fed employees & all the eggs in the TSP basket

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
federal dinosaur
Posts: 16
Joined: Fri Jan 04, 2013 10:49 am

fed employees & all the eggs in the TSP basket

Post by federal dinosaur » Tue Jun 20, 2017 8:13 pm

I am a longtime fed employee and will be retiring (FERS) in 2018 at age 62. I have always contributed the maximum to my TSP account and picked the allocations I could tolerate with the C,S, and I funds. I managed to control my inclination to make changes to my TSP allocations back in 2008 and that has worked out well (stay the course!). My concern is this, I can tolerate the unfriendly choices given to fed employees in the limited options to withdraw from the TSP account in retirement mode ....... but my Midwest nature finds it hard for me to leave all of my TSP balance in the TSP. It echoes in my mind the warnings I heard as a child to "not have all my eggs in one basket". But I must admit that I can easily leave my whole TSP account inside the TSP during retirement mode, because I do know & realize what a good value the TSP is. My TSP account is the largest portion of my financial assets. How comfortable would you be in this situation? Feedback please.

BTW, I love my federal job and I have been blessed to work with many highly motivated and talented individuals. I would recommend younger folks consider federal employment in their career choices. But a word of warning, the pace of change in the fed gov't is very s-l-o-w. That takes a bit of getting used to.

federal dinosaur

rkhusky
Posts: 7820
Joined: Thu Aug 18, 2011 8:09 pm

Re: fed employees & all the eggs in the TSP basket

Post by rkhusky » Tue Jun 20, 2017 8:18 pm

If Roth conversions make sense for you, you might want to transfer some of the TSP to an IRA. I hope you now have some F and/or G funds in your account now.

User avatar
Taylor Larimore
Advisory Board
Posts: 28939
Joined: Tue Feb 27, 2007 8:09 pm
Location: Miami FL

Re: fed employees & all the eggs in the TSP basket

Post by Taylor Larimore » Tue Jun 20, 2017 8:40 pm

federal dinosaur wrote:I am a longtime fed employee and will be retiring (FERS) in 2018 at age 62. I have always contributed the maximum to my TSP account and picked the allocations I could tolerate with the C,S, and I funds. I managed to control my inclination to make changes to my TSP allocations back in 2008 and that has worked out well (stay the course!). My concern is this, I can tolerate the unfriendly choices given to fed employees in the limited options to withdraw from the TSP account in retirement mode ....... but my Midwest nature finds it hard for me to leave all of my TSP balance in the TSP. It echoes in my mind the warnings I heard as a child to "not have all my eggs in one basket". But I must admit that I can easily leave my whole TSP account inside the TSP during retirement mode, because I do know & realize what a good value the TSP is. My TSP account is the largest portion of my financial assets. How comfortable would you be in this situation? Feedback please.

BTW, I love my federal job and I have been blessed to work with many highly motivated and talented individuals. I would recommend younger folks consider federal employment in their career choices. But a word of warning, the pace of change in the fed gov't is very s-l-o-w. That takes a bit of getting used to.
federal dinosaur:

I am also a "federal dinosaur" having retired from the federal government in 1982 with an inflation-adjusted pension. I think you may be mistaken about the "limited options to withdraw." Actually, you have more options than any retirement plan of which I am aware. This is a link to your options:

https://www.tsp.gov/PDF/formspubs/tspbk02.pdf

Regarding "not have all my eggs in one basket". I can't imagine any safer place to have your money than with the U.S. government. It is certainly much safer than any individual company. In your case, spreading your money into different "baskets" may actually increase your risk.

There are many advantages having all your retirement savings in one strong place:

* One familiar statement
* Less paperwork
* Easier tax-preparation
* Avoidance of low-balance and other small fees
* Less chance of errors
* No conflict-of-interest
* In event of death or disability it will be much easier for others

I would stay the course

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle

delamer
Posts: 9479
Joined: Tue Feb 08, 2011 6:13 pm

Re: fed employees & all the eggs in the TSP basket

Post by delamer » Tue Jun 20, 2017 9:15 pm

I agree with Taylor that the withdrawal options for the TSP are not as restrictive as some would have it. My perception is that many retirees think they need more flexibility than they actually do, and a little planning will get care of most issues. I also agree that there are many advantages in having everything in one place, especially a low cost one like the TSP.

I do think it is important to have some money -- amount varying by personal circumstance -- that is accessible outside of TSP because of the possibility of a system hack or failure that would make your TSP funds temporarily inaccessible. But this can be a taxable account; it doesn't need to be a rollover out of your TSP.

There also is a potential issue with inherited IRAs and the TSP; read the attached and make sure you understand the implications for your family:

http://www.govexec.com/pay-benefits/ret ... are/63611/

User avatar
Nestegg_User
Posts: 1363
Joined: Wed Aug 05, 2009 1:26 pm

Re: fed employees & all the eggs in the TSP basket

Post by Nestegg_User » Wed Jun 21, 2017 12:18 am

If you have enough TSP and other accounts (to reach what I think they call premier status), Schwab will let you purchase Vanguard funds without the heavy fees ($75) if you have your representative flag your account for that fund group (I think you get up to two such groups without that level of fees).

The difference in ER's is low enough, the flexibility is much higher-- with faster execution and without the limits of changes per month that TSP has, with the added benefit that if you predecease your spouse or beneficiary the draconian limitations for withdrawal by them by TSP won't occur.

While I still have the TSP and haven't done any withdrawal yet (not even partial), I'm not likely to keep it with them given the advantage with the other brokerage.

Swansea
Posts: 787
Joined: Sat Feb 13, 2016 5:16 am

Re: fed employees & all the eggs in the TSP basket

Post by Swansea » Wed Jun 21, 2017 5:09 am

When I left the feds in 2005, I rolled over all my TSP monies to Vanguard. While I have yet to withdraw any of it, it was to gain greater flexibility for withdrawal options and a higher level of service if I needed it.

motorcyclesarecool
Posts: 809
Joined: Sun Dec 14, 2014 7:39 am

Re: fed employees & all the eggs in the TSP basket

Post by motorcyclesarecool » Wed Jun 21, 2017 6:13 am

I am basing my remarks on currently enacted policy / regulation.

Much of the answer depends on your plans for those $, and whether you have used your in-service partial withdrawal or have a current loan.

Do you have a Roth balance in the TSP? Currently, RMDs from the TSP include Roth money. It may be worth doing a "partial withdrawal" of everything but the minimum to keep the TSP account open. Roll balances into a Roth and a Traditional IRA, then roll Traditional IRA back to the TSP. The lion's share of your Roth money is now safe from RMD.

Have you "won the game" and wish to annuitize some or all of your TSP balance?

Do you want to receive only RMDs?

Do you want a fixed monthly amount that you can set annually?

Do you want a lump sum of part of your balance for a major purchase?

Do you want some combination of the above?

One way to think of the "full withdrawal" in TSP-speak is as committing upfront to a plan of how your balance will be disbursed. You can choose from a decent number of withdrawal options, but once you do, your opportunities to change course are limited.
https://www.tsp.gov/PlanParticipation/L ... count.html

The existing withdrawal options may suffice depending on your situation and preferences.

Don't take my word for it, I'm just some yahoo on an Internet forum.
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

ChrisC
Posts: 852
Joined: Tue Jun 19, 2012 9:10 am
Location: North Carolina

Re: fed employees & all the eggs in the TSP basket

Post by ChrisC » Wed Jun 21, 2017 8:00 am

I don't need any added flexibility beyond what is currently provided by TSP. In fact, I will be rolling over a 2 comma balance in a 401k to my TSP. I'm CSRS retired and can work around the current strictures of TSP. Besides, my withdraws from TSP are exempted from state income taxes in NC.

retiredjg
Posts: 38950
Joined: Thu Jan 10, 2008 12:56 pm

Re: fed employees & all the eggs in the TSP basket

Post by retiredjg » Wed Jun 21, 2017 9:09 am

dinosaur, I don't know how the TSP compares to other 401k type plans, but the TSP withdrawal options are not as flexible as an IRA. I think that is what counts. With an IRA, you can take any amount of money at any time. I find that helpful for large purchases, renovations, etc. This type of flexibility is not possible with the TSP.

After retirement, I rolled a portion of my TSP into an IRA at Vanguard. It was my "one time" lump sum withdrawal. I left the rest at the TSP for the ultra low costs and have not touched it since (8 or 9 years). A good portion of my bond allocation is there, much of it in the G Fund.

I do all my withdrawals from my Rollover IRA with occasional supplements from Roth IRA (also at Vanguard). There is no pattern. Since my checking account is linked, if I need money it shows up in 2 days after a few clicks of a mouse. This is very convenient.

I plan to maintain this arrangement for the foreseeable future. At RMD time, I might move it all to the Rollover IRA if that seems easier.

I was not worried about all eggs in one basket, just convenience. If you have not yet used your one time lump sum, I'd suggest you give this approach some consideration. It works quite well.

Naismith
Posts: 398
Joined: Sun Sep 14, 2014 2:58 pm

Re: fed employees & all the eggs in the TSP basket

Post by Naismith » Wed Jun 21, 2017 11:05 am

motorcyclesarecool wrote: Do you have a Roth balance in the TSP? Currently, RMDs from the TSP include Roth money. It may be worth doing a "partial withdrawal" of everything but the minimum to keep the TSP account open. Roll balances into a Roth and a Traditional IRA, then roll Traditional IRA back to the TSP. The lion's share of your Roth money is now safe from RMD.
Um, I may be slow, but why is it a bad thing to have RMD on the Roth TSP?

Since the Roth portion is not taxable, would that not take the edge of the tax bill for the year of the RMD?

Naismith
Posts: 398
Joined: Sun Sep 14, 2014 2:58 pm

Re: fed employees & all the eggs in the TSP basket

Post by Naismith » Wed Jun 21, 2017 11:06 am

Naismith wrote:
motorcyclesarecool wrote: Do you have a Roth balance in the TSP? Currently, RMDs from the TSP include Roth money. It may be worth doing a "partial withdrawal" of everything but the minimum to keep the TSP account open. Roll balances into a Roth and a Traditional IRA, then roll Traditional IRA back to the TSP. The lion's share of your Roth money is now safe from RMD.
Um, I may be slow, but why is it a bad thing to have RMD on the Roth TSP?

Since the Roth portion is not taxable, would that not take the edge off of the tax bill for the year of the RMD?

ChrisC
Posts: 852
Joined: Tue Jun 19, 2012 9:10 am
Location: North Carolina

Re: fed employees & all the eggs in the TSP basket

Post by ChrisC » Wed Jun 21, 2017 11:29 am

Naismith wrote:
motorcyclesarecool wrote: Do you have a Roth balance in the TSP? Currently, RMDs from the TSP include Roth money. It may be worth doing a "partial withdrawal" of everything but the minimum to keep the TSP account open. Roll balances into a Roth and a Traditional IRA, then roll Traditional IRA back to the TSP. The lion's share of your Roth money is now safe from RMD.
Um, I may be slow, but why is it a bad thing to have RMD on the Roth TSP?

Since the Roth portion is not taxable, would that not take the edge of the tax bill for the year of the RMD?
Roth IRAs don't have RMDs for the original account holder. 401K/TSP Roths have RMDs; so why would u keep a Roth TSP when you could roll that over to a Roth IRA?

It seems preferable to avoid distributions from your Roth accounts so one could continue to grow the funds in the Roth accounts tax free. If you don't need to take distributions in your Roths for living expenses, wouldn't it be better not to be forced into RMDs by having a Roth IRA?

User avatar
Nestegg_User
Posts: 1363
Joined: Wed Aug 05, 2009 1:26 pm

Re: fed employees & all the eggs in the TSP basket

Post by Nestegg_User » Wed Jun 21, 2017 11:33 am

Naismith wrote:
motorcyclesarecool wrote: Do you have a Roth balance in the TSP? Currently, RMDs from the TSP include Roth money. It may be worth doing a "partial withdrawal" of everything but the minimum to keep the TSP account open. Roll balances into a Roth and a Traditional IRA, then roll Traditional IRA back to the TSP. The lion's share of your Roth money is now safe from RMD.
Um, I may be slow, but why is it a bad thing to have RMD on the Roth TSP?

Since the Roth portion is not taxable, would that not take the edge of the tax bill for the year of the RMD?
BBall-- the real purpose of the Roth is to have future gains all taken tax free ...WHEN YOU WANT. The TSP disperses pro- rata from both regular and Roth accounts and those who want to leave Roth monies there to grow but take out regular TSP can't. This is eliminated if one transfers to an IRA where they can be segregated into separate IRA and Roth IRA and only regular IRA money can then be taken as needed (and can be taken in different amounts as needed, not taken if not needed at that time, or larger amounts taken for special requirements...all not possible with TSP accounts).

(... and Roth TSP has RMD whereas Roth IRA does not)

User avatar
htdrag11
Posts: 1162
Joined: Wed Nov 02, 2011 9:22 pm

Re: fed employees & all the eggs in the TSP basket

Post by htdrag11 » Wed Jun 21, 2017 12:33 pm

OP,

You are a very lucky person to have TSP as your vehicle. I think that it's even cheaper than Vanguard.
GL.

MichDad
Posts: 488
Joined: Sat Apr 20, 2013 3:50 pm

Re: fed employees & all the eggs in the TSP basket

Post by MichDad » Wed Jun 21, 2017 1:19 pm

FD,

I’ll also be retiring from federal employment in 2018 at age 62.

I’ve invested in the TSP since it started in 1987. Except for the first year or two when we were required to hold all or some assets in the G Fund, I invested only into the C, I, and S Funds (never the G, F, or L Funds). However, in March 2017, I converted a substantial chunk of my TSP account into the G Fund. The G Fund now constitutes about one-third of my wife’s and my entire retirement portfolio. I figure our G Fund holdings are enough to support us, along with my FERS pension, from the time I retire at age 62 until I begin collecting Social Security benefits at age 70.

In other words, we basically held only equities (no bonds) from 1988 to March 2017. The few severe downturns in the equities markets over those years did not cause us to change our plans. It was a calculated risk that paid off handsomely.

I’ve been fully investing into the Roth TSP since May 2012. I now have over $150,000 in the Roth TSP and it represents about 9 percent of my TSP balance. The TSP does not allow for in-plan Roth conversions. So, in order to convert substantial sums from my regular TSP holdings to Roth assets, I’ll withdraw all but about $200 from the TSP and put it into a Vanguard, Fidelity, or similar rollover IRA.

After I separate out the Roth TSP assets, I may move a chunk of the regular TSP assets back to the TSP but perhaps not. I’ll decide that later.

I find the TSP conversion and withdrawal rules far too restrictive – especially for those, like me, seeking to convert regular TSP assets to Roth assets.

MichDad

Swansea
Posts: 787
Joined: Sat Feb 13, 2016 5:16 am

Re: fed employees & all the eggs in the TSP basket

Post by Swansea » Wed Jun 21, 2017 1:30 pm

htdrag11 wrote:OP,

You are a very lucky person to have TSP as your vehicle. I think that it's even cheaper than Vanguard.
GL.
Comparing the C fund to the Schwab 500 on costs shows Schwab is lower... .03% versus .038% for the TSP. I think Vanguard 500 is around .04%. Now that is all well and good, but unless one has an extremely large investment, costs at this level should not be the driver.

User avatar
Earl Lemongrab
Posts: 7270
Joined: Tue Jun 10, 2014 1:14 am

Re: fed employees & all the eggs in the TSP basket

Post by Earl Lemongrab » Wed Jun 21, 2017 1:39 pm

Yeah, TSP is low cost, and often lower cost than many options, but not that much. We're talking a one to three basis points. That's so trivial that I wouldn't let it enter my thinking much. Especially since you could get nice cash bonuses for the rollovers that would swamp any small ER differences for a long time.

For flexibility, the OP could do the roll out then roll back the amount that's desired for the G fund, as it's not really feasible to get a similar fund in an IRA.

User avatar
Nestegg_User
Posts: 1363
Joined: Wed Aug 05, 2009 1:26 pm

Re: fed employees & all the eggs in the TSP basket

Post by Nestegg_User » Wed Jun 21, 2017 8:41 pm

MichDad

You said you wanted to move all but $200 from TSP -- note that you need to leave more than that (I think it needs to be at least $3k) or else they will close your account and send you a check for your balance.

Review minimum balances on the TSP site.

I agree that with ER's as low as they are for Fido, Schwab, or Vanguard with differences in single basis points that the flexibility in transfers, withdrawal, and customer service (in addition to the increased flexibility of withdrawal for beneficiaries, as compared to TSP) would more likely drive the decision.

motorcyclesarecool
Posts: 809
Joined: Sun Dec 14, 2014 7:39 am

Re: fed employees & all the eggs in the TSP basket

Post by motorcyclesarecool » Thu Jun 22, 2017 4:16 am

Naismith wrote:Since the Roth portion is not taxable, would that not take the edge of the tax bill for the year of the RMD?
I'd rather have the same tax bill and no loss of tax-free space in my portfolio. Even better would be an MRA+10 or (or even a voluntary "early out" retirement arising from a RIF) with a postponed FERS annuity allowing me to do aggressive Roth conversions outside the TSP for the first few years of my retirement and avoid RMDs entirely. It's my money, why not wait to withdraw it when I need it, instead of on Uncle Sam's schedule?

Think of it this way... If my Roth TSP balance is being eaten away by RMDs before I'm ready to spend it, I've effectively been forced to convert part of my Roth assets to taxable, which will affect my tax bill in future years. No, thank you.
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

bayview
Posts: 1878
Joined: Thu Aug 02, 2012 7:05 pm
Location: WNC

Re: fed employees & all the eggs in the TSP basket

Post by bayview » Thu Jun 22, 2017 5:36 am

ChrisC wrote:I don't need any added flexibility beyond what is currently provided by TSP. In fact, I will be rolling over a 2 comma balance in a 401k to my TSP. I'm CSRS retired and can work around the current strictures of TSP. Besides, my withdraws from TSP are exempted from state income taxes in NC.
Is this because you began Federal service before 1989? (Bailey decision) If so, you're very fortunate. Mine will be at the 5.75% flat rate (after the various deductions, etc.)
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri

ChrisC
Posts: 852
Joined: Tue Jun 19, 2012 9:10 am
Location: North Carolina

Re: fed employees & all the eggs in the TSP basket

Post by ChrisC » Thu Jun 22, 2017 7:01 am

bayview wrote:
ChrisC wrote:I don't need any added flexibility beyond what is currently provided by TSP. In fact, I will be rolling over a 2 comma balance in a 401k to my TSP. I'm CSRS retired and can work around the current strictures of TSP. Besides, my withdraws from TSP are exempted from state income taxes in NC.
Is this because you began Federal service before 1989? (Bailey decision) If so, you're very fortunate. Mine will be at the 5.75% flat rate (after the various deductions, etc.)
Yes. The state income tax hit on conversions (or any distributions from TSP, tIRA,401k) is not chump change. We've been doing conversions from my wife's tIRAs for the last 4 years and the spike in our tax liability would pay for some nice travel excursions. TSP does make it difficult for conversions into a Roth IRA, but in view of the state income tax savings, I can live with it.

User avatar
Blues
Posts: 1772
Joined: Wed Dec 10, 2008 11:58 am
Location: Blue Ridge Mtns

Re: fed employees & all the eggs in the TSP basket

Post by Blues » Thu Jun 22, 2017 7:55 am

"Bailey" was a significant "pro" in our decision to move to NC 14 years ago, in addition to many other pros both financial and otherwise.

I'm not planning on touching the TSP for several more years until RMD's will force me to begin making withdrawals.

Like ChrisC, we have been converting my wife's tIRA to Roth over several years and will be done shortly before my RMD's kick in with my TSP thus keeping our tax management task relatively painless.
“Tactics without strategy is the noise before defeat.” - Sun Tzu | "Everybody has a plan until they get punched in the mouth." - Mike Tyson

MichDad
Posts: 488
Joined: Sat Apr 20, 2013 3:50 pm

Re: fed employees & all the eggs in the TSP basket

Post by MichDad » Thu Jun 22, 2017 9:29 am

Nearing_Destination wrote:MichDad

You said you wanted to move all but $200 from TSP -- note that you need to leave more than that (I think it needs to be at least $3k) or else they will close your account and send you a check for your balance.

Review minimum balances on the TSP site.
ND,

Here's a quote from page 3 of the TSP's March 2014 publication, "Withdrawing Your TSP Account After Leaving Federal Service." I've provided the link below.

"When you separate from service, you can leave your entire account balance in the TSP if it is $200 or more and continue to enjoy tax-deferred earnings and the plan’s low administrative expenses."

https://www.tsp.gov/PDF/formspubs/tspbk02.pdf

In the past, I also sent a message to the TSP service center asking this question and received the same information back in writing. If you have different information on this, I'd greatly appreciate it if you'll share it, along with the source.

MichDad

Post Reply