Life after government: Should you stick with the TSP?

When federal employees leave government, one in three investors in the Thrift Savings Plan move their money out of Uncle Sam’s 401k plan for a variety of reas...

When feds leave government — either to take another job or go into retirement — one in three investors in the Thrift Savings Plan move their money out of Uncle Sam’s 401k plan. Reasons vary widely. Many go into an IRA because they find it easier to get their money faster. Others say they want more investment options, such as mutual funds that invest solely in a particular industry. Or in gold. Or even specific countries or green funds. Their complaint is that while the TSP’s C, S, I, F and G funds pretty much cover the investing waterfront, they want more targeted options.

Most of the focus on TSP investments is outgoing traffic. People leaving and taking their retirement nest egg with them. But investing (or not) in the TSP is very much a two-way street. Every year a growing number of savvy, new, feds — from postal workers, DEA agents, and congressional employees to well-heeled newly appointed federal judges — move outside money INTO the TSP. And most of these folks are smart and have done their financial homework.

The reasons for moving money INTO the TSP are obvious to many. It is well-known for having some of the lowest administration fees in the investment business. Over time, low fees can boost an account by thousands of dollars. Also, Congress designed it to be super-safe. Most members of Congress are probably in the TSP. It also has as much or more outside oversight than any other 401k plan.

A while back I got an email from a fed who said he had read columns about why TSP participants transfer out of the TSP when they leave government. He asked what his options are.

He said:

The reasons mostly mention more investment options and flexibility. When I retire, I plan to transfer my TSP account to an external firm. Why? In a word, consolidation.

I have not seen any columns that mention this.

My wife and I worked in non-federal jobs for many years before I became a federal employee. We have other retirement accounts and investments that can’t be transferred into TSP, and I would like to minimize the number of places where my retirement funds and other investments are located. Also, many investment firms decrease their fees if you can maintain minimum account balances. Consolidation can help to meet those requirements.

I don’t know if other TSP participants think about consolidation, or even have that as an option, but it is an important topic for me.

Great point. So I checked with Kim Weaver, director of external affairs for the Federal Retirement Thrift Investment Board, which runs the TSP. Her response:

Your correspondent is correct – consolidating your retirement accounts makes good sense. That’s why we regularly inform TSP participants that they can roll their qualified retirement accounts into the TSP. That message seems to be resonating because participants have been rolling money in at a fairly steady pace – see the attached table. We have information on that provides the information participants need to see if their retirement account is eligible to be rolled into the TSP and how to do it:

We also have this scorecard to help participants make a decision about whether to move their accounts:

As background, the average FERS employee joining the government starts in their mid-30s so a lot of them have retirement accounts from their previous jobs; it’s not just high-paid lawyers or those types who are rolling their accounts into the TSP.

So how popular is the practice of bringing money into the TSP? Look at the growing rate of role-ins over the years:

Year # of Roll Ins Total $ Roll Ins
2016 28,452 $1,325,361,748.04
2017 30,265 $1,459,088,386.17
2018 29,360 $1,480,148,902.25
2019 30,135 $1,539,984,811.96
2020 33,648 $1,589,582,977.65
2021 25,871 $1,481,637,857.72
Totals: 177,731 $8,875,804,683.79

Nearly Useless Factoid

By Alazar Moges

Bowhead whales are believed to be the mammal that can live the longest. Studies suggest they can live to be over 200 years old.

Source: NOAA

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