a TSP beneficiary participant (Annuitant's spouse) dies designated beneficiaries can't transfer their inheritance to an inherited IRA. (At least, this was the case a few years ago.)

If my wife had inherited my TSP account and failed to move it to another IRA our children would likely inherit the money but could not set up inherited IRAs, leaving them with unnecessarily large tax bills.

My wife is very intelligent but not much interested in financial management. I was concerned that she might not get around to moving the money out of her TSP beneficiary account before her own death.

 

[ChrisC]

I moved all funds from my TSP account to a VG IRA.

When a TSP beneficiary participant (Annuitant's spouse) dies designated beneficiaries can't transfer their inheritance to an inherited IRA. (At least, this was the case a few years ago.)

If my wife had inherited my TSP account and failed to move it to another IRA our children would likely inherit the money but could not set up inherited IRAs, leaving them with unnecessarily large tax bills.

My wife is very intelligent but not much interested in financial management. I was concerned that she might not get around to moving the money out of her TSP beneficiary account before her own death.

Not true. https://www.tsp.gov/PDF/formspubs/tspbk31.pdf. Nonspouse beneficiary can receive TSP funds in an inherited IRA.

 

[ChrisC]

No problem. Chris. I understand and agree it's a great place to park money you don't need. I've been doing it since 2003 when I retired. But my 70/30 G fund to C,S and I allocation netted me a gain of about 4.5% on the entire account during the past 12 months. BTW, timo2 mentioned that he has 100% of his TSP in the G fund. According to the TSP website, 43% of the 4.7 million participants have their ENTIRE account in the G fund. The folks on the RE site seem to be a lot more investor savvy than the average person, but 43% who are unwilling to take any risk? Many of whom are probably in FERS? That's not going to work well for them in the long run.

Timo 2 can speak for himself, but there's a difference in having all your TSP Funds in the G-Fund as opposed to having all your retirement funds in the G-Fund -- Timo2 did say he took a partial withdrawal of 40 percent of his TSP funds and placed that someplace else. Regarding the stat you cite for the disproportionate level of participants having their entire account in the G-Fund, this is explainable in that: (1) last time I looked, the G-Fund is the default fund for all TSP participants -- it was that way when my daughter entered Federal service in 2008 and when my son, in the military, was able to participate in the TSP in 2010; many newly minted civilian workers or military service members don't have retirement savings on their minds, initially, when they enter the workforce; (2) though we tend to think of the Federal workforce as predominantly white collared and professional, it has significant numbers of blue collar or clerical/support staff workers, who struggle day to day to make ends meet and don't take major advantage of TSP and investment opportunities; as you probably know most of the Federal workforce is segmented along PATCO lines, Professional Administrative Technical Clerical Occupations, but there is also a large Wage-Graded workforce -- those folks are maintenance and building workers who take care of our military bases, dependent school systems, VA hospitals, Federal buildings and national parks/monuments -- I'd be surprised if these Wage-Graded employees contributed beyond the mandatory set-aside and are likely to be only in the G-Fund.

 

[donheff]

No problem. Chris. I understand and agree it's a great place to park money you don't need. ..

That, however, is not my issue. The problem for me is that, and anyone else with a TSP, is, that in the year you turn 70 1/2, you have to start taking RMDs. If you become 70 1/2 after June 30, you can postpone your RMD to the next year, but you will be forced to take 2 RMDs in the following year. Even if I were eligible to do that, which I'm not, I wouldn't.

It's very simple. Under current rules (which may or may not change at some unknown point in time), unless you take monthly payouts, you are only allowed two withdrawals for the rest of your life. One partial and one full. Since I'm not going to take the monthly option, unless the rules change, I will only have 2 more years until the full withdrawal. Given that, if the G fund is the only reason I'm staying in the TSP, it's simply not a good enough reason. For those below the age of 70 1/2, it's a completely different story, unless they want to take more than one partial withdrawal and don't want to start monthly payouts.

I just noticed Amethyst's question and the answer to it. Unless you take monthly payments, the correct answer, today, is NO. No, you can't take out RMDs from the TSP every year. The one partial and one final withdrawal rule applies to RMDs as well as any other withdrawals.

I don't understand the issue. You have to cash out your RMDs no matter where you move the TSP. Is the irritation that you currently have to do it with monthly withdrawals rather than quarterly or annual? What would you differently if you moved it all to Vanguard?

 

[Kwirk]

Not true. https://www.tsp.gov/PDF/formspubs/tspbk31.pdf. Nonspouse beneficiary can receive TSP funds in an inherited IRA.

We're talking about different things. You are correct that if my children inherit my TSP directly from me they can receive it as an inherited IRA. The problem is that if I die first and my wife keeps the money in a beneficiary TSP account...

"Note: Death benefits paid from a beneficiary participant
account cannot be transferred into an inherited IRA. Instead
the payment will be made directly to the beneficiary of the
beneficiary participant account."

https://www.tsp.gov/PDF/formspubs/tsp-583.pdf Quote above is at the end of section 3.

 

[ChrisC]

We're talking about different things. You are correct that if my children inherit my TSP directly from me they can receive it as an inherited IRA. The problem is that if I die first and my wife keeps the money in a beneficiary TSP account...

"Note: Death benefits paid from a beneficiary participant
account cannot be transferred into an inherited IRA. Instead
the payment will be made directly to the beneficiary of the
beneficiary participant account."

https://www.tsp.gov/PDF/formspubs/tsp-583.pdf Quote above is at the end of section 3.

Yes, you're correct. I'll have to look into this more carefully as the years go by. My wife is my designated beneficiary and a trust is my contingent beneficiary. The same trust is her beneficiary, in which my children are beneficiaries and can create separate trusts to stretch RMDs in inherited IRA accounts. Two of my three kids have TSP accounts though they have separated from service. Wondering if the two kids with TSP accounts can roll the inherited IRA accounts into their own TSP accounts. Oh well, they'll figure it out.

 

[nash031]

While I understand the appeal of the G fund and have most of my TSP in it at the moment, the G fund, in the long term, is a losing proposition. Unless you are invested in mutual funds, stocks, ETFs or similar things, you are going to fall behind.

The G fund makes up nearly 100% of my bond allocation, but that's currently on 14% of my overall assets and roughly half of my TSP assets. The other half is C, S and I.

That G allocation serves exactly the purpose you said - low/no risk, capital preservation. I don't expect my bond allocation will ever go above 20%, and maybe not over 15% as I'll have a COLA pension, but for whatever percentage I stay with, the G fund is nearly impossible to beat. For me, the bond allocation is all about capital preservation - I don't chase returns with it. That's what the other 85% of my retirement capital is for.

So the G fund on its own is a losing proposition, but as a part of a diversified portfolio and specifically for capital preservation against inflation, it's basically impossible to beat. Point is, a whole bunch of TSP participants may have everything in G, but don't be so quick to assume that makes up all or even most of their overall retirement asset allocation.

 

[Nords]

I searched the archives, but couldn't find a thread dedicated to this topic, just a few individual posts. If you're not a retired federal employee or military retiree, this probably won't be of much interest to you .

The TSP only allows one partial withdrawal and one final total withdrawal (or rollover) - period - forever. No other options. You can take out equal monthly withdrawals (adjustable once a year), but this seems to me like a PITA option that I don't want to deal with .

Faced with the probability that I can only make one partial withdrawal in 2018 and a final full withdrawal in 2019, I've decided to roll it all to VG this year. The process is ponderous. First you have to get their form notarized, then mail it to VG (or wherever you have an IRA account) and have them certify that you actually have an account with them, have it mailed back to you and then mail it to TSP HQ. Then TSP mails a physical check to VG (no wire or e transfer allowed) - can't do anything electronically. You can fax the forms, but that's not something I'm willing to do. Faxing is very 1980s and things I've tried to fax recently never reach their destination (nothing financial).

I have everything ready to go to VG and start the process. It will probably take about 30 to 40 days total. I figure I have about 20 days from now to get my package in the mail and still get this done by December 31 .

I don't feel bad about closing out my TSP account, but I would have liked to hold it for a few more years. Investment options are limited, and if I pass, it's treated like a 401K, which makes it harder to handle for my wife (as opposed to an IRA).

Has anyone done this recently? Any advice? Thanks in advance for any comments.

The TSP has the world's largest collection of index funds with the world's lowest expense ratios. Yet people keep asking for more service and more fund variety. I'd rather have low fees.

We did a TSP rollover (to a traditional IRA) a couple years ago with no problems. The TSP website has a transfer wizard which asks a few questions and walks you through the appropriate forms. No problems.

We sent our TSP forms to Fidelity (after notarizing) and never got any paperwork back. Fidelity handled everything with the TSP, and we could sort of track the progress by their e-mails, website updates, and letters. There was an awkward period of about 72 hours where both the TSP and the Fidelity account balances were zero, but it all worked out.

How (And Why) To Transfer Your TSP To An IRA - Military Guide

I found it interesting that the discussion focused on IT upgrades for the military blended retirement. No mention of more withdrawal flexibility.

Essentially the military's Blended Retirement System is going to implement a lot of the same hardware & software used by the federal civil service for TSP matching contributions. But they have to work with several different services who insist on using their own versions of websites. There's also the entire year of 2018 for many of today's servicemembers to decide whether they want to opt in to the BRS, which is a special-purpose system for a limited time.

The DoD BRS rep (yes, the Air Force has a major on SECDEF staff whose job is BRS blogger & social media outreach) says that the opt-in servers will go live at 0001 EST 1 January 2018. I asked him how this was different than rolling out the ACA healthcare exchange servers all at once, with all of the problems that entailed. He said "Oh, we won't have any problems with that." I suggested a slow rollout in December and he said "Oh no, Congress specifically forbids doing anything until 1 January 2018."

Luckily the time zones work in my favor to enjoy a quiet New Years Eve at home watching the BRS servers struggle.

 

[retiredunder50]

Why the G fund is better than most realize:

1. It never had a losing day
2. 5.19% return since inception (weighed down by a long duration of historically low interest rates)
3. Low expense fees
4. My Cherry-picked data:

If you retired on 1 January 2000 and had $1000 in the G fund and $1000 in the C fund, this is what the balances would look like:

Year G fund C fund
2000 $1064 $909
2001 $1122 $800
2002 $1178 $624
2003 $1226 $802
2004 $1297 $888
2005 $1341 $932
2006 $1408 $1080
2007 $1476 $1140
2008 $1531 $718
2009 $1577 $910
2010 $1621 $1047
2011 $1661 $1069
2012 $1685 $1240
2013 $1717 $1643
2014 $1757 $1869 (FINALLY the C fund S&P 500 index outperforms)

If one was withdrawing, it could have gotten even uglier.

Some people fall for 'average returns' of x percent for a certain market index. I like the following hypothetical example: Let's say you had all invested in the C fund in 2008, we'll use $1000 as the example. You took a 40% ($400) loss. Let's say in 2009, the market kicked a$$ and grew 60%!!! The average annual rate of return is (-40 + 60)/2 years = 10% a year. Not bad you say. However, your $1000 investment sits at $960 at the end of 2 years (and we are not even talking about inflation adjusted dollars). Your account reflects a negative annual rate of return, but the talking heads will tell you that you have enjoyed 10% a year growth - congrats!


As far as the currently onerous withdrawal rules, I sense there is agreement that something might actually happen soon.

House Oversight Members Join Effort to Loosen TSP Withdrawal Restrictions - Pay & Benefits - GovExec.com

The one good mechanism about ensuring that you are making RMD payments to avoid the penalty is that TSP will automatically send a 13th direct deposit to hit the RMD total for the year, if you are withdrawing too little.

 

[yakers]

The one good mechanism about ensuring that you are making RMD payments to avoid the penalty is that TSP will automatically send a 13th direct deposit to hit the RMD total for the year, if you are withdrawing too little.[/QUOTE]

This is what I understand. If my RMDs say I should take $1200 a month and I am only taking $1000 a month then at the end of the fiscal year the TSP will send me an additional withdrawal of $2400 to make sure I take the appropriate RMDs for the year. So just start monthly withdrawals and it will all work out. Please let me know if I'm wrong.

 

[retiredunder50]

This is what I understand. If my RMDs say I should take $1200 a month and I am only taking $1000 a month then at the end of the fiscal year the TSP will send me an additional withdrawal of $2400 to make sure I take the appropriate RMDs for the year. So just start monthly withdrawals and it will all work out. Please let me know if I'm wrong.

That's right. If necessary, the TSP will send you a supplemental payment to ensure that you satisfy the minimum distribution requirement at the end of the year.

 

[Markola]

DW is a Fed nearing FIRE and we plan to roll her IRA to TSP. Why? Liability protection. Employer-sponsored retirement plans are generally exempt from lawsuits thanks to federal rules but IRAs are subject to state rules. Our state provides crappy protection of IRAs. Here is a list of all states: http://moranknobel.com/news/State_Laws_Protecting_IRAs.pdf

 

[beowulf]

I don't understand the issue. You have to cash out your RMDs no matter where you move the TSP. Is the irritation that you currently have to do it with monthly withdrawals rather than quarterly or annual? What would you differently if you moved it all to Vanguard?

Yes, I have to cash out RMDs in every retirement account I have. I have two, my wife has one. Every time you add an account requiring an RMD, you add complexity. The G fund, in and of itself, is not a reason to keep my TSP open. I want to be able to withdraw funds if I need them when I need them. Can't do that with monthly, quarterly or annual withdrawals. Can't do that with only two voluntary withdrawals forever. I'm fully prepared to take distributions from my VG IRA. In fact, I have been doing that for several years. It takes a log on, a few clicks and I send money to my credit union checking account. It's there in 2 business days. Try doing that with the TSP. As long as I have to start RMDs anyway with the TSP and don't want monthly, etc., withdrawals, I don't see what the big deal is about rolling the TSP to VG.

I'm also concerned with the complexity that will occur when I die and then my wife dies. I read the TSP beneficiary guide and it's clear that a spousal survivor account will be lump sum distributed as fully taxable as ordinary income to designated children or other survivors who will most likely have no idea what is happening.

This wouldn't be as big an issue for me if more flexible withdrawal regs were implemented. While I hope they will be, it may take several years and I'd rather have more control over my investments now, rather than in several years.

Another poster mentioned that the TSP has the world's largest collection of index funds with the world's lowest expense ratios. While I agree with the latter statement, the former is absolutely untrue. The TSP has 5 index funds - G, C, F, S and I. That's it. Not one more (lifecycle funds are just blends of the basic 5 funds). Vanguard has dozens and other mutual fund companies have even more. Some have expense ratios that are way too high. Others come pretty close to the TSP. And a lot more variety.

I'm not fixed in any solution. I'll make a decision based on the situation at the time I have to make it. The TSP is great for active and retired employees up to RMD age. After that, I'm not so sure it's the cat's meow.

 

[Nords]

Another poster mentioned that the TSP has the world's largest collection of index funds with the world's lowest expense ratios. While I agree with the latter statement, the former is absolutely untrue. The TSP has 5 index funds - G, C, F, S and I. That's it. Not one more (lifecycle funds are just blends of the basic 5 funds). Vanguard has dozens and other mutual fund companies have even more. Some have expense ratios that are way too high. Others come pretty close to the TSP. And a lot more variety.

Maybe we're parsing the clauses differently.

The TSP ended 2016 with $495B of funds, of which $483B were "available for benefits."
https://www.tsp.gov/PDF/formspubs/financial-stmt.pdf

The average expense ratio of that conglomeration of funds is 0.038%. It used to be 0.029% but I guess the expense of the upcoming Blended Retirement System is high enough to boost that ER.

Does another financial company have funds available to retail investors with expense ratios of 0.038% or less? If so, what are the funds and what's their total asset value?

I know that Fidelity and Vanguard (and probably Schwab) have more assets under management than the TSP. However I don't know how much is in funds with expense ratios of 0.038%.

Hence the claim "worlds largest collection of funds with the world's lowest expense ratios".

 

[kitesurfer2]

What is the advantage of an IRA in your situation?

that is a good question. maybe...if I wait long enough the tax laws will change .

 

[beowulf]

Maybe we're parsing the clauses differently.

Does another financial company have funds available to retail investors with expense ratios of 0.038% or less? If so, what are the funds and what's their total asset value?.

I agree that we are just looking at the words differently. And it doesn't really matter. For VG, the lowest cost fund is is the S&P 500 with a .04% expense ratio. Not quite .038. I took a quick look at their entire line up and there are 2 funds at .05, several at .06 and a bunch at .07. It looks like the majority are at or below .10. Some are up in the .30 range.

I like ETFs also - VGs mostly below .10, quite a few below .07 and few at .04.

On a $300K account invested at a .07 annual expense rate, the yearly cost to the account holder would be $210. With a .038 expense rate, it would be $114. While that's a large percentage difference, it's a tiny amount of $300K. I used the larger dollar account rather that the $1,000 bench mark many use as as the former is more realistic. The question is whether you make a major investment decision based on a few hundred dollars a year. At this point in my life, I'm leaning towards the proposition that the added flexibility, both in terms of available low cost funds and withdrawals options, as well as considerations for my children, is the better option.

If it weren't for the RMDs, I'd hang around several more years with the TSP. Might take a partial withdrawal and roll that to VG. If you're not in the RMD situation, staying in the TSP is definitely the best course of action. And that's exactly what I did. I'm not bashing the TSP. I strongly support remaining in it. Until it starts becoming a PITA with RMDs and restrictive withdrawal rules.

 

[jazz4cash]

What are the options for TSP distribution payment? If you take a partial distribution or monthly payments can you choose direct deposit to a bank account or is the payment by check only?

 

[W2R]

What are the options for TSP distribution payment? If you take a partial distribution or monthly payments can you choose direct deposit to a bank account or is the payment by check only?

My monthly payments are direct deposited.

 

[zinger1457]

What are the options for TSP distribution payment? If you take a partial distribution or monthly payments can you choose direct deposit to a bank account or is the payment by check only?

The TSP withdrawal form has a separate section you need to fill out to do a direct deposit to a checking or savings account, if you don't fill it out you will get a check. If rolling over a withdrawal to an IRA or 401K plan there is a section on the form the IRA/401K administrator needs to fill out.