Where to keep funds: TSP (Thrift Savings Plan) or Vanguard

[VirginiaBob]

For government employees, where will you keep your funds once retired? The lower fee TSP or rolled over to Vanguard (or other option)?  Currently the TSP has 0.029% expense ratio vs. Vanguard admiral funds around 0.05%.  Some of my coworkers say they plan to roll over to Vanguard since they are worried the government will raid thier TSP accounts if the country goes down the tubes.  My argument back is that if you truly believe in the doomsday scenario where the country goes down the tubes, none of your money will be worth anything anyways, and you would be better off investing in guns and bunkers than in the TSP.  LOL!  And who is to say Vangaurd would not be confiscated by the government also in that highly unlikely scenario?  Any thoughts on advantages and disadvantages of either option?   

[Catbert]

Boy, you got some crazy co-workers.  There is no reason to believe that the government will raid TSP accounts...and if they did they would raid IRA, 401k, etc. accounts as well.

I'm retired and left my TSP alone.  I won't tap it until 70 1/2 at which point I will convert to an IRA.  When you start to take money out TSP isn't as flexible as an IRA.  I believe* you can take a partial distribution/rollover only ONCE.  The next time you have to take it all out (distribution/rollover).  You do have an option of an annuity which isn't a fit for me.  Also it's easier to ensure you take a correct RMD if your money is all in one place and type of account.

*I may be wrong about this - that's my memory from retirement training course.

[VirginiaBob]

Boy, you got some crazy co-workers.  There is no reason to believe that the government will raid TSP accounts...and if they did they would raid IRA, 401k, etc. accounts as well.

I'm retired and left my TSP alone.  I won't tap it until 70 1/2 at which point I will convert to an IRA.  When you start to take money out TSP isn't as flexible as an IRA.  I believe* you can take a partial distribution/rollover only ONCE.  The next time you have to take it all out (distribution/rollover).  You do have an option of an annuity which isn't a fit for me.  Also it's easier to ensure you take a correct RMD if your money is all in one place and type of account.

*I may be wrong about this - that's my memory from retirement training course.

Thanks  - I'll have to check out the flexibility issues and see what the deal is.

[chuckaluck]

I retired a few years ago after 33+ years.  I contributed to the TSP from its inception, and over the years, built up a tidy sum.  I have thus far left my money in the TSP as I don't anticipate needing the money soon.  The TSP is a wonderful plan (low cost, transparent, etc).  However, like most 401(k)-type plans, the TSP does not have nearly the flexibility that most IRA plans have.  I'm not only talking about the number of funds that make up the TSP. In my case, for example, when it is time for me to start withdrawing funds, I want to be able to chose a specific fund (say one that has done well -- "buy low, sell high").  With an IRA it is possible to do that.  But with the TSP you can't.  When you withdraw money, it is apportioned to what you currently have your funds invested in.  For example, if I have 25% invested in each of the C,S,I, and G fund, and I take out 2000.00, 500.00 is going to come out of each.  I am not allowed to take out money only out of one of the funds. There is no flexibility.  For me, that would be the only reason for moving to an IRA (most likely, Vanguard).   

[kendallf]

When you withdraw money, it is apportioned to what you currently have your funds invested in.  For example, if I have 25% invested in each of the C,S,I, and G fund, and I take out 2000.00, 500.00 is going to come out of each.  I am not allowed to take out money only out of one of the funds. There is no flexibility.  For me, that would be the only reason for moving to an IRA (most likely, Vanguard).

For your specific example, you could just re-balance your funds to the percentages of your desired mix after the withdrawal.  Same result as being able to specify withdrawal out of one fund.

To the OP: the withdrawal options are here:

https://www.tsp.gov/planparticipation/withdrawals/withdrawingAccount.shtml

The ability to only take a partial withdrawal once seems like the biggest drawback to me also.  If you want to do something like a Roth pipeline, I think you'd have to choose how much money you thought you could convert over your target timeline, and withdraw that amount and roll it into an IRA.  I need to look over the rules for re-characterization to Roth TSP, though.. there might be some options there.  I'm not sure.

[chuckaluck]

Thanx for the info and link.  But I should have been more specific as to what I have in mind.  The reason I want to rollover to an IRA (via Vanguard) is so that I can invest in several high dividend paying stock mutual funds.  As the stocks payout the dividends, I will direct them into a MMF that will be my "cash bucket". I will let it build up.  I figure I won't have to pay taxes on the within IRA transfers and I will be able to withdraw from the cash bucket as I need the funds without regard to what the stock market is doing.  I would be interested in any comments regarding this strategy.  Thanx

[forummm]

I would roll it over into an IRA, then do annual conversions to Roth in amounts where I don't have to pay taxes on it, and then pull it out 5 years later. You take a very small hit on the fund expenses, but save huge amounts on the taxes.

[dude]

Two things I would add to this discussion.  First, with the TSP you have the option of withdrawing penalty-free if you retire in the year of your 55th birthday; if you convert to an IRA, you can't avoid the penalty until you are 59 1/2.   Second, there is no equivalent to the G Fund (which is a totally risk-free investment vehicle) out there in the real world -- I would suggest considering leaving some portion (or all) of the bond allocation of your portfolio in the TSP.  You can do a partial rollover to an IRA, leaving the balance in the TSP.

Also, as someone above already suggested, by simply making trades on the very same day your withdrawals hit your account, you can in effect draw money from the specific fund (i.e., C Fund, G Fund, etc) you want that money to come from, as moving money from one accoun to the other is cost-free.  So if the market is down and your withdrawals take proportionally from your allocated funds, you can simply move money over from the G Fund to the equity funds (C,S,I) in a close approximation of the number of shares sold (essentially, you are buying back shares at the same price they were sold).

One other thing to consider re: the TSP -- if you are planning to leave a legacy to a non-spouse, you do not have the option of setting up an Inherited IRA for those beneficiaries, so as a consequence, they will receive a lump sum from the TSP and will be taxed accordingly.  So transfer to an IRA should be considered if this is your goal; the Inherited IRA option allows payments to be "stretched" over a much longer period of time, thus continuing its tax-deferred growth and avoiding the tax implications of a lump sum payout.  Consult your tax advisor.

[DoubleDown]

Another option that often seems to be overlooked is monthly withdrawals from the TSP. It is true that you can only do one partial withdrawal, but that can take the form of monthly payments stretched over up to 10 years IIRC. I'm not saying this is the way to go in OP's or anyone else's situation, but it's worth considering as a way to have your cake and eat it too (keep it in the TSP while withdrawing amounts monthly to be rolled over or whatever).

[dude]

Another option that often seems to be overlooked is monthly withdrawals from the TSP. It is true that you can only do one partial withdrawal, but that can take the form of monthly payments stretched over up to 10 years IIRC. I'm not saying this is the way to go in OP's or anyone else's situation, but it's worth considering as a way to have your cake and eat it too (keep it in the TSP while withdrawing amounts monthly to be rolled over or whatever).

You can take monthly payments for forever, I'm pretty sure. I believe the 10-year option only comes into play if you are transferring money to an IRA on a monthly basis.  The thing to keep in mind about the monthly payments is you can only change them once a year (i.e., once you set it for the year, you can't change it).

Incidentally, re: my last post about Inherited IRA's -- didn't know the President's budget plan calls for eliminating that option:

http://finance.yahoo.com/news/family-saves--120k-by-stretching-an-ira-inheritance-203852010.html