TSP

John Grobe

Though they have been climbing steadily the last few years, the TSP fund expenses are still among the lowest that you can find anywhere, so think twice before rolling over your balance into something else.

According to the “fund sheets” that you can find in the forms and publications section of the TSP website, the expense ratio for the F, C and I Funds is 4.1 basis points, while the ratio for the G, S and all of the L funds is 4.0 basis points.  That translates to $0.41 and $0.40 for each $1,000 invested.  Those expense ratios may be hard to beat, but they can be beaten.

Fidelity Investments has introduced a fund that has no expenses at all.  That’s right – not one red cent in expenses.  How, you might ask, can they afford to do this?  Wouldn’t they lose money?  Think of why Kroger offers bananas at 9₵ a pound.  They use the bananas as a “loss leader” to get customers in the door so that they will buy regular priced groceries.  Don’t be fooled by Fidelity’s bananas; stick with the TSP’s overall low expenses.

Are you 70 ½ (or are you turning 70 ½) this year and thinking of rolling your TSP balance into an IRA?  You will have to take your required minimum distribution (RMD) prior to the rollover.

You are required to take your first RMD beginning in the year you turn 70 1/2; even if you don’t turn 70 ½ until December 31.  You may delay your first RMD until April 1 of the following year, but it still needs to be taken prior to any other distributions.  Refer to our recent article on RMDs for more details on how a RMD is calculated.

The one per year limit on “60-day rollovers” only applies to rollovers from one traditional IRA to another traditional IRA and one Roth IRA to another Roth IRA.  It does not apply to 60-day rollovers between company plans (such as the TSP) and IRAs.  It also does not apply to any direct rollovers.  If you’re going to do any rolling over – make it a direct rollover.

ask.FEDweek.com Q&A on TSP rollovers

Q: I am planning to retire this year at age 60. How would I go about taking a full withdraw in order to rollover money into an IRA and use some cash to pay down a loan? (No in-service withdrawals were made).

A: You would use the form TSP-70, Request for Full Withdrawal. A fillable version of this form is available on the TSP website. You would choose to have 100% of your account as a single payment. You then fill in the parts of the form about transferring a percentage of this single payment to an IRA or other tax deferred account and send the form to the custodian of the IRA so that they can complete information about your new IRA. *Don’t forget to get your spouse’s signature (it’ll have to be notarized if you’re FERS).

Read more on TSP Withdrawals to an IRA at ask.FEDweek.com