Thrift savings plans, known as TSPs, are tax-sheltered retirement plans offered to federal government employees. If you have money in another qualified retirement plan, such as a 401(k) or traditional individual retirement account, you can move the money to a TSP as long as you have one that’s already open and the distributions from your other accounts are eligible for rollover.
Moving your money into a TSP allows you to consolidate all of your retirement savings into one place, which makes managing your nest egg easier. For example, you don’t have to worry about tracking multiple statements each year to see how your investments are doing because all of your money is in one retirement plan. You can divvy up your investments within the TSP so that you still maintain a diversified portfolio.
With retirement money in one place, it’s easier to rebalance your investments as you get older and your investment strategy changes. If you have all of your money in a TSP, you can easily figure how much you want in each investment category. If you have your nest egg scattered across several different retirement accounts, you have to do more calculations and make more changes when you want to rebalance your retirement savings.
Minimal Administrative Expenses
TSPs offer minimal administrative fees, which means that more of the money that you put in, and of the investment returns that money generates, remains in your account rather than going toward administrative expenses. For example, if your 401(k) plan is charging 2 percent a year and your TSP will only charge 0.5 percent, that’s an extra $150 in your pocket per $10,000 invested every year. Fees vary depending on your investments, so you must compare the fees to determine whether or not you’ll save money by moving to a TSP.
If you have your money in an IRA, you’re not permitted to take a loan from the account, and the 401(k) and 403(b) plans of some employers don’t allow loans. If the money is moved to a TSP, you can take a loan from your retirement nest egg if necessary.
Continued Tax-Sheltered Growth
Like other qualified retirement plans, such as 401(k)s and traditional individual retirement accounts, TSP accounts offer tax-sheltered growth to any money you move to the account. This means that the money in your TSP continues to grow without being taxed as long as you leave it there. For example, if you made $2,000 in interest, instead of paying income taxes on that and only having a smaller amount to reinvest, you have the entire $2,000 available for you to reinvest and increase your earnings for the following year.
Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."