The Decision Every Federal Retiree Faces
If you’ve spent a career working for the federal government, your Thrift Savings Plan is probably the largest account you own, bigger than your house in some cases. So the moment you retire, the phone starts ringing: advisors telling you to roll it over, friends telling you to leave it alone, articles telling you both.
The truth is, there isn’t one right answer. There’s a set of tradeoffs worth understanding before you decide, whether that’s a decision you make on your own or with an advisor you trust.
Fees: Where the TSP Genuinely Shines
This is where the TSP has a real edge. The TSP charges an administrative expense of around 0.05% a year, about 50 cents for every $1,000 you have invested. It’s one of the lowest-cost retirement plans in the country, federal or state.
An IRA can look very different depending on where you open it and who manages it. Some IRAs charge low fund expenses similar to the TSP. Others include an advisory fee for ongoing management, financial planning, and tax strategy, typically somewhere between 0.5% and 1.5% a year depending on the size of your account and the services included.
So the fee question isn’t just which option is cheaper. It’s what you’re paying for. If you’re comfortable managing your own withdrawals, rebalancing, and tax planning, the TSP’s low cost is hard to beat. If you’d rather have someone build a coordinated plan around your Social Security, taxes, and spending needs, that added cost may come with services the TSP doesn’t offer.
Investment Options: Simplicity vs. Flexibility
The TSP offers five core funds, the C, S, I, F, and G funds, along with a set of lifecycle funds that blend them together based on your target retirement date. That’s the lineup. While a TSP mutual fund window does exist now, it comes with extra fees and restrictions, so for most people the core lineup remains simple and streamlined. There’s little to no option for individual stocks, sector-specific funds, real estate investment trusts, or niche international funds.
Roll your money into an IRA, and the menu expands to nearly every publicly traded stock, bond, mutual fund, and exchange-traded fund available. You can build a portfolio tailored to your income needs, risk tolerance, and tax situation in ways the TSP’s five funds can’t replicate. The tradeoff is that with more choices comes more decisions.
If you’d rather keep things simple with a hands-off, low-cost approach, the TSP’s limited menu can work in your favor. If you want a portfolio built around your own retirement income plan, an IRA gives you the room to do that.
Creditor Protection: A Factor That’s Easy to Miss
Money inside the TSP is protected by federal law, similar to how a 401(k) is protected. In general, creditors can’t touch it, with few exceptions such as federal tax debts, certain court orders like child support, or a judgment tied to a crime against the government.
Once that money is rolled into an IRA, the protection changes. Federal bankruptcy law protects IRA assets up to a limit that adjusts periodically for inflation. But if you’re facing a lawsuit or creditor claim outside of bankruptcy, protection depends on the laws of the state you live in, and those laws vary quite a bit. Some states protect IRA assets almost as strongly as the TSP does; others offer far less.
If creditor protection matters to your situation, whether because of your profession, a pending legal matter, or simply wanting to know where you stand, it’s worth checking with an attorney familiar with your state’s laws before you decide to roll over.
RMDs, Loans, and Consolidating Other Accounts
Required minimum distributions apply to both traditional TSP accounts and IRAs once you reach the applicable age, currently 73 for most people. But the TSP handles those distributions with a fairly rigid formula, while an IRA gives you more control over exactly how and when to take money out during the year.
The TSP does allow loans against your balance while you’re still a federal employee, though that option goes away once you separate from service. An IRA never allows loans.
And if you have other retirement accounts, an old 401(k) from a prior job, or several IRAs scattered across different institutions, consolidating them alongside your TSP can make it easier to manage withdrawals, track your investments, and plan around taxes each year.
Roth Conversions and the Rule of 55
If you’re interested in Roth conversions, moving a portion of your traditional balance into an account where future growth and withdrawals are tax-free, an IRA typically offers more flexibility in timing and amount. The TSP does not allow in-plan Roth conversions.
On the other hand, federal employees who separate from service during or after the calendar year they turn 55 (50 for special category employees like public safety or law enforcement) can take penalty-free withdrawals from the TSP. If that money is rolled into an IRA before age 59½, that early-withdrawal penalty exception is lost. This is one of the strongest reasons some retirees choose to keep their funds in the TSP.
How to Decide
Start by comparing costs: look at the TSP’s expense ratio against what you’d pay in fund fees, and an advisory fee if you want ongoing management. Think about how involved you want to be. If you like the TSP’s simple five-fund lineup, that might be reason enough to stay. If you want a portfolio built around your specific income needs in retirement, an IRA opens up that flexibility.
Consider your state’s creditor protection laws, especially if that’s a concern for your situation, and take stock of what else you’re managing. If you have other accounts to bring together, rolling into an IRA might simplify how you track your overall retirement income.
There’s No Universal Right Answer
Some retirees are perfectly happy managing the TSP on their own for decades. Others want a coordinated plan that ties their TSP, Social Security, and taxes together. That’s the goal of FSA’s GET Wealth Planning process: bringing those pieces together so your TSP decision fits into a plan for your full retirement picture, not just one account.
If you’re weighing this decision, or you’ve already rolled it over and want a second opinion, we’d be glad to talk it through with you. No pressure, just a conversation about what makes sense for you in retirement.
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