Author Topic: TSP fees, is it still worth it?  (Read 1875 times)

crokinolio

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TSP fees, is it still worth it?
« on: January 31, 2018, 01:33:28 PM »
TL;DR: Trying to figure out how to calculate the fees charged by TSP, and if it is still worth it to keep my money in TSP.

I have some money in the TSP from previous employment and a rollover. I have been keeping it there because the fees have been favorable. I looked at my annual statements and they show expense ratios of:

2016 - 0.038%
2015 - 0.029%
2014 - 0.029%

I was delivered the "TSP highlights January/February 2018" that described the fees, and was very confused, as well as not sure if I'm still getting the best deal by keeping my money with the TSP. It says the 2017 administrative expenses will be available in the April 2018 issue of Highlights, but this issue has a breakdown of fees by fund.

They break it out by Expenses by Fund
Gross - all the funds are 0.052% except S Fund which is 0.051%, and I Fund which is 0.053%
Net - all the funds are 0.038%, except I Fund which is 0.039%
Other - different for each fund, I'll list them:
  • L2050 - 0.012%
  • L2040 - 0.011%
  • L2030 - 0.009%
  • L2020 - 0.007%
  • L Income - 0.003%
  • G Fund - 0.000%
  • F Fund - 0.017%
  • C Fund - 0.004%
  • S Fund - 0.041%
  • I Fund - 0.014%

They have a note about the Net Expenses as: Net administrative expenses are the expenses charge to TSP participants per dollar invested in the respective funds after offsetting gross administrative expenses with account forfeitures and loan fees.

They have a note on Other Expenses as: Fees associated with securities lending are not included in 2016 administrative expenses. Consistent with standard practice in the industry, they are charged in addition to administrative expenses. The other expenses represent fees paid to the investment manager for administering securities lending programs. Income earned from these programs improved the returns of the funds.

Okay, with all that knowledge... how do I know what my fees are?
Do I look at the Gross or the Net or the Net+Other?
If for example I am getting 0.04% (Vanguard) or even 0.03% (TRowePrice), would it be better to rollover my TSP into those brokers?
I've seen arguments for keeping money in TSP because of the low fees, but I am now wondering if that is still the case with the latest fees.

Travis

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Re: TSP fees, is it still worth it?
« Reply #1 on: January 31, 2018, 02:11:23 PM »
Regardless of whether you're looking at Gross or Net, the TSP has the lowest Expense Ratios in the industry. Period.  Perhaps you're misreading where the decimal points are?  The most expensive fund in the TSP matches the least expensive fund in Vanguard.

The fund expenses in the TSP are roughly .038% across the board plus the bulletized list you posted.  Even after that additional fee they're still the lowest you can get.

https://www.tsp.gov/InvestmentFunds/FundsOverview/comparisonMatrix.html

For comparison, the Vanguard S&P500 fund (identical to the TSP C Fund) has an ER of .04% only if you have at least $10k in the fund otherwise it is .14%)

Something else to consider is that the TSP is tax advantaged.  You're either paying taxes now on it and never again, or deferring taxes until you cash out giving you more principle to invest.  You won't have that advantage if you put the money somewhere else unless you're thinking about going from the TSP to a Roth IRA and even then you're trading a contribution of up to $18.5k for $5.5k.

crokinolio

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Re: TSP fees, is it still worth it?
« Reply #2 on: January 31, 2018, 06:27:08 PM »
My main question is how do I calculate the "actual" expense ratio? Gross/Net/Net+Other/something else... and once I know the actual expense ratio deciding if it is worthwhile to leave my money with TSP or transfer it in kind to a different broker with a more favorable expense ratio.

I suspect it is Net+Other, which has some interesting implications. Here is an explanation of the expense ratio's, that seems to support my hypothesis (https://www.tsp.gov/InvestmentFunds/FundsOverview/expenseRatio.html). I feel like this "Other" category is a bit sneaky, and makes the whole comparison more difficult.

An an example of where my thinking is going, the C Fund, which is the common stock index, and I assume the closest to Vanguard's VTSAX has a Net+Other expense ratio of 0.042%, which is technically more than the VTSAX's 0.04%, also I hold a similar fund in a 401K account with TRowePrice that is even lower. If I am doing the math correctly, then I would say that TSP is not necessarily the lowest expense ratio in the industry. If I am not calculating the "actual" expense ratio of Vanguard correctly, then please correct me, I am interested in knowing the most accurate analytical way to determine my best value. The difference between 0.042 and 0.04 is not much, so I am also interested in knowing what difference in expense ratio would make it "worth it" to transfer brokers.

All of my accounts that I am comparing are tax advantaged accounts, and if I did transfer them it would be to equivalent IRA/Roth IRA accounts with other brokers. I am also not actively contributing to my TSP, so there are no additional contributions, unless I decided to rollover a different account into the TSP.

Phenix

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Re: TSP fees, is it still worth it?
« Reply #3 on: February 01, 2018, 06:52:22 AM »
My main question is how do I calculate the "actual" expense ratio? Gross/Net/Net+Other/something else... and once I know the actual expense ratio deciding if it is worthwhile to leave my money with TSP or transfer it in kind to a different broker with a more favorable expense ratio.

I suspect it is Net+Other, which has some interesting implications. Here is an explanation of the expense ratio's, that seems to support my hypothesis (https://www.tsp.gov/InvestmentFunds/FundsOverview/expenseRatio.html). I feel like this "Other" category is a bit sneaky, and makes the whole comparison more difficult.

An an example of where my thinking is going, the C Fund, which is the common stock index, and I assume the closest to Vanguard's VTSAX has a Net+Other expense ratio of 0.042%, which is technically more than the VTSAX's 0.04%, also I hold a similar fund in a 401K account with TRowePrice that is even lower. If I am doing the math correctly, then I would say that TSP is not necessarily the lowest expense ratio in the industry. If I am not calculating the "actual" expense ratio of Vanguard correctly, then please correct me, I am interested in knowing the most accurate analytical way to determine my best value. The difference between 0.042 and 0.04 is not much, so I am also interested in knowing what difference in expense ratio would make it "worth it" to transfer brokers.

All of my accounts that I am comparing are tax advantaged accounts, and if I did transfer them it would be to equivalent IRA/Roth IRA accounts with other brokers. I am also not actively contributing to my TSP, so there are no additional contributions, unless I decided to rollover a different account into the TSP.

You're over complicating things.  If you would feel better with those funds at Vanguard or somewhere else, by all means, go for it.  But as you mentioned, at these low expense ratios, the long term effect isn't going to be much.  The amount of time your funds are out of the market being transferred to a broker might cost you more than the savings of a lower expense ratio (just a guess, no actual calculation as to what size of market shift it would take to make this statement true).

NotJen

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Re: TSP fees, is it still worth it?
« Reply #4 on: February 01, 2018, 08:52:29 AM »
Does the TSP have a Summary Plan Document?  That's what we have with 401(k)s, and it spells out the fees directly.  For the plan that my company uses, the current administrative fee that's passed on to employees is $1/$1000, or 0.1% annually.  Also, each of my statements lists the exact dollar amount of the administrative fees I paid for that period.

That is more of an expense than I have with my accounts directly with Vanguard - I pay no administrative fees, just the expense ratio on each fund.

While I'm still working and accumulating, I'm obviously keeping everything in the 401(k) as is.  When I leave this job, I'll probably roll it directly into Vanguard, because the expense ratios are lower than what I have currently, and no administrative fees.