TSP vs. traditional IRAs


Q. As a federal employee nearing retirement, I love the TSP! I’ve been a dedicated saver, and my account has done well. But I’m flummoxed by the limited withdrawal options. I’d really like to keep all my savings in the TSP when I retire, but I won’t be able to. I’ll need to take out a large chunk (maybe as much as $200,000 or more) & open an IRA somewhere else, unfortunately at much higher management fees. Because every now & then, I know I’ll need $5,000 or $10,000 — to get the house painted, or buy a car, or a health-care emergency, or an opportunity to take a dream trip, etc. Or what if I want to buy a new house, or move into assisted living? Then I might need $25,000 all at once, or $200,000. The one-time-only big withdrawal is really problematic, if one would rather keep all money in the TSP. Do you have any idea why it’s this way and whether they have any plans to change this in the future?

A. I don’t know of any plans to change the restrictions. It is possible, but some trouble, to devise workarounds, however. Your goal should be to use the withdrawal options available to your advantage. Start by using a partial withdrawal, if necessary, to create a cash reserve. Then initiate monthly distributions to keep that cash reserve adequately replenished. You may change the amount of fixed withdrawals each year to adjust to your needs. As a last resort, you can roll over a final withdrawal to an IRA and work from there, but you should do what you can to avoid this. Use a discount broker for the IRA, and invest the money using low-cost exchange traded index funds and you can come close to duplicating the TSP’s environment (except for the G Fund).


About Author

Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to fedexperts@federaltimes.com and view his blog at money.federaltimes.com.

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