If you have left government or military service in recent years, then there is a good chance you still have a Thrift Savings Plan (TSP) account in your name. Personally, I’m a big fan of consolidating financial accounts to make financial planning and management easier to deal with. But the TSP is in it’s own category of financial accounts due to several factors that separate it from other investment options, namely some of the lowest expense ratios you will ever find. So keeping your assets in the TSP may not be a bad option.

Before we go further, I will list some of the advantages to investing in the TSP and some of the disadvantages of the TSP. Now that you know where I stand on the TSP, we can look at the rest of the equation.

Should you rollover your Thrift Savings Plan Account?

The first thing you need to do is ensure you still have access to you TSP account. If you are still in the military or government service then you can contact your agency’s finance department to gain access to your account. If you have already separated from your respective service and no longer have web access, then your best bet is to contact the Thrift Savings Plan customer service by calling the ThriftLine and pressing 3.

The next thing you will need to do is determine if your assets are eligible for distribution. The TSP has certain criteria, so contact customer service through the ThriftLine if in doubt.

Deciding what to do with your TSP assets

Once you gain access to your account and know how much money you have in it, you need to decide what to do with those funds. I have previously written an article about your options for the TSP when you leave the service: What Should You Do with your TSP When You Leave the Service?.

This article covers the main options, such as leaving your funds within your TSP account, rolling it into an IRA (the process should be the same for 401k plans and TSPs), roll your assets into a 401k plan at your new employer, withdraw your funds (watch out for early withdrawal penalties), and roll your funds into a qualified annuity.

Pros and cons of doing an IRA rollover

The TSP has some of the lowest expense ratios in the investment industry and you will be hard pressed to find mutual funds with expense ratios that low. You almost certainly won’t be able to find them in a 401k plan, as most 401k plans have funds with relatively high expense ratios.

An IRA, on the other hand, gives you better control over your investment options, including the ability to invest in a wide variety of stocks, bonds, funds, and other investments that you can’t use with the Thrift Savings Plan or a 401k plan. You can also open an IRA at many locations, including banks, online discount brokers, mutual fund houses, etc. You

Advantages of rolling your TSP into an IRA:

  • Full control of investments
  • More investment options
  • Ability to control fees
  • Portability

Advantages of leaving your funds in the TSP:

There are two main advantages to leaving your funds in the TSP: the low expense ratios, and the possibility of tax free withdrawals if you made contributions with tax free funds.

This last advantage could apply if you contributed to your TSP plan while you were in a tax free combat zone. To see if you have any tax exempt money in your TSP, look at the bottom of you balance sheet: you will see “Tax Exempt Balance – $xxxx.xx.” You may wish to keep your TSP if you have a large amount of tax free contributions because those contributions would have been made without being taxed and that percentage of your withdrawals would also be tax free – which is virtually impossible to achieve in the civilian world!

Additional benefits to leaving your assets in the TSP. You won’t be charged any additional fees to leave your funds in the Thrift Savings Plan (plan expenses still apply), and it won’t affect any of your other investments, or ability to open other retirement accounts. [How Many Retirement Accounts Can You Have?].

Rolling over a TSP Account into an IRA

If you decide to roll your Thrift Savings Plan assets into an IRA, then you have a few options to consider. The first thing you will need to do is Open an IRA if you don’t already have one. Here is a list of what to look for when opening an IRA and some of the best brokerages to open an IRA to help you.

The TSP has many similar features to a 401k plan, so the following articles may help you make your decision:

Which option is the best?

There is no right or wrong option. If you prefer a hands off approach with low fees, or if you have a large amount of tax free contributions, then you may wish to keep your funds in the Thrift Savings Plan. If, however, you have a hands on investing approach, or simply wish for more investment options, then rolling your TSP assets into an IRA may be a better option for you. Be sure to investigate your options thoroughly and make the best decision based on your investment needs and risk tolerance. Best of luck!

Related posts:

  1. What Should You Do with your TSP When You Leave the Service?
  2. Roth Option for TSP Close to Reality
  3. 2009 TSP Contribution Limits
  4. Should I Make an Early Withdrawal from My Retirement Account?
  5. Disadvantages to Investing in the Thrift Savings Plan