Q. I am a retired CSRS employee, age 62. I am considering converting my Thrift Savings Plan balance of about $205,000 to an IRA with Fidelity. What are the advantages and disadvantages of making this conversion? What considerations should I look at?
A. The disadvantages include higher costs, greater complexity and the loss of access to the G Fund. The advantage might be more flexible withdrawal options. I recommend against this move unless, for some reason, you have no choice.
The answer does not mention, among many other things, that you can convert the TSP to a Roth IRA, which may have huge benefits at your age. Obviously, you would have a huge tax bill if you converted all of your TSP to a Roth IRA at the same time. However, you can convert all of your TSP to a traditional IRA at Vanguard, Fidelity, etc., and then decide what portion of it you want to convert to a Roth IRA. There are many benefits to having at least part of your retirement portfolio in a Roth IRA. Unfortunately, you cannot make periodic conversions from the TSP to a Roth IRA, as you are limited to just one partial payment from the TSP. By the way, the answer suggests that cashing out your TSP loses access to the G fund. Are you kidding me? The G fund is a pathetic investment at any age.
I am also 62 and CSRS. After having done much research on this matter, I have decided to convert my entire TSP (about $210,000) to a traditional IRA at Vanguard (then transfer some to a Roth IRA). The costs are not much higher and the returns are much better. Most importantly, you can take your money out any time you want with no restrictions. The G Fund is a non-issue.
The TSP is a great savings plan while employed, but not after retirement.