financial forum

TSP Base Camp

If you choose to use a “base camp” approach to manage your Thrift Savings Plan (TSP), key factors will help you narrow your options.

By Lt. Col. Shane Ostrom, USAF (Ret), CFP®

In June, we discussed your four Thrift Savings Plan (TSP) options and the idea of picking a “base camp.” The three base camp options are 1) keep your TSP, 2) transfer it to your individual retirement account (IRA), or 3) transfer it to your new employer’s retirement plan. How do you narrow these options? Consider the following factors.

Costs: Costs whittle away at your returns. Though your annual costs might not seem like much, over decades, even tenths of a percent can decrease your results significantly.

For costs, nothing comes close to the TSP; it’s practically free (less than 0.04 percent annually).

The right IRA could have low-cost funds (less than 1 percent annually). Consider any management fees your IRA company charges on top of your funds’ annual expenses. An online do-it-yourself IRA account can have low-cost funds and no company management fees.

Your 401(k) fund expenses are what they are. Review your new fund expenses before deciding to transfer retirement assets into your 401(k) account.

Familiarity and simplicity: You’re familiar with the six TSP fund choices, and you don’t have to do anything to keep your TSP. Your 401(k) will have numerous new choices to learn. You’ll be starting your 401(k) at your new employer anyway, so using your 401(k) as a base camp could be a natural follow-on.

You know your IRA. Is it simple? Maybe, maybe not. You might need to consider a change to lower costs or to get more fund choices. The more choices you have available, the more time might be required.

Investment choices: Your TSP has six fund choices. Your 401(k) is limited to what your employer offers. An IRA can be limited based on your provider or offer unlimited choices, if that’s what you want. What level of choice do you want? Who will offer assistance should you want it?

Access: How easy is it for you to manage your funds (monitor the account, make changes, complete required paperwork, or contact a service representative)?

Investment strategy: One of the most practical investment strategies for working people investing to build wealth is known as “averaging down,” also called dollar cost averaging. This strategy is based on the practice of contributing to your retirement account in regular, disciplined amounts every pay period. It is the best way to accumulate shares in your funds, which leads to wealth over time.

Without averaging down, you need to rely on a proper allocation to do the heavy lifting in your wealth-building strategy.
MO

— Lt. Col. Shane Ostrom, USAF (Ret), is a CFP® and benefits information expert at MOAA. To speak with a financial planner, contact USAA at (877) 913-6622 or www.usaa.com/moaa. Visit www.moaa.org/financialcenter for other resources. Email specific benefit and finance inquiries to beninfo@moaa.org.

Additional Resource
For more details on wealth-building strategies, MOAA Premium and Life members can download a free copy of The MOAA Investors’ Manual at www.moaa.org/infoexchange.