Is it time to part ways with your TSP (Thrift Savings Plan)? It has been a great place to save/grow your money during your career, but are there greener pastures in retirement? 

Here are the most important factors to consider when deciding whether to stay with the TSP or move on.  

TSP vs. IRA

When people are thinking about leaving the TSP, the vast majority of the time they are thinking about moving to an IRA. This is because they can move their Traditional TSP dollars to a Traditional IRA and their Roth TSP dollars to a Roth IRA with no tax implications! 

Note: As long as you move retirement accounts to other retirement accounts that are taxed the same (i.e. pre-tax account to pre-tax account) then you won’t pay any taxes on the transfer as long as you move the money directly from one retirement account to the other.  But why should you leave the TSP after decades of good results? 

Good question. Let’s dive in. 

Why People Move to an IRA

Here are some of the main reasons why someone may want to move their TSP to an IRA in retirement. 

More Investment Options

The TSP has 5 core investment options while an IRA has thousands and some people value having access to different types of investments/sectors (real estate, emerging markets, crypto currency, etc.)

More Control with Withdrawals

When you make a withdrawal from the TSP they pull the money prorata from your investments. For example, if you have 50% of your TSP in the C Fund and 50% of your money in the G Fund then a $10,000 withdrawal will be pulled 50%/50% from both funds.

For some this is no big deal while others may not want to pull from long-term investments (like the C Fund) when the market is down. An IRA gives you more control over how you take your withdrawals. 

Less Red Tape

In general, IRAs have less red tape to navigate. For example, when you initiate a TSP withdrawal you will be asked to get your spouse’s consent first and while this is a small thing some people don’t want to have to deal with these extra steps.

Tax Strategies

There are a number of tax strategies that IRAs allow but the TSP does not. For example, IRAs allow Roth Conversions while the TSP does not. IRAs allow you to invest your Roth IRA differently than your Traditional IRA to take advantage of tax-free growth that happens in a Roth IRA. The TSP requires that both the Traditional TSP and Roth TSP be invested the same. 

You Could Work with a Financial Planner

Many financial planners (myself included) help manage investments for clients in retirement but the TSP doesn’t allow 3rd parties to help manage accounts, so if you want help from a financial planner in retirement it will often have to be in an IRA. 

Why People Stay in the TSP

Here are the main reasons why people stay in the TSP. 

Simple 

Having few options (as the TSP does) is an advantage for many. Only having to pick from 5 core investment options is a lot easier than having to pick from thousands and in general, the simpler things are, fewer mistakes are made. Having lots of options (as an IRA has) is only beneficial if you are able to weed through all those options to find the best ones for you. 

Familiar 

By retirement most federal employees have used the TSP for decades and they are extremely familiar with how it works. Consequently, few mistakes are made when people stick with things they already understand. 

High Quality

Although the TSP has fewer options than an IRA, the options it does have are high-quality. The five core funds (C, S, I, G, and F) are low-fee and cover the needs of most people.

What Makes Sense For You? 

So now that you understand some of the facts, should you stay in the TSP or go to an IRA? There is no obvious answer for everybody.

An IRA has more options/flexibility which can mean better results over time if you understand how to maximize the options. 

The TSP has fewer options but often lowers the chances of big mistakes because there are simply fewer ways to make mistakes.