Girlfriend is changing jobs. Should she move her 401K into the TSP?

Submitted by buskingengineer t3_zy538x in personalfinance

Good morning everyone. My girlfriend recently accepted a federal job, and will be starting next month. Would it be worth moving her 401K into the TSP, or would it be better to leave it where it is? I'm not positive who the company her 401K is with currently, so I'm unsure of fees or anything else. My gut feeling says moving everything into the TSP would be better due to the low fees of the TSP, but I was hoping to do a sanity check.

​

Any advice is greatly appreciated!

45

Comments

You must log in or register to comment.

Werewolfdad t1_j23skp2 wrote

Generally yes, the TSP is hard to beat and is generally only equaled by the very best plans at the very best employers.

And if she ever leaves federal service, she should keep the TSP since it accepts rollovers from everything, making consolidating very easy

80

buskingengineer OP t1_j23swe1 wrote

Thanks for the feedback, my assumption was moving into the TSP was the best move. And I don't think she'll be leaving federal service until retirement; she will have much more room for growth at her new job and it's hard to argue with a pension + TSP.

13

Werewolfdad t1_j23t1n6 wrote

Completely agree. Just wanted to offer an option should something arise, since many people tend to want to leave the TSP and its almost always a super bad idea.

12

Nagisan t1_j23vvws wrote

> and its almost always a super bad idea

Depends on how they leave it. While it is tough to beat TSP in a company 401k, it's easy to beat in an IRA, and IRAs have so much more flexibility and accessibility.

It's only a bad idea when they want to move into a worse plan, which definitely doesn't describe an IRA at the big brokerage providers.

The only reason I left my traditional balance in TSP is cause my income is close enough to the Roth IRA income limit that I didn't want those dollars going into a traditional IRA in case I need to backdoor Roth in the future. My Roth balance went into my IRA and has lower fees, similar overall returns with better market exposure, doesn't require leaving my employer to withdraw, and is cheaper to withdraw early (contributions can be withdrawn in full tax/penalty free vs pro-rata like TSP and 401k's are).

5

Werewolfdad t1_j23wbww wrote

> in case I need to backdoor Roth in the future.

Yeah, I think my bias is showing since that is such a more important consideration in this forum than perhaps in the world at large.

The new brokerage link option narrows the issue with broader investment choices.. NeverMind. Super bad.

I agree about the other flexibilities with IRAs

7

Nagisan t1_j23x5lw wrote

> The new brokerage link option narrows the issue with broader investment choices.

Not really, the fees are absolutely absurd ($145 in annual fees plus $28.75 per trade - which means monthly if you invest new funds into it once per month - and that's on top of any fund specific fees) and you can only invest 25% of your total TSP balance this way.

If anyone is legitimately looking for broader investment choices, they would be better off rolling from TSP into a bad 401k plan than they would be staying in TSP.

2

Werewolfdad t1_j23y8f7 wrote

Oh damn I hadn’t realized the fees were that awful. Wow. NeverMind on that at all then

3

gigglesworthy t1_j26x6xq wrote

> While it is tough to beat TSP in a company 401k, it's easy to beat in an IRA, and IRAs have so much more flexibility and accessibility.

This advice doesn't sound right. An IRA doesn't have any special features that allow it to beat a 401k or the TSP.

The main advantage that IRAs have over most 401k's is access to more funds. But most of those other funds are worthless considering that the S&P 500 beats 90% of them over the long term. Add to that the very low expense ratio of 0.043% for the TSP C Fund (market index fund), and it's hard to see how an IRA can 'beat' the TSP. IRAa tend to have higher fees, except for access to some of the 0% funds like FZROX. Large employers that offer 401k/403b plans and the TSP have the negotiation power to demand lower fees for their employees. Individual investors with IRAs don't.

2

Nagisan t1_j2710mp wrote

There's at least a few IRA options that have lower fees than TSP at every major brokerage. And beat doesn't have to be by a significant amount to beat it. Even slightly lower expense ratios with similar returns "beats" the higher ER option (TSP in this case).

TSP is great as far as employer plans go, but most of the big IRA brokerages have lower ER options available.

1

gigglesworthy t1_j27aa8w wrote

Sorry I have to disagree here. With expense ratios like 0.04%, you're talking like a $25 difference over a decade. The difference is trivial, and not enough to 'beat' anything. An IRA doesn't provide much benefit here.

When we say that you should seek funds with low expense ratios, we're mostly talking about unscrupulous funds, mostly managed funds, who charge more than, say, 0.25% when they earn less then the market; or the old days where expense ratios like 1% were the norm.

So yeah, an IRA might have funds with a slightly lower expense ratio. But that won't help you to beat the market. The fees for most funds in most IRAs are going to be much higher than 0.04%.

1

Nagisan t1_j27bk6k wrote

A 0.04% ER (vs 0% FZROX, for example) costs $25 on $62.5k per year...not 'over a decade'.

Yes, it's a small amount, but yes this is one factor that can make an IRA better than TSP.

ER isn't the only thing either...access to early withdrawals can be situational, not recommended, but still easier and cheaper with an IRA than with a 401k / TSP.

Look at it from the other way around, would you recommend someone roll money from an IRA (with good low ER funds) into TSP or a 401k? Why or why not? My point is entirely that there are more reasons to have money in an IRA than there are to have money in a 401k-style plan. TSP is great as far as 401k's go, but it doesn't beat (or match depending on your needs) an IRA so logically you should prefer to move your money to an IRA unless TSP offers something special (which it really doesn't other than maybe the G-fund).

1

gigglesworthy t1_j2bdexg wrote

My math was admittedly simple but illustrates a point. If I invest $1,000 a year for 10 years and a marginal 6% return, a fee of 0.04% is about $31, that's not enough to make a meaningful difference. Source . It's probably not worth fretting over.

> would you recommend someone roll money from an IRA (with good low ER funds) into TSP or a 401k? Why or why not?

No, because it probably wouldn't make a big difference.

But, it depends on the fees. In my experience, funds in IRAs tend to be higher than those in 401ks, and are usually much higher than 0.04%. That's why I argue that 401ks and the tsp are superior in many cases. Large employers have negotiating power to demand low fees. Individual investors don't get that same luxury. This is of course not universally true.

My only argument here is your statement that IRAs 'easily beat' a 401k. Funds in a 401K will often match or beat an IRA in terms of fees. I have both. I've had to go through this decision multiple times.

1

Nagisan t1_j2bhd6d wrote

> My only argument here is your statement that IRAs beat a 401k. 401K is often match or beat an IRA in terms of fees.

As someone who has an IRA with public options that are lower fee than even TSP offers, your argument is objectively false.

1

Ubergaladababa t1_j24322x wrote

In addition to what others have said, TSP has the advantage of ensuring your investments are in line with any ethics restrictions and super easy for any reporting requirements that may come with her new job.

8

aheadlessned t1_j248j71 wrote

Looks like I'm going to go against what other people have said.

I'd check the fees first on the 401k, and if the options are good, leave it. If she doesn't like the options, or fees are high, I would roll the money into an IRA, not TSP. Once the money is in TSP, it is stuck there until she separates or turns 59 1/2. She can't do Roth conversions if she has an unexpected low income year (like having to take a lot of LWOP), or even expected like going part-time.

The only way I would roll it into TSP is if the 401k is awful, and she relies on doing a backdoor Roth. If she doesn't currently need to do a backdoor Roth, the IRA wins, since it can be changed in the future, where moving it to TSP can not (except as mentioned above).

An IRA will give her more flexibility, and potentially even lower fees, than TSP.

8

iheartpizzaberrymuch t1_j24h4t6 wrote

Yea, the management of the TSP when rolling over is terrible to the point that people are still waiting for money to be put into their TSP months later. Also, the reporting from TSP is currently inaccurate.

Unless she has high fees, I'd leave it. I actually haven't moved any of my retirement to the management of TSP because it's so bad and the fees are low and it's actually doing better than my TSP.

1

spinner79 t1_j241fse wrote

Your girlfriend might want to check the fednews Reddit. Congrats

7

Beneficial-Sleep8958 t1_j23tjw1 wrote

It partly depends on the fees in her current 401k. It also depends on what funds are available in her current 401k. The TSP is awesome, but one of the downsides that I’ve found is that there is no total market index fund (VTSAX) or total world market index fund (VTWAX). If your gf has either of those funds in her 401k at very low cost, I’d say keep the 401k. It’s a pain to try to approximate either of those two funds in the TSP since it only has SP500 (C fund), DJ Completion Index (S fund), and International Developed Market (I fund). Making sure that these 3 funds approximate a total market fund is not as simple or hands off as it should be, especially once you start adding bonds into the picture.

That being said, if your gf plans on using target date funds, then I’d rollover into the TSP hands down.

2

gigglesworthy t1_j26uuo6 wrote

The C Fund (S&P 500) is a total market index fund. It's the benchmark, and is what most people use.

Worrying about the difference between a 3000-stock fund vs the S&P 500 is splitting hairs, which is why the latter considered good enough for most things. The expense ratio for the C Fund here is 0.043%, very low, and will be hard to beat. VTSAX that you mention here has an expense ratio of 0.04%, which is effectively the same.

−2

lazyloofah t1_j24bl2w wrote

Fed here. My former employer (state government) told me transferring into TSP can be tricky. Anything with the govt can be tricky. I chose to roll into an IRA. Fidelity made it super easy.

2

Cautious_General_177 t1_j24tuh7 wrote

Also current fed. I transferred money from a previous employer with no issue a couple of years ago. That being said, the current management (changed earlier this year) seems to be an absolute nightmare regarding transfers and withdrawals, so unless TSP is in all ways better than anything else you can find, you’re probably better off leaving your money where it is or moving it to an IRA, at least for the next few months or so

4

warlocktx t1_j26ckbs wrote

She should roll it into an IRA account with Vanguard (or similar) that she controls

2

MountainDrew4zero2 t1_j24tpzi wrote

Roll into a Traditional IRA and buy lost cost ETF’s.

1

Main-Inflation4945 t1_j24k9ec wrote

OP should wait until he gets more information about the TSP which he admits knowing nothing about.

−1

buskingengineer OP t1_j24kfdw wrote

I’m familiar with the TSP as I’m also a federal employee. I’m not at all familiar with the rollover process and the benefits of private sector 401k vs TSP since I have only ever dealt with the TSP.

5

someone298 t1_j244qox wrote

Honestly I don't trust the government with my money and I was a Fed for 26 years. As soon as I retired, I moved it. I would suggest keeping her $ where it is; usually 401k plans with companies have a low fee to manage and can be well managed.

−11

mommycorinneBG t1_j23y5wl wrote

TSP is superior. When I left my government job I kept everything in TSP and over the last 6 years my return has tripled where as my IRA has remained more stable. There's a lot more choices for TSP. YMMV of course

−14

brundylop t1_j23yxon wrote

> There's a lot more choices for TSP.

This cannot be true. The TSP only offers 5 funds (G S C F I) and Target Date Funds. But they are good funds with low expense ratios.

Brokerages like Vanguard offer well over fifty. Fidelity has hundreds.

I also find it super weird that the performance of your TSP and IRAs varied so wildly. It sounds like you invested in very different things

If you invested most of your TSP in the C Fund, and most of your IRA in a SP500 index, they performance should be almost the same, since they track the same SP500 index

15