Do you still have money in your Thrift Savings Plan (TSP) after leaving military or federal service? What should you do with your Thrift Savings Plan (TSP) account? Do you leave it or should you consider a TSP rollover? Here are 3 reasons to consider the TSP rollover.
The Thrift Savings Plan or TSP is a great retirement investment program for military and federal employees very similar to a 401K. It has many good aspects…very low investment fees, the ability to take a loan against the balance (if you’re still working for the federal government) and both Traditional and Roth options. But, there are a few reasons you might consider a TSP rollover after you are no longer employed by the federal government or military.
Simplifying your financial life can make sense in many cases. This means the first reason you might want to roll over the TSP is to consolidate it either with a 401K at a new job or into an IRA. This can streamline the management of the money especially if your TSP balance isn’t very large. The fees for TSP investment options are very low so ensure you do your homework on the new employer 401K or IRA custodian to make sure costs aren’t going to make this a bad decision in the long run.
Converting Traditional to Roth
The TSP does not currently support converting Traditional contributions to a Roth account. Depending on when you started TSP contributions and your take situation, you may have contributed to a traditional TSP account. Again, depending on your tax situation, it can make sense to convert your Traditional TSP account to a Roth account. You can’t do this within the TSP program at this time. Rolling over your TSP to an IRA will give you this ability.
More Investment Options
Let’s face it, the TSP investment options also somewhat limited. While there is goodness in simplicity, you may want other options to optimize your financial plan. Some Do it yourselfers may have the time and inclination to more actively manage their investments and others may want professional management of their money. The TSP has announced they are working on other investment options, including a mutual fund window (link).
TSP Rollovers: A Note of Caution
The TSP, like 401Ks, is tax-deferred and in some cases a tax-free retirement vehicle. There are strict requirements on how this money can be transferred to avoid tax implications. TSP rollovers are no exception. I encourage you to discuss the TSP rollover or Traditional to Roth conversion tax implications with a tax or financial planning professional. This will help you avoid any nasty tax surprises.
If you have any questions on whether a TSP rollover makes sense for you, please schedule a call with me (link) or simply reply to this email.