Should you roll your account over or keep it where it is?
A few of our besties had questions about rolling over retirement accounts. Specifically, "TSP"s which for those who don’t know are Thrift Savings Plans. You usually can contribute to a TSP as part of your benefits when you work for the federal government, so most full-time and part-time government employees and military service members have access to a TSP.
Storytime: Learning things the hard way so you don't have to.
I had a TSP when I worked for the Army many moons ago and I will tell you learned a very expensive lesson when I left that job and didn’t have my TSP funds rolled over into another retirement account. At that point I hadn’t contributed enough for them to keep the account open when I left so they sent me a check. I was fresh out of college and didn’t know better. That decision, or lack thereof, not to roll over the money cost me a pretty penny in more ways than one. But, again, that is why we are talking about it today bestie, to save you the headache.
Let's Get Specific: Retirement Plan Type
Just like a 401(k), 403(b), or an IRA, a TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much money you put into your account during your working years and the earnings these funds accumulate over time.
If you’re eligible, the federal agency you work for may contribute to your account much like many private employers do for their employees (think, company match).
Rolling over a 401k can provide several benefits for individuals seeking to manage their retirement savings. One of the main benefits is increased flexibility. When you leave your job, you have the option to roll over your 401k or TSP into an IRA or another employer-sponsored retirement plan. This allows you to take control of your retirement savings and invest in a wider range of investment options. It also means it’s harder to forget about the account. However, one very important thing to look out for before transferring is the FEES.
Beware of High Investment Fees:
Usually, you can save on fees if you merge accounts because many retirement plans charge administrative fees, which can eat into your retirement savings over time. By rolling over your 401k, you may be able to reduce or eliminate these fees, which can help you maximize your retirement savings. This isn’t always the case especially if you go to work for smaller businesses. I’ve seen some employer-provided plans with 1% administrative / investment expense fees.
A one percent (1%) fee, or anywhere close to it is outrageous!
The TSP simplifies trying to figure out if you can save on cost because there are only a few funds you can invest in and they tell you all the expense ratios which you can then compare to your next plan option. They make things easy.
Be sure to check the TSP website for the most accurate and up-to-date numbers but here is an example of some of the past TSP fees.
If you are thinking about transferring your account to a traditional IRA I would advise you to speak to your investment advisor, financial advisor, or fiduciary advisor to make sure you don’t get too overwhelmed by the endless amount of freedom you will have to invest. If you don't discuss this decision with them, Your Wealth Besfriend®️ recommends researching ETFs and low-cost index funds. They are a great way to simplify the investing process.
Simplicity is Key:
Rolling over your 401k can simplify your retirement planning. By consolidating your retirement accounts, you can more easily track your investments and adjust your retirement strategy as needed. This can help you stay on track to meet your retirement goals and enjoy a comfortable retirement. The number one reason most of my clients roll over to a new account from their TSP is to have greater access to more investment options.
Do What Works For You, and Protect it:
Bestie, if you do decide to leave your retirement accounts in a former employer's plan just make sure you have set your beneficiary designations so that if you are unable to use the funds they will go to those you have designated. Do the same with any new retirement accounts you open. Please and thank you!
If you find any of this overwhelming, don’t feel bad, schedule a one-on-one appointment, and let’s talk about it.
Until next time! ✨Keep Living Your Healthy Wealthy Life,✨
Your Wealth Bestfriend®️
Jala Eaton known as Your Wealth Bestfriend® is a seasoned personal finance writer as well as an Attorney and award-winning Certified Trust & Fiduciary Advisor (CTFA). When she is not running her businesses, teaching, or writing she enjoys dance parties in the kitchen with her child. Her work has appeared on, Business Insider, Experian, Real Simple, The Skimm, Yahoo News, and others.
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