Increasing TSP Fund Expense Ratios

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megabad
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Re: Increasing TSP Fund Expense Ratios

Post by megabad » Sat Aug 01, 2020 5:37 pm

I agree with OP on the in plan Roth conversions. They should be a part of the TSP and all 401k plans. Since the TSP follows the 401k market slowly, I would think TSP would eventually allow this. Maybe when they become ubiquitous in 401ks than TSP will consider. Despite your thoughts, they are still rare. I would bet in 10 years they will allow pretty much everywhere. It took TSP forever to change their ridiculous withdrawal rules too so I wouldn’t expect them to lead the 401k sector on In plan Roth conversions.

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

Re: Increasing TSP Fund Expense Ratios

Post by MichDad » Sat Aug 01, 2020 5:46 pm

tj wrote:
Sat Aug 01, 2020 5:04 pm
In an environment where 401(k) plan expense ratios are, in general, declining,
Where are you seeing this? My 401ks in the private sector were drastically worse, and they certainly didn't offer in-plan Roth conversions.

You speak as if these are common features when they are probably the exception rather than the norm.
Regarding the general overall decline in private 401(k) plan expenses, take a look at these links:

https://www.napa-net.org/news-info/dail ... ward-trend

https://www.ici.org/pdf/per26-05.pdf

https://www.ici.org/pdf/per25-04.pdf

https://401kspecialistmag.com/cost-of-4 ... in%202019.

Regarding the trend towards 401(k) plans allowing participants to make in-plan Roth conversions, bear in mind that this option wasn't available until just a few years ago. These links show how it's been growing in availability:

https://www.callan.com/wp-content/uploa ... Survey.pdf (page 17)

https://institutional.vanguard.com/ngia ... t-2020.pdf (page 45)

MichDad

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House Blend
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Re: Increasing TSP Fund Expense Ratios

Post by House Blend » Sun Aug 02, 2020 8:15 am

^Allowing in-plan conversions is not going to solve the problem of too-large RMDs. Roth assets in an employer plan such as the TSP are still subject to RMDs. Only your Roth IRA avoids RMDs.

Granted, some fraction of your too-large RMD will not be taxable, but you'd rather not have to invest the part that is too large in a taxable account.

Also, you can only do a QCD from an IRA.

So until the laws equalize the treatment of Roth accumulations in IRAs and employer plans, most Bogleheads with large accumulations in the latter will probably want to roll to (trad|Roth) IRAs eventually.

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

Re: Increasing TSP Fund Expense Ratios

Post by MichDad » Sun Aug 02, 2020 9:37 am

House Blend wrote:
Sun Aug 02, 2020 8:15 am
^Allowing in-plan conversions is not going to solve the problem of too-large RMDs. Roth assets in an employer plan such as the TSP are still subject to RMDs. Only your Roth IRA avoids RMDs.

Granted, some fraction of your too-large RMD will not be taxable, but you'd rather not have to invest the part that is too large in a taxable account.

Also, you can only do a QCD from an IRA.

So until the laws equalize the treatment of Roth accumulations in IRAs and employer plans, most Bogleheads with large accumulations in the latter will probably want to roll to (trad|Roth) IRAs eventually.
In the post to which I think you were responding, I wrote: "Yes, I’m aware that Roth TSP assets (unlike Roth IRA assets) will be subject to RMDs beginning at age 72. However, I would have liked to maintain my G Fund holdings for a few more years in the TSP rather than have to transfer them to a tIRA or a Roth IRA years earlier."

In the 1990s, well into my career with the federal government, I took an official leave of absence for two years. I worked for a non-profit and my income was about one-third of my federal salary. I already had a substantial TSP balance at that time. If the Roth TSP had been in existence back then (it wasn't) and if in-plan Roth conversions were available, that would have been an ideal time for me to make in-plan Roth conversions.

The point is that in-plan Roth conversions wouldn't just benefit TSP participants who have retired or who are near the end of their careers. If they were available today, I'd use them for the next few years rather than transfer assets out of my TSP account to tIRAs or Roth IRAs. Then, at approximately age 71.9, I'd move my Roth TSP to a Roth IRA to avoid having to take RMDs from my Roth assets.

MichDad

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MichDad
Posts: 546
Joined: Sat Apr 20, 2013 3:50 pm

Re: Increasing TSP Fund Expense Ratios

Post by MichDad » Sun Aug 02, 2020 2:08 pm

MichDad wrote:
Sat Aug 01, 2020 5:46 pm
tj wrote:
Sat Aug 01, 2020 5:04 pm
In an environment where 401(k) plan expense ratios are, in general, declining,
Where are you seeing this? My 401ks in the private sector were drastically worse, and they certainly didn't offer in-plan Roth conversions.

You speak as if these are common features when they are probably the exception rather than the norm.
Regarding the general overall decline in private 401(k) plan expenses, take a look at these links:

https://www.napa-net.org/news-info/dail ... ward-trend

https://www.ici.org/pdf/per26-05.pdf

https://www.ici.org/pdf/per25-04.pdf

https://401kspecialistmag.com/cost-of-4 ... in%202019.

Regarding the trend towards 401(k) plans allowing participants to make in-plan Roth conversions, bear in mind that this option wasn't available until just a few years ago. These links show how it's been growing in availability:

https://www.callan.com/wp-content/uploa ... Survey.pdf (page 17)

https://institutional.vanguard.com/ngia ... t-2020.pdf (page 45)

MichDad
It was the American Taxpayer Relief Act of 2012 (ATRA) that permitted 401(k) plan participants to make in-plan Roth conversions. That bill was signed into law by President Obama on January 2, 2013. However, it's up to individual employers to change their 401(k) plan rules to allow participants to make in-plan Roth conversions. In my wife's case, her employer implemented this option in 2015. She made in-plan Roth conversions in 2015, 2016, and 2017, when she retired. The trend is for employers to offer this option. Here's a link to a contemporaneous summary of that aspect of the ATRA.

https://www.transamericacenter.org/docs ... -01_LL.pdf

MichDad

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