The Best Place for Your TSP Once You Retire
retirement planning can be a daunting task, especially for federal employees who have invested in the Thrift Savings Plan (TSP). The TSP is a retirement savings and investment plan designed to help federal employees build a nest egg for their future. When it comes time to retire, deciding what to do with your TSP account is crucial. The right decision can impact your financial security for years to come. In this article, we will explore the best places for your TSP once you retire and considerations to keep in mind.
Understanding Your TSP Options
Before diving into the best strategies for your TSP, it’s essential to understand the options available to you at retirement. When you leave federal service, you generally have several choices regarding your TSP account:
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Leave Your Money in TSP: You can choose to keep your TSP account intact. This choice allows your investments to continue growing without immediate tax implications. However, you won’t be able to contribute to the account anymore.
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Withdraw Funds: You can take a partial or full withdrawal. This option gives you immediate access to your funds but may have tax implications, depending on how you choose to withdraw.
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Transfer to an IRA: You can roll over your TSP funds into an Individual retirement account (IRA). This move can provide you with greater flexibility in investment options and withdrawal strategies.
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Transfer to an Employer 401(k): If you find employment with a new employer that offers a 401(k) plan, you can roll your TSP into their plan, if allowed. This option may help consolidate your retirement accounts.
- Annuity Purchase: You could convert your TSP balance into an annuity, providing you with guaranteed monthly income for a specified period or even for life.
The Best Place for Your TSP After Retirement
1. Keep It in The TSP
For many retirees, the best option may be to keep their funds within the TSP account. Here are a few reasons why:
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Low Fees: TSP offers some of the lowest expense ratios in the retirement investment industry. Lower fees mean more money stays in your account, contributing to growth.
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Diverse Investment Options: TSP offers various funds, including G (Government Securities), F (Fixed Income), C (Common Stock), S (Small Capitalization Stock), and I (International Stock). These allow retirees to customize their investment strategy to suit their risk tolerance and financial goals.
- Loan and Withdrawal Flexibility: Retirees can access their funds without major restrictions through loans or withdrawals, adhering to IRS regulations.
2. Roll Over to an IRA
Rolling your TSP into an IRA can be another smart move. Here’s why many retirees choose this route:
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Investment Choices: IRAs typically provide a wider array of investment options than TSPs, allowing retirees to invest in stocks, bonds, mutual funds, ETFs, and more, based on personal preferences and market conditions.
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Flexible Withdrawal Options: IRAs often allow for more flexible withdrawal strategies than TSPs. Withdrawals can be tailored to your income needs in retirement.
- Potential for Better Management: If you prefer more active management of your investments or want to work with a financial advisor, an IRA may be more suitable.
However, be cautious of the potential fees associated with some IRAs, as they can vary significantly.
3. Annuity Purchase
If you prioritize guaranteed income in retirement, converting your TSP balance to an annuity might be appealing. This option offers:
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Guaranteed Income: Annuities can provide a steady income stream for life, easing worries about outliving your savings.
- Simplicity: With an annuity, you receive regular payments without having to manage investments actively.
On the downside, annuities can come with high fees and may lack liquidity, as accessing your principal can sometimes be challenging.
Key Considerations
Before making a decision about your TSP in retirement, keep the following points in mind:
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Tax Implications: Consult a tax professional to understand how each option may impact your taxes. Withdrawals from TSPs and IRAs are typically taxed as ordinary income.
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Financial Goals: Your strategy should align with your overarching financial goals and needs throughout retirement. Consider whether you may need immediate access to funds or prefer a steady income stream.
- Market Conditions: The economic environment can influence investment performance. Assess your risk tolerance and market outlook before deciding.
Conclusion
When retiring federal employees consider what to do with their Thrift Savings Plan funds, there are several viable options, each with its pros and cons. The best choice depends on individual circumstances and goals. Whether keeping your money in the TSP, rolling it over to an IRA, or purchasing an annuity, it’s crucial to make informed decisions that align with your overall retirement strategy. Always consider seeking advice from financial professionals to navigate this critical phase of your financial journey successfully.
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It would be also good to mention the special category employees (Law Enforcement) if you retire at 50 with 20 years you also don’t pay the 10% tsp penalty for withdrawing
Rolled mine into a schwab Roth ira screw the little funds I can buy what I want
Roth conversions will be available in 2026!
Don’t you have to pay a huge tax bill if you roll your tsp into a Roth IRA?
It doesn’t matter where you pull your money from. You can do inter fund transfers to realign.
Also we need to talk about protecting your TSP FROM EVIL PEOPLE!
PROTECT YOURSELF FROM DIVORCE! 60% OF US WILL LOSE HALF OF EVERTHING YOU HAVE TO SOMEBODY THAT NEVER PAID A PENNY INTO YOUR TSP!
TEACH YOUR BOYS!
Please make a video on how your wife can't steal half of your tsp and everything you own even after she is caught cheating!
NO ANNUITY! HATE INSURANCE COMPANIES!
I would rather lose my tsp than give a penny to the insurance criminals!
i was thing of moving majority of my TSP out and put it into my 401K in Fidelity once i retired.
My Fidelity is outperforming my C by about 6-8 percentage year in and out. I would also get dividends from Fidelity, which i will never see or get from my tsp.
Good information. Thanks for sharing. What’s the annual fee for TSP?
This is from the TSP web site "Also, your Roth balance isn’t subject to IRS required minimum distributions (RMDs), which means you can keep your Roth contributions and earnings in your TSP account as long as you want". Has this changed?
I think you should start doing shirtless videos.
SPIAs do NOT have massive commissions. Also, 33% of retirees need secure, guaranteed income to sleep well at night (per Wade Pfau's research). For them, a SPIA could make sense. Yes an annuity doesn't bring the highest possible returns, but the reason you are making a higher return is you are taking on more risk. A lot of people think they have a high risk tolerance, until a big drop happens.
I bought an annuity and couldn't be happier. I don't have to worry about the stock market going down at all. Guaranteed money for the rest of my life and then the rest of my spouse's life (who is younger). I didn't have enough in my tsp to do that without buying an annuity.
Question: If I have both traditional and Roth TSP savings, when I retire and want to withdraw some money from my TSP (say at an age before 72 so I am withdrawing before I am forced to), can I choose to withdraw from JUST my traditional savings or JUST or Roth savings, or does any TSP withdrawal before 72 get pulled out automatically from both?
Thanks!
I’m 57 and have 5 more years to retire, I’ll have exactly 20 years of service and 62. I started Roth in 2016 but have some Traditional. I’m very close to $1M.. but I want to keep maxing out and get to 1.5 which I think is possible. Single. No kids. Not sure what to do but I’m leaving it in Roth and will most likely take it out of TSP at 62 and move to Roth IRA
You can make withdrawals from tsp at age 55 and separated from federal service without a penalty but if I move the tsp to an IRA I would have to wait until 59 1/2 to avoid the penalty?
Also, does the RMD affect your roth TSP different than traditional? If you take taxable income during your retirement, but not your Roth TSP (unexpected expenses), will you have to take RMD's on Roth portion at 72?
How does Pro-rata work when you have part of your TSP in roth, and most in traditional? Can you withdraw funds from the taxable accounts only? I am trying to use the Roth TSP for those unexpected expenses that come up in retirement.
The financial planners that are fans of annuities tend to be the ones who sell annuities and make those massive upfront fees.
Super informative thank you. I’m 61 and learned a lot.
Rolled over my TSP and Roth TSP to Fidelity. TSP has cheap fees but they still have fees. Fidelity now has 4 funds similar to C fund, S fund that are 100% free. No TSP funds are free.
How do you find your tsp
thank you so much
i am so grateful I found you. My husband is a federal employee and will retire in the next 3 1/2 years w 333 years of service
your videos are extremely helpful
What do you think of investing it in a mutual fund such as Franklin Income Fund?
one can address the pro-rata withdrawal (C fund and G fund example) by doing an allocation from G fund to C fund immediately following the withdrawal.
I rolled over from TSP to Schwab. After 59.5 there is no good reason to stay in TSP.
Love your videos. Content very useful and on point.
I like your tie.
I am 57 years old and just retired 35 years in federal service. I kept my money in TSP 80% G fund and 20% L fund. Comments are welcome…
Couldn't you transfer everything to the G when you wanted to withdraw and then return it back the way you had it?
Just spoke with a retirement planner. Suggested I leave half of my tsp in the tsp, and the other half in a fixed deterred annuity. After watching your video and soon to be retiring at 56, I just may leave it all in the tsp. I want simplicity. I'll screw things up. What say you? Thanks for keeping it simple for me.
I had to take out about 4 thousand dollars out of my TSP but I am over 65. The taxes were 800 dollars but I received the 800 dollars back when I filed my taxes because I was under the threshold by he IRS of yearly income
Thank you; this is very helpful!
Also TSP will make your take your traditional money out in a lump some upon death. So, not counting a spouse, think kids they don't have the 10yr timeline to withdraw the money like an IRA. Same applies to the Roth. Think for a moment that your kids inherited you TSP they would have to take it all out and pay massive taxes at one time whereas if it's in your IRA it continues to grow, you'll have 10 yrs to withdraw and if it is Roth and they leave for 10 yrs it's all tax free!
If you're special category the rule of 55 doesn't apply. You can start collecting TSP penalty free with 25 years at any age or 20 at 50.
Have You done a video on Samba term life
I am thinking of rolling my tsp to Vanguard IRA. Inhave called yhe the TSP several times with questions. Sorry to say, the employees are not professional, some are not articulate with explainations, and i get this initution that when you talk about rolling your money out of the TSP they seem to hold back on info. Another reason for me tonlrave the new website is a total disaster, and for yiur monthly installments the TSP tells you when you get your money monthly. Before you had your choice as to when u wanted you money, not anymore. So, i am leaving. Maybe fine yrs ago the TSP was great. Admin fees were low, and the previous website was easy to work with and the calulators were great just for estimates…thats gone!