roll TSP into Vanguard Traditional IRA or leave it where it is?

[DoNorth]

I'm FI now; heading into semi-retirement in two weeks.  Age 36.

The Thrift Savings has five funds and I have about $200,000+ in the C, S and lesser amount in the I funds.  I"m wondering if I should leave the funds where they are or roll them into my Vanguard IRA.  The biggest pro to leaving them is that the expense ratio is .03 for most funds.  On the other hand if I rolled it, all the funds are consolidated with Vanguard with similarly low, but slightly higher fees.  Also, the TSP doesn't overtly pay out dividends....their explanation is that dividends are baked into share prices, but I like the flexibility that dividends offer, although the retirement accounts don't affect my semi-early retirement one way or another since I have a pension and my wife and I both have PT income work. 

I'm going to start a Roth Conversion ladder next tax year so again simplicity is another pro for rolling over.  So, over the long run, does the .02-.1 in additional expense ratio (assuming I invest in VTSMX or something similar) warrant the simplicity I would get by consolidating everything in one place?  Or should I leave the funds parked in the TSP?

[forummm]

Congrats on FIRE!

There is absolutely no benefit to rolling it over to get dividends. None. None. There is no flexibility to it. None.

But for your Roth ladder, you will want it in an traditional IRA. You can only take one partial distribution from the TSP. So just move it to an IRA by next year when you start the ladder.

[seattlecyclone]

Do you have any balances in other pre-tax retirement accounts? If so, you may want to let your TSP sit for a while and convert your other accounts to Roth first. Keep those low expense ratios as long as you can without messing up your Roth conversion plans.

[DoNorth]

Congrats on FIRE!

There is absolutely no benefit to rolling it over to get dividends. None. None. There is no flexibility to it. None.

But for your Roth ladder, you will want it in an traditional IRA. You can only take one partial distribution from the TSP. So just move it to an IRA by next year when you start the ladder.

that makes sense on both points.  I'm not sure if you can set up a ladder using the Roth TSP option, but even if you could it sounds like withdrawals can be problematic.
http://federalnewsradio.com/federal-report/2015/06/is-the-tsp-the-best-option-for-retirees-withdrawals/

I have about $16000 in the tax free section because of combat time contributions.  Vanguard said they would take the contributions from that account and put them in my Roth.  I think the earnings have to be put into the traditional IRA though

Do you have any balances in other pre-tax retirement accounts? If so, you may want to let your TSP sit for a while and convert your other accounts to Roth first. Keep those low expense ratios as long as you can without messing up your Roth conversion plans.

Just a very small amount.  I always did the Roth (I didn't know about the ladder until this year and hadn't really thought about FIRE until a year ago).  My wife has a larger traditional IRA so we'll probably start with hers so I might leave the TSP funds where they are until I've transferred the last of the traditional IRA funds into the Roth accounts.

[forummm]

You can roll your Roth TSP and post-tax TSP contributions right to a Vanguard Roth. You won't pay any tax on that. There really isn't any big reason to leave them in the TSP. The expense ratio is slightly smaller in the TSP, but it's a negligible amount. The real reason to move to Vanguard is that you can only take 2 withdrawals from the TSP--one partial (optional), and the next one must empty your account.

So, no, you can't setup a Roth TSP ladder. It could only have 2 rungs.

[dude]

You can roll your Roth TSP and post-tax TSP contributions right to a Vanguard Roth. You won't pay any tax on that. There really isn't any big reason to leave them in the TSP. The expense ratio is slightly smaller in the TSP, but it's a negligible amount. The real reason to move to Vanguard is that you can only take 2 withdrawals from the TSP--one partial (optional), and the next one must empty your account.

So, no, you can't setup a Roth TSP ladder. It could only have 2 rungs.

At a .029 expense ratio, It may be negligible compared to Vanguard's S&P 500 fund at .05, but not vis-à-vis many other options.  Also, nowhere else in the world will you find an equivalent to the G Fund -- a totally risk-free investment that gives intermediate-term rates on short-term Treasuries.  A really nice place to park your winnings when you re-allocate.

[DoubleDown]

Also, nowhere else in the world will you find an equivalent to the G Fund -- a totally risk-free investment that gives intermediate-term rates on short-term Treasuries.  A really nice place to park your winnings when you re-allocate.

+1

That reason alone, imo, should give anyone pause before moving out of the TSP. And the G Fund is an excellent place to draw income if you're looking for low volatility and guaranteed positive returns (such as later in life).

I suggest looking at the big picture before making a decision. Look at how you expect to fund your entire ER, and specifically when you would need to access TSP/IRA/401k funds. For example (and I realize this situation is unlikely, but use it for illustration), if you had enough taxable funds to last you until you were 59.5, and IRA withdrawals at that age would be low enough to be tax-free anyway, there may be no reason to do Roth conversions or ever move money out of TSP. Take a look at how you expect to draw down your assets, how many years of Roth conversions you might need, etc. Try to do as much as you can outside the TSP so you can leave the money parked there as long as possible.

[DoNorth]

I probably should have mentioned that I receive a military pension of $60K/year (mostly tax free due to VA offset) and my wife has PT work which nets about $25K year.  My PT job I am starting in 2 weeks will also have a salary of $25K/year.

We only have tax deferred and tax exempt investments--about $140K in Roth and Traditional IRAs and $200K in the TSP.  Our house is worth about $275k and has no mortgage.  I keep about $25K in a checking account. Expenses are about $3000=$3500/month.   My wife  continues to contribute to a solo 401k and we both continue contributing to traditional IRA's to keep semi-retirement taxable income very low.  Michigan doesn't tax military pensions and the federal government only taxes about $20K/year.  We also use depreciation on our rental to lower our AGI into poverty line territory.

 I really see the Roth conversion as a way to take advantage of the RMD rules and enhance tax efficiency rather than a necessity to fund ER. What I want to avoid is having to take large taxable TSP distributions when I'm in my 60's and unnecessarily be in a higher bracket because of SS, pension + TSP or other investment withdrawals. The G is a good option, but the  the pension fills the role of a bond/annuity for me so I prefer to stay 100% invested in equities for now.  Maybe after I'm 45 or 50, I might consider rebalancing to the G/F

All good points.  I think for now, I'll leave the TSP alone and focus on converting the solo 401k contributions and traditional IRA to their respective Roth counterparts.  At the rate of conversion, I don't think we'll ever run out of funds to convert because almost all of my wife's net goes into the solo (about $21K year) and the remaining part goes to SET.  At most, I think we could convert $5-$6K year without triggering a significant tax event.

[DoubleDown]

I think for now, I'll leave the TSP alone and focus on converting the solo 401k contributions and traditional IRA to their respective Roth counterparts.  At the rate of conversion, I don't think we'll ever run out of funds to convert because almost all of my wife's net goes into the solo (about $21K year) and the remaining part goes to SET.  At most, I think we could convert $5-$6K year without triggering a significant tax event.

That sounds like a good plan.