During the coronavirus crisis and the resulting (extreme) volatility in equity investments you may have thought about re-allocating your TSP investments among different funds. We’ll look at how you can do that, but we won’t comment on whether or not it is a good idea.
When you want to move money around within your TSP account, it’s called an interfund transfer. Interfund transfers have nothing to do with your current and future contributions to the Thrift Savings plan; if you want to change the amount you are currently contributing, or to which TSP funds your current and future contributions go, you would change your contribution allocation.
Interfund transfers can be initiated on the TSP website. First, you must access your TSP account and then you must choose “Interfund Transfers”, which is listed under “Online Transactions” on the left side of the page. You will now find yourself on a page that shows your current fund allocations. Click on “Request Interfund Transfer” and you’ll be taken to a page where you can enter the allocation to which you want to switch in terms of a percentage of your account.
After you have selected the new percentages and have clicked “continue”, you are taken to a page where you can submit or cancel your request. You’re also allowed to return to the previous screen. Simple, you have just changed the allocation in your TSP account.
There are limits to the number of interfund transfers you can make. In the early days of the Thrift Savings Plan, interfund transfers were only allowed during open seasons and were rarely, if ever, processed on the day they were submitted. Then for a while unlimited interfund transfers were allowed.
This encouraged a small percentage of participants to try to “day trade” their TSP accounts. The Thrift Board put a stop to the epidemic of day trading by limiting the number of allowable interfund transfers to two per month. Of course there was an exception.
That exception was the “safe harbor” exception. Which fund constituted the safe harbor? If you guessed the G Fund, you win a prize. Unlimited interfund transfers are allowed as long as the money is being moved to the G Fund.
The two per month restriction only applies to unrestricted interfund transfers; you’re always allowed to flee to safety. Say that you had already made two interfund transfers in the month of May and, on the 25th, while you were celebrating Memorial Day, a little bird landed on your shoulder and whispered in your ear that the market was going to crash on Friday, May 29th. You would still be able to retreat to the G Fund because you would be making an allowable safe harbor transfer.
You cannot move money from your traditional TSP balance to your Roth TSP balance (or vice versa) by means of an interfund transfer. In fact, you can’t shift money between traditional and Roth TSP balances by any means. If you do have both traditional and Roth balances, an interfund transfer applies to both of them.
Do many people move money between funds within their TSP account? TSP statistics suggest not. In fact, during this March, only 7% of participants made interfund transfers. As of the time this article was written, no April numbers were available.
Do you want to make an interfund transfer? That’s up to you.
ask.FEDweek.com: Roth TSP Balances