Published by Govexec.com

Written by Tammy Flanagan

“The TSP has prepared a new fact sheet titled, Information for TSP Participants Leaving Federal Employment that provides useful information for employees who may find themselves facing the end of their federal careers in 2025 under the Deferred Resignation Programs (1.0 and 2.0) along with VERA/VSIP (Voluntary Early Retirement Authority/Voluntary Separation Incentive Program) early retirement offers and for some – a sobering RIF (Reduction in Force) notice, which is an involuntary separation from federal service where employees who are eligible can apply for a DSR (Discontinued Service Retirement).”

“Another TSP Fact Sheet, titled Rollovers from the Thrift Savings Plan to Eligible Retirement Plans, provides information about moving TSP Funds to other eligible retirement accounts such as an IRA or other employer plan. To withdraw TSP funds, if a participant has a traditional balance and a Roth balance, they have several options for taking distributions. This includes having them paid proportionally from each balance. In that case, the traditional portion and Roth portion will be distributed and rolled over separately.

“Participants may also request a distribution from the traditional balance only or from the Roth balance only. Distributions from accounts containing tax-exempt contributions will be made proportionally from taxable and nontaxable amounts. If an IRA or plan does not accept tax-exempt balances, the tax-exempt portion of an intended rollover will be paid directly to the participant.

“Another tool for separating federal workers is a seven-question “scorecard” recently emailed to TSP participants that help compare the TSP with other plans that accept tax-advantages retirement savings such as an IRA.  The questionnaire is titled Keeping Score, and offers questions that you should ask to see how another plan measures up with the TSP. The information includes the following considerations:

  1. Before moving money from the TSP, consider that the net administrative expenses charged to TSP participants for every $1,000 invested is $0.36/year ($500,000 investment will have an expense of $180/year while it is invested in the TSP).
  1. There is also a low 3-cent fee paid to TSP investment managers per $1,000 invested or another $15/year on a $500,000 account balance.
  1. The TSP makes zero “profit” from your investments.
  1. The scorecard also points out that the TSP has a responsibility to put your interests ahead of their own.
  1. The TSP protects your funds from creditors’ claims.
  1. Distributions options from the TSP includes electing a series of scheduled withdrawals to receive income without giving up control of your account, and
  1. The TSP allows you to change your investments and take withdrawals without surrender fees or back-end charges.  A surrender fee is a penalty charged by insurance companies when an annuity contract is terminated or funds are withdrawn before a specified period, typically during the early years of the contract. This fee is designed to deter early withdrawals and help the insurance company recoup some of the costs associated with issuing and administering the annuity.  A backend fee, also known as a deferred sales charge or a contingent deferred sales charge, is a fee charged by a mutual fund when an investor sells or redeems their shares. Back-end fees are typically expressed as a percentage of the redemption amount and often decrease over time as the investor holds the shares.

“These are all great characteristics to be aware of before you make a move to withdraw your TSP funds and use them to purchase an annuity product or move them to another investment like an IRA.

“However, there are some good reasons to consider moving some TSP money to an outside investment. To learn more, I asked five CFPs (Certified Financial Planners) who I have worked with over the years, and who have many years of experience working with federal employees and annuitants to help them set financial goals and make wise decisions. A CFP by definition is a fiduciary, meaning they are legally and ethically bound to always act in the best interests of their clients when providing financial advice and financial planning service.”

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