How to add TSP to the FI tool
Hello! How are you all adding TSP funds into the Financial Independence tool which allows you to run scenarios? I currently have a military pension plus TSP plus private sector 401k. There doesn’t seem to be an option to add a second 401k, which I would have thought would be the right way to input the TSP. I love TSP’s low fees so am not rolling the funds out until I retire.
Jonathan Mendonsa I am loving this app so far. Just listened to the latest podcast last night and found it. ⭐️ Is TSP on the horizon to be added to the tool or is there a recommended work around? I have Roth TSP and traditional TSP funds so adding the numbers onto my 401k and Roth 401k is a bit of a drag. I like the buckets separate. Also looking for a way to add a future lump sum (sale of a property) into the mix. Thanks!
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As @Roberto wrote, sheryldeer, in the early 2000s the TSP was one of the world's largest collection of funds with the world's lowest expense ratios, but since then they've piled on a bunch of features that tend to drive up the expense ratios-- especially when those fixed expenses are spread across a smaller civil-service workforce and a smaller military. Today there's a bunch of ETFs with lower expense ratios.
The TSP is a great way to execute a backdoor Roth IRA contribution. However once you stop your earned income (or at least get below the Roth IRA income contribution limits) then you have far better options than the TSP.
And yes the TSP is actively hostile to beneficiaries-- if your beneficiary designations are even still on file after the TSP's "upgrade" of 2022.
Military Financial Independence | Reasons To Keep Your TSP Account (or NOT)
I would appreciate it if someone has an answer to the question I asked about the tool on the app. Not looking for investment advice. Thanks!
if your beneficiary designations are even still on file after the TSP's "upgrade" of 2022
Oh man, I had forgotten all about that. Yes, let's "upgrade" and screw everything up in the process. To say nothing of how immensely painful they made it to get access to any pre-2022 historical information about your account. If you weren't the kind of person who religiously hoards every piece of correspondence you ever received, then good luck.
This common wisdom has been outdated for a while now. Twenty years ago, yeah, hands down leave it in the TSP because everybody else fees that were 10x or even 20x the TSP. Today, it's not so cut and dry.
Here are the expense rations among the big providers and the TSP for comparison. These are all for the S&P500 mutual funds (or C fund in the case of TSP, which is tracking the S&P500):
TSP is close to being the most expensive option. So, if your only reason for sticking with the TSP is the low costs, you might want to re-evaluate that. I'm not saying to definitely ditch the TSP, but rather to consider that they are no longer cost competitive. For example, if your private sector 401(k) has Vanguard, Schwab, or Fidelity funds available (and they aren't charging some weird account fee), then it might make sense to consolidate the TSP into the 401(k) or into a Traditional IRA that you already have so that you have one less account to manage.
The other reason to consider rolling out of the TSP is that if your heirs are not themselves eligible to be TSP participants (i.e., because they are current or former military or US federal government employees), then the inheritance process is rather unfriendly. Heirs who are not eligible TSP participants in their own right will have 90 days from your decease to find a new home for the funds. Depending on your particular situation, you might not want to put your heirs in the position of having to go through the process of grieving you and also figuring out a somewhat major financial life decision.
I didn’t realize this about the 90 days thank you!
Thanks Roberto, this is super helpful! I'd like to validate my opinion on the TSP. I don't know if it's right and would love feedback.
I always saw the TSP as a life-long 401k that I could push money to instead of IRAs. I participate in company 401ks, but when I change companies I get into weird situations. If the balance is below X, I have to withdraw it from the company's 401k. If the balance is above X, I can keep it in, but may pay every year. Also, there's the burden of having many accounts at many brokerages.
So, I have been moving my 401k balances over to the TSP when I leave a job. This enables me to have $0 in IRAs, which makes backdoor Roth conversions easier if I'm fortunate enough to qualify for them.
I'm curious, does this use of the TSP make sense? Could I do the same thing with a place like Fidelity if I have an employer who uses Fidelity for my 401k?
Your use case makes sense to me. At the same time, you could definitely roll everything from the TSP into a Fidelity 401(k). And even if you don't have access to a 401(k), whether through a traditional employer or via self-employment in a solo 401(k), you can easily accomplish the same thing by rolling over into a Traditional IRA (and/or Roth IRA, depending on how your TSP is currently allocated).
In my case I decided to roll the TSP into an account at Schwab. I did this precisely because I wasn't super interested in trying to push everything into the TSP, plus there are the aforementioned friction points for inheritance. Plus, Schwab's fees on the equivalent funds are much lower.
Don't get me wrong, if your heirs already have an appropriate account somewhere else even outside of the TSP (e.g., 401(k) or Traditional and/or Roth IRA), in the even of your passing, they could simply roll the funds over. However, I didn't particularly like the very short 90 day timeline (depending on the circumstances surrounding someone's death, it could take well over 90 days to sort everything out) and I thought it would be better for my potential heirs if I structured things in a way that was easier/simpler for them to manage. That is, inheriting a regular old 401(k) or IRA is very straightforward and well understood. There are a few additional little bumps in the road with the TSP.
Thanks Roberto, I need to check out those beneficiary rules.