If you have left government or military service in recent years, then there is a good chance you still have a Thrift Savings Plan or TSP account in your name. One great option is to roll your old TSP into an IRA. Here are a few reasons why this option may benefit you:
- Investment Flexibility: IRAs typically offer a wider range of investment options compared to TSPs, allowing you to tailor your portfolio to your specific goals and risk tolerance.
- More control: With an IRA, you have greater control over your investments and can choose your own investment strategies including stocks, bonds, and mutual funds.
- Consolidation: Rolling over TSP funds into an IRA can simplify your retirement accounts by consolidating them into one, making it easier to manage and track your investments.
- Beneficiary options: IRAs often provide more flexible beneficiary options, allowing you to customize the distribution of your assets to your beneficiaries.
- No Required Minimum Distributions at 72: Unlike TSPs, some IRAs, like ROTH IRAs, do not have required RMDs at age 72, which can be a wonderful advantage for those who want to continue tax advantage growth.
Rolling your Thrift Savings Plan assets into a Traditional IRA will help you avoid the 10% early withdrawal penalty. You will also control your IRA and have unlimited investment options. If you enjoy hands on investments, then rolling your TSP into an IRA may be for you.
John Doe has left the service and now working as an engineer at Lockheed Martin in Fort Worth, Texas. John has a TSP that he is no longer actively contributing to and an active 401k through Lockheed Martin.
He is faced with 3 options:
- He could leave his TSP where it is and make sure it is invested, growing for his retirement.
- He could decide to transfer to his current 401k, similarly reinvesting for his retirement.
- Lastly, he could direct it to a self-directed IRA and invest on his own for retirement.
The TSP has limited investment options so, leaving his TSP does not allow him access to the investment options that have historically had higher returns .. There are only 5 main funds to choose from and a few target funds. In 2022, the TSP underwent a series of changes impacting its many account holders. These included the opening of a “Mutual Fund Window” to supplement the limited offering of investment funds previously available to plan participants- though the associated expenses make it prohibitively expensive for many participants. He will also not be able to make new contributions. Having one more account to keep track of can also be a headache for some people. Not only does it involve more work when balancing your assets, but you also must maintain more paperwork.
Again, John is limited to his new plan’s investment options. This is important if his new 401(k) plan has limited investment options or higher than average expense ratios, which cause lower returns. Some employers have a minimum waiting period before you can sign up for their 401(k) plan, so you may have to wait before you can rollover your TSP assets.
The biggest advantages of rolling over his TSP into an IRA is maintaining certain tax advantages, and controlling his investment options which are no longer limited to the investment options in the Thrift Savings Plan or his new employer’s 401(k) plan. Total control allows him to limit his expenses and maintain full control of his investment.
John Doe decides on option 3, simply because, when you can self-direct, you self-direct. John will now have control over his investments, he will have access to more investment options since his new employer’s 401(k) plan does not offer ideal investment options.
The process to get started is simple, and we are here to guide you through it. Contact us today for a tailored investment strategy on how your TSP can work as hard for you, as you worked for it.