Should you stick with the new, improved TSP?

Uncle Sam's in-house 401(k) plan is changing, big time. The question is, will federal investors stick with it when they retire or leave government?

When they leave or retire from the government, just over half of Thrift Savings Plan participants move most or all of their TSP balances someplace else. This despite the fact that the TSP has some of the lowest administrative fees in the business and is subject to oversight by the Treasury, the Labor Department and many, if not most, members of Congress — and their staffs — belong to the TSP and have keen interest in seeing it does well.

The downside of the TSP (and one reason its fees are so low) was that it had many restrictions on account withdrawals. Many people also said they wanted more options than its five funds (government securities, bonds, large and small cap stocks and international stocks) and its Lifecycle funds. Bitcoins, anyone?

But now that Congress has authorized a modernization of the TSP, many suspect that it will be more attractive to feds when they leave or retire and that they will stick with it. Financial planner Arthur Stein says now that the president has signed the TSP Modernization Act, “the new law allows the TSP to loosen some current restrictions on withdrawals from the TSP. It is not yet clear how long it will take the TSP to make these changes.” Then he highlighted the coming changes:

Lump-sum withdrawals: “Currently, the TSP only allows one lump-sum withdrawal during a participant’s life. The TSP is now authorized to eliminate this restriction. That means retirees can make multiple (and perhaps unlimited) lump-sum withdrawals. The same change is being made to ‘in-service’ withdrawals, those made by employees over the age of 59.5.”

Monthly payments: “Currently, participants receiving funds by identical monthly payments can only change the amount of payments once a year (between Oct. 1 and Dec. 15). If monthly payments are stopped, the TSP account must be closed. The new law allows the TSP to eliminate both restrictions. One additional restriction was added: A TSP retiree may no longer return a payment that was made ‘pursuant to the withdrawal election.”

Restrictions that will not change:

• “Withdrawals must come from all the funds being used by a participant. The percentage, allocation of the withdrawal is the same as the current investment percentage.”

• “Participants with a Roth TSP balance must withdraw the same percentage from the Roth balance as the regular balance.”

Stein will be on our Your Turn radio show today at 10 a.m. ET. You can listen live at or at 1500 AM in the D.C. area. If you have questions for Art Stein, send them to me before showtime at:

Nearly Useless Factoid

By Michael O’Connell

Microsoft launched Windows 1.0 on Nov. 20, 1985.

Source: Wikipedia

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