What Should I Do With My TSP When I Retire?
Retirement is a significant milestone in anyone’s life, especially for federal employees and members of the military who participate in the Thrift Savings Plan (TSP). The TSP is a retirement savings and investment plan designed to provide you with retirement income, similar to a 401(k) in the private sector. As you transition into retirement, you may find yourself wondering what to do with your TSP. Here are some options and considerations to guide your decision.
Understanding Your Options
When you retire, you generally have four primary options for managing your TSP account:
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Leave Your Money in the TSP: If you’re satisfied with the funds’ performance and the low fees associated with TSP, you might choose to leave your money in the plan. Your investments can continue to grow tax-deferred, and you will retain access to the G, F, C, S, and I funds. Importantly, you can make withdrawals at any time post-retirement, but you’ll want to ensure your asset allocation aligns with your retirement income needs.
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Withdraw Funds from the TSP: You can opt to withdraw cash from your TSP account. This option allows immediate access to your funds, either as a lump sum or in installments. However, keep in mind that if you are under age 59½, early withdrawal penalties may apply, and any distributions will be subject to income tax. Be strategic about how and when you withdraw to minimize tax liabilities.
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Perform a Rollover: If you’re considering transferring your TSP balance to another retirement account, such as an IRA or a new employer’s plan, you can perform a rollover. A direct rollover allows you to move funds without incurring taxes or penalties. This option can offer you a wider array of investment choices and potentially better growth opportunities, but it’s essential to weigh these advantages against the benefits and protections provided by the TSP.
- Convert to an Annuity: TSP participants can also convert their balance into a monthly annuity payment. Annuities provide a steady income stream for a specified period or for the lifetime of the retiree, which can be comforting for those who are concerned about outliving their savings. However, annuities come with fees and terms that should be carefully considered.
Factors to Consider
When deciding what to do with your TSP, several factors should influence your decision:
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Your Financial Goals: Assess your income needs in retirement and how your TSP balance fits into your overall financial plan. Consider what other sources of income you have, such as Social Security, pensions, or personal savings.
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Tax Implications: Understand the tax implications of withdrawals and rollovers. While withdrawals may be subject to income tax, rolling over or converting to an annuity may offer tax advantages.
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Investment Strategy: Consider your risk tolerance and investment strategy. Depending on your age and health, you may want to adopt a more conservative approach as you draw down your savings.
- Longevity: With increasing life expectancy, consider how long you need your retirement savings to last. This consideration may affect your withdrawal strategy or decision to convert to an annuity.
Seeking Professional Advice
Given the complexity and significance of managing retirement funds, it may be beneficial to consult a financial advisor. An expert can provide personalized guidance based on your unique situation, helping you understand your options and the long-term implications of your decisions.
Conclusion
Deciding what to do with your TSP when you retire is a critical decision that can significantly impact your financial future. By understanding your options and considering your personal financial goals, you can make informed choices that align with your retirement lifestyle and needs. Whether you leave your funds in the TSP, withdraw, roll over, or convert to an annuity, it’s important to have a clear strategy in place to ensure a secure and fulfilling retirement.
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0:00 – What should I do with my TSP when I retire?
0:33 – Option 1
1:52 – Option 2
3:00 – Option 3
3:59 – Option 4
4:50 – Option 5
6:08 – The final verdict
The banks say "Let's play a little game. It's called "I win>"
Military retiree, The TSP inheritance rules are so bad for grandchildren by doing a IRA rollover then backdoor Roth my granddaughters probably will not even realize the gift I did for them. No lump sum tax burden for them now.
TSP retirement tip #1. Don't talk to any financial advisor about transferring your TSP.
Can i transfer my 457b over to tsp and still be eligible for early retirement?
Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got to talking about investment and money. I started investing with $150k and in the first 2 months, my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and get more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family.
So if TSP fund is moved to IRA pre tax… then someday widraw the amount from IRA… tax free everything?
TSP expense ratios used to be the best in the industry 20 years today. Today the TSP fund costs are terrible when compared to equivalent index funds at Fidelity or Vanguard. To stay in TSP due to its "low costs" is to not understand how to compare fees. Its not a good reason to remain in TSP, though there are other reasons
Please keep in mind 9 states that normally have income taxes (e.g. NY, Pennsylvania) DO NOT tax the traditional TSP as they consider part of your civil servants pension. If you move the TSP money into an IRA at say Vanguard, Fidelity, etc… you will lose this special tax break and will now have to pay state taxes on the money when withdrawn. This is something you should be aware of before you transfer any monies out of the TSP.
I had mine in G fund and that was a big mistake. Then I tried C and S fund and that was increasing my account really nice, but I only put a small percentage to try. Right now, i wish i had put 80% on C fund. I just diversified my account to C, S, I. Im scared cuz no fund in going in since im no longer with Federal. Hopefully my C, S, I mix will pay off.
I'm a US military Vet. We were not eligible for the TSP. The TSP is just for civilian US government workers.
I plan on doing the same thing as your husband. In fact I transferred all of my prior retirement accounts before working for the federal government into the TSP to consolidate as well as take advantage of the low management fees. "The retirement gamble" by Frontline give a great explanation of how fees can destroy gains.
I lost my defined benefit pension from a catholic hospital due to lawyers management of getting the hospital out of that benefit to it's employees. I also do not like annuities. They are complex contracts that benefit the insurance companies that offer them. (Insurance companies play on fear and greed to sell that product). I plan to start taking RMD's when I reach that age and when I die my wife or our children will get what ever is left over. Thank you for making that video. I felt it was an honest presentation.