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The Thrift Savings Plan (TSP) has issued a new fact sheet titled Information for TSP Participants Leaving Federal Employment. This document aims to provide vital guidance to employees approaching the completion of their federal careers in 2025, especially those considering the Deferred Resignation Programs (1.0 and 2.0), Voluntary Early Retirement Authority (VERA), Voluntary Separation Incentive Program (VSIP), or those who may receive a Reduction in Force (RIF) notice, which can lead to a Discontinued Service Retirement (DSR) option for eligible individuals.
Additionally, the TSP has released another informative resource titled Rollovers from the Thrift Savings Plan to Eligible Retirement Plans. This sheet details the process of transferring TSP funds to various retirement accounts, including IRAs or other employer-sponsored plans. Participants with both traditional and Roth balances have multiple distribution options, including proportional withdrawal from each balance, ensuring that both the tax-deferred and tax-free portions of their accounts are treated appropriately during distributions.
Moreover, participants can choose to withdraw from either their traditional or Roth balance exclusively. Should they choose to transfer funds containing tax-exempt contributions to a plan that does not accept such funds, those contributions will be distributed directly to the participant.
To further aid participants transitioning from federal service, the TSP has introduced a “scorecard” in the form of a seven-question assessment designed to help individuals compare the benefits of the TSP against other tax-efficient retirement plans such as IRAs. This scorecard, known as Keeping Score, includes strategic questions essential for assessing how other plans stack up against the TSP’s offerings.
Before making any decisions regarding a withdrawal from the TSP, participants should consider the administrative expenses associated with their investment. According to the TSP, the net administrative cost charged to participants is $0.36 per year for every $1,000 invested. For a $500,000 investment, this results in an annual expense of approximately $180. Additionally, there is a minimal 3-cent fee for investment management by TSP managers, totaling around $15 per year for a similar account balance.
The TSP operates without any profit motive regarding participants’ investments, ensuring a focus on the interests of its users. Notably, TSP accounts are also safeguarded from creditors’ claims, providing an essential layer of protection for participants’ assets.
Withdrawal options from the TSP provide flexibility, allowing participants to schedule consecutive withdrawals while retaining control over their accounts. Moreover, the absence of surrender fees or backend charges distinguishes TSP from other retirement accounts, which may impose penalties for early withdrawals or require fees when redeeming investments.
While there are numerous advantages to maintaining funds within the TSP, financial advisors have suggested reasons for considering external investments. Insights from five Certified Financial Planners (CFPs) shared their perspectives on how federal employees and retirees can best manage their retirement savings. As fiduciaries, these advisors emphasized the importance of acting in their clients’ best interests.
Many noted that private-sector index funds, such as those offered by Vanguard and Fidelity, present lower expense ratios compared to the index funds in the TSP. For instance, the expense ratios for several private funds are significantly lower, ranging from 0.0% to 0.18%, which could result in annual savings of $20 to $90 on a $500,000 investment.
Another point raised by CFP David Fei is that TSP accounts are exclusively subject to the regulations of the Federal Retirement Thrift Investment Board and are not covered by the Employee Retirement Income Security Act (ERISA)—unlike private plans, which are held to stricter standards to protect plan participants.
Advisors also highlighted complexities surrounding beneficiary accounts, particularly for spouses and non-spousal beneficiaries. For spouse beneficiaries, upon passing, the entire account must be distributed to designated heirs, with specific rules regarding IRA rollovers following death. Non-spousal beneficiaries have a 90-day timeframe for account distribution, diverging from typical rollover provisions found in other retirement accounts.
Complexities related to beneficiary designations create potential issues. Due to the current structure, if a primary beneficiary predeceases the account holder, their share doesn’t automatically flow to their descendants, which can lead to disinheritance scenarios. Also, certain newly enforced rules have eliminated per stirpes designations, previously allowing descendants to inherit shares proportionately.
Age differences within couples present additional challenges, particularly concerning Required Minimum Distributions (RMDs). The TSP uses a uniform life table for RMD calculations, potentially leading to higher distributions for couples with more than a decade of age difference.
As the TSP evolves its administration, it is crucial for participants to take an informed approach when considering their retirement savings, including the potential benefits of transferring to IRAs or other plans that may offer enhanced investment opportunities and provisions, particularly concerning estate planning and beneficiary arrangements.
With ongoing communication efforts, the TSP informs participants that they are not required to separate their accounts from the TSP when leaving federal service. Recent metrics indicate that approximately 68.7% of participants continue to maintain their balances within the TSP one year post-separation, reflecting a significant trust in the plan. As of January 2025, the total TSP assets reached nearly $985 billion, including $73 billion in Roth accounts.
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