Why won’t the TSP allow withdrawals from specific funds?

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BHamTallMan
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Joined: Mon Jul 05, 2021 9:19 pm

Why won’t the TSP allow withdrawals from specific funds?

Post by BHamTallMan »

When a withdrawal from the TSP is made, the money is proportionally withdrawn from all funds. For example, if my TSP consisted of 50% G fund and 50% C fund and I make a $1K withdrawal, $500 will be removed from both funds. The TSP won’t allow me to take out the $1K from a single, specified fund.

This is a real headache if you want different pots of money earmarked for things like making withdrawals, or long-term growth. There are work-arounds to this issue, such as rebalancing funds at the time of withdrawal or doing a rollover into an IRA. But this moving of money around carries the risk of buying high/selling low because the markets may change between the time a withdrawal is made and when the rebalancing takes place.

Is there a rational reason why the TSP doesn’t allow you to target specific funds for making withdrawals? And, am I overthinking the rebalancing/rollover to IRA aspect?
djplourd59
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Joined: Sat Jan 13, 2024 7:15 am

Re: Why won’t the TSP allow withdrawals from specific funds?

Post by djplourd59 »

I don't think there are any rational reasons for much of what the government.

The only thing you can do if you can if you want mores control is to rollover some of your TSP holdings to an IRA.
billaster
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Re: Why won’t the TSP allow withdrawals from specific funds?

Post by billaster »

BHamTallMan wrote: Wed May 15, 2024 11:22 am Is there a rational reason why the TSP doesn’t allow you to target specific funds for making withdrawals? And, am I overthinking the rebalancing/rollover to IRA aspect?
It's really simple and rational. Rebalancing and withdrawals have nothing to do with each other. First rebalance to your desired allocation. Then do a withdrawal. Your allocations won't change because the withdrawal is proportional from each fund.
stan1
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Re: Why won’t the TSP allow withdrawals from specific funds?

Post by stan1 »

What you want can be resolved with rebalancing. What can't be resolved through rebalancing is putting one investment in Traditional TSP and another investment in Roth TSP. That can only be done with contributions, and rebalancing spreads the new asset allocation across both account types.
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oncorhynchus
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Re: Why won’t the TSP allow withdrawals from specific funds?

Post by oncorhynchus »

I can't tell you the specific, "official" reason, but:

It seems to me the TSP was developed in the early 80s with only basic functions aimed towards the majority of its users, offering slow-and-steady investment for retirement options with limited functionality to both minimize expenses and discourage unsophisticated users from tinkering too much and self-sabotaging themselves. At the time the govt was transitioning from CSRS to FERS, and the while it wanted its employees to have access to the upside of stocks and bonds, it needed to mitigate against a disastrous loss of retirement savings.

It was never meant nor is it optimized for "enthusiast level" investors desiring more granular control.

Honestly, from a basic Boglehead perspective - low expenses, index-based funds, stay the course - they did a decent job.

o

ETA: Unfortunately, designing the TSP for the withdrawal/deaccumulation phase seems to have been a lower priority...
-- Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime. --
Rocky Mtn Man
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Re: Why won’t the TSP allow withdrawals from specific funds?

Post by Rocky Mtn Man »

oncorhynchus wrote: Wed May 15, 2024 1:32 pm

It seems to me the TSP was developed in the early 80s with only basic functions aimed towards the majority of its users, offering slow-and-steady investment for retirement options with limited functionality to both minimize expenses and discourage unsophisticated users from tinkering too much and self-sabotaging themselves.
Agree. For the first 13 years of the TSP there was only 3 funds: G, F, and C.
makeitcount
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Re: Why won’t the TSP allow withdrawals from specific funds?

Post by makeitcount »

My guess is it all comes down to cost. Adding more features means passing more costs on to the users. I wouldn't mind paying a titch more for some updated features myself, but perhaps the majority would?
"Yeah, well, you know, that's just like, uh, your opinion, man." - J. Lebowski
MnD
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Re: Why won’t the TSP allow withdrawals from specific funds?

Post by MnD »

Rebalancing with proportional withdrawals in retirement are a proven best practice as opposed to various mental accounting schemes.
Earmarking withdrawals from certain TSP funds designated with various purposes is just a variant of a suboptimal bucketing approach.

https://papers.ssrn.com/sol3/papers.cfm ... id=3274499
https://www.marketwatch.com/story/do-bu ... 2019-02-12
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
MnD
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Re: Why won’t the TSP allow withdrawals from specific funds?

Post by MnD »

oncorhynchus wrote: Wed May 15, 2024 1:32 pm ETA: Unfortunately, designing the TSP for the withdrawal/deaccumulation phase seems to have been a lower priority...
This is a workplace retirement plan that one can carry into retirement. Not an IRA at Schwab/Vanguard/Fidelity.

TSP supports periodic withdrawals with various intervals and fully supports rule of 55. There is optional exemption from withholding for qualified periodic payments. Supports fully online initiation of withdrawals (periodic or one-time) and online modification of periodic withdrawals.
Also provides conversion of balance or any portion of balance to a life annuity purchase.
Options include a unique stable value like fund earning intermediate treasury yields with government guarantee.
Also a possibly unique international fund - total international ex-China and Hong Kong phased in by year-end.

Is it perfect? No - but consider that every other financial management organization - from Vanguard to some slimy variable annuity sales shop has a conflict of interest to try and convince people to move funds out of TSP into their accounts.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
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oncorhynchus
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Re: Why won’t the TSP allow withdrawals from specific funds?

Post by oncorhynchus »

MnD wrote: Wed May 15, 2024 6:07 pm TSP supports periodic withdrawals with various intervals and fully supports rule of 55. There is optional exemption from withholding for qualified periodic payments. Supports fully online initiation of withdrawals (periodic or one-time) and online modification of periodic withdrawals.
Also provides conversion of balance or any portion of balance to a life annuity purchase.
Options include a unique stable value like fund earning intermediate treasury yields with government guarantee.
Also a possibly unique international fund - total international ex-China and Hong Kong phased in by year-end.
Agreed. There is plenty I like personally, but the FRTIB is not a model for aggressively responsive management. I'm still waiting for implementation of in-plan Roth conversions despite congressional authorization to do so in 2013. I'll likely have to withdraw my balance sooner than I would otherwise to accomplish the conversions into a Roth IRA.

All this is to say that implementation of the TSP has always been conservative but purposeful, with what seems to be a lot of loss and cost aversion; this may be informative RE: OP's original "Why" question.

o
-- Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime. --
cvn74n2
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Re: Why won’t the TSP allow withdrawals from specific funds?

Post by cvn74n2 »

It is my understanding the previous underlying homegrown software architecture was inadequate to support more complicated requests like withdrawals from specific buckets and in-plan conversions.

With the new, out-sourced software architecture, perhaps more capabilities will be realized eventually.

However, the non-spousal inheritance policy drove me away to Schwab.

Overall, I still think TSP is great in the accumulation stage of life, but lacking in the decumulation stage.
stan1
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Re: Why won’t the TSP allow withdrawals from specific funds?

Post by stan1 »

Do most 401K plans require Traditional and Roth sub accounts to be set to the same asset allocation like the TSP does? Or is it normal in 401K accounts to be able to invest Traditional and Roth sub-accounts differently. For example, at the TSP I'd like to be able to invest the Roth sub-account in the asset class with higher expected return (e.g. C Fund) and Traditional sub-account in the G Fund.

Now that I'm retired this will eventually drive me to roll over the Roth portion to a Roth IRA sooner than I otherwise might to retain the better asset protection offered by the TSP (at least in my state) over an IRA.
evancox10
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Re: Why won’t the TSP allow withdrawals from specific funds?

Post by evancox10 »

stan1 wrote: Thu May 16, 2024 4:49 pm Do most 401K plans require Traditional and Roth sub accounts to be set to the same asset allocation like the TSP does? Or is it normal in 401K accounts to be able to invest Traditional and Roth sub-accounts differently. For example, at the TSP I'd like to be able to invest the Roth sub-account in the asset class with higher expected return (e.g. C Fund) and Traditional sub-account in the G Fund.

Now that I'm retired this will eventually drive me to roll over the Roth portion to a Roth IRA sooner than I otherwise might to retain the better asset protection offered by the TSP (at least in my state) over an IRA.
I don't know about most 401ks, but my current 401k allows me to invest Roth and Traditional assets separately. I think my last one did too.
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