There are a lot of considerations and questions to think about for federal employees approaching retirement. One of the most consistent questions is if one should move their retirement savings to an IRA or leave them in the TSP.
It is a question that often causes confusion seeing as there are a lot of different opinions and information out there. Seeing as a majority of the people are interested in the cost. We will differentiate the two with just putting all the focus on cost.
When deciding on what to do with your TSP in retirement, it all boils down to three major areas that will need prioritizing which are: options in investment, access to your money or rather liquidity and underlying investments and any associated expenses. When it comes to TSP to IRA comparison on expenses, the major problem is the inaccuracy in most of the information found on the internet.
There’s an assumption that IRA will have investment expenses that are on the higher side or that a professional will need to be hired to manage it. Considering for TSP all this additional professional advice and options on investment are not being offered it wouldn’t be a fair comparison. But also hiring a professional to advise on investment and investments that are high in expense are not mandatory in the IRA setting — making it almost fair ground.
Many exchange-traded funds and low-cost mutual funds, in a similar manner, that TSP funds do, track performance of broad indexes. SPDR portfolio large-cap ETF and SPDR Portfolio Total Market (SPTM) stock market ETF is one example. They both have a .03% expense ratio as TSP has .033% expense ratio as of 2017. There are no additional costs, annual maintenance fees, or trading costs in TSP; everything is inclusive in the .033%. Interfund transfers are unfortunately limited in the TSP.
Trading costs and maintenance fees are different in every financial institution when it comes to IRAs. To help better manage financial goals and investments many people rely on a financial adviser or investment professional for guidance.
If you are a do-it-yourself kind of person when it comes to matters investment, close your ears on all the hype surrounding high IRA fees.