Submitted by buskingengineer t3_zy538x in personalfinance
Werewolfdad t1_j23skp2 wrote
Generally yes, the TSP is hard to beat and is generally only equaled by the very best plans at the very best employers.
And if she ever leaves federal service, she should keep the TSP since it accepts rollovers from everything, making consolidating very easy
buskingengineer OP t1_j23swe1 wrote
Thanks for the feedback, my assumption was moving into the TSP was the best move. And I don't think she'll be leaving federal service until retirement; she will have much more room for growth at her new job and it's hard to argue with a pension + TSP.
Werewolfdad t1_j23t1n6 wrote
Completely agree. Just wanted to offer an option should something arise, since many people tend to want to leave the TSP and its almost always a super bad idea.
Nagisan t1_j23vvws wrote
> and its almost always a super bad idea
Depends on how they leave it. While it is tough to beat TSP in a company 401k, it's easy to beat in an IRA, and IRAs have so much more flexibility and accessibility.
It's only a bad idea when they want to move into a worse plan, which definitely doesn't describe an IRA at the big brokerage providers.
The only reason I left my traditional balance in TSP is cause my income is close enough to the Roth IRA income limit that I didn't want those dollars going into a traditional IRA in case I need to backdoor Roth in the future. My Roth balance went into my IRA and has lower fees, similar overall returns with better market exposure, doesn't require leaving my employer to withdraw, and is cheaper to withdraw early (contributions can be withdrawn in full tax/penalty free vs pro-rata like TSP and 401k's are).
Werewolfdad t1_j23wbww wrote
> in case I need to backdoor Roth in the future.
Yeah, I think my bias is showing since that is such a more important consideration in this forum than perhaps in the world at large.
The new brokerage link option narrows the issue with broader investment choices.. NeverMind. Super bad.
I agree about the other flexibilities with IRAs
Nagisan t1_j23x5lw wrote
> The new brokerage link option narrows the issue with broader investment choices.
Not really, the fees are absolutely absurd ($145 in annual fees plus $28.75 per trade - which means monthly if you invest new funds into it once per month - and that's on top of any fund specific fees) and you can only invest 25% of your total TSP balance this way.
If anyone is legitimately looking for broader investment choices, they would be better off rolling from TSP into a bad 401k plan than they would be staying in TSP.
Werewolfdad t1_j23y8f7 wrote
Oh damn I hadn’t realized the fees were that awful. Wow. NeverMind on that at all then
gigglesworthy t1_j26x6xq wrote
> While it is tough to beat TSP in a company 401k, it's easy to beat in an IRA, and IRAs have so much more flexibility and accessibility.
This advice doesn't sound right. An IRA doesn't have any special features that allow it to beat a 401k or the TSP.
The main advantage that IRAs have over most 401k's is access to more funds. But most of those other funds are worthless considering that the S&P 500 beats 90% of them over the long term. Add to that the very low expense ratio of 0.043% for the TSP C Fund (market index fund), and it's hard to see how an IRA can 'beat' the TSP. IRAa tend to have higher fees, except for access to some of the 0% funds like FZROX. Large employers that offer 401k/403b plans and the TSP have the negotiation power to demand lower fees for their employees. Individual investors with IRAs don't.
Nagisan t1_j2710mp wrote
There's at least a few IRA options that have lower fees than TSP at every major brokerage. And beat doesn't have to be by a significant amount to beat it. Even slightly lower expense ratios with similar returns "beats" the higher ER option (TSP in this case).
TSP is great as far as employer plans go, but most of the big IRA brokerages have lower ER options available.
gigglesworthy t1_j27aa8w wrote
Sorry I have to disagree here. With expense ratios like 0.04%, you're talking like a $25 difference over a decade. The difference is trivial, and not enough to 'beat' anything. An IRA doesn't provide much benefit here.
When we say that you should seek funds with low expense ratios, we're mostly talking about unscrupulous funds, mostly managed funds, who charge more than, say, 0.25% when they earn less then the market; or the old days where expense ratios like 1% were the norm.
So yeah, an IRA might have funds with a slightly lower expense ratio. But that won't help you to beat the market. The fees for most funds in most IRAs are going to be much higher than 0.04%.
Nagisan t1_j27bk6k wrote
A 0.04% ER (vs 0% FZROX, for example) costs $25 on $62.5k per year...not 'over a decade'.
Yes, it's a small amount, but yes this is one factor that can make an IRA better than TSP.
ER isn't the only thing either...access to early withdrawals can be situational, not recommended, but still easier and cheaper with an IRA than with a 401k / TSP.
Look at it from the other way around, would you recommend someone roll money from an IRA (with good low ER funds) into TSP or a 401k? Why or why not? My point is entirely that there are more reasons to have money in an IRA than there are to have money in a 401k-style plan. TSP is great as far as 401k's go, but it doesn't beat (or match depending on your needs) an IRA so logically you should prefer to move your money to an IRA unless TSP offers something special (which it really doesn't other than maybe the G-fund).
gigglesworthy t1_j2bdexg wrote
My math was admittedly simple but illustrates a point. If I invest $1,000 a year for 10 years and a marginal 6% return, a fee of 0.04% is about $31, that's not enough to make a meaningful difference. Source . It's probably not worth fretting over.
> would you recommend someone roll money from an IRA (with good low ER funds) into TSP or a 401k? Why or why not?
No, because it probably wouldn't make a big difference.
But, it depends on the fees. In my experience, funds in IRAs tend to be higher than those in 401ks, and are usually much higher than 0.04%. That's why I argue that 401ks and the tsp are superior in many cases. Large employers have negotiating power to demand low fees. Individual investors don't get that same luxury. This is of course not universally true.
My only argument here is your statement that IRAs 'easily beat' a 401k. Funds in a 401K will often match or beat an IRA in terms of fees. I have both. I've had to go through this decision multiple times.
Nagisan t1_j2bhd6d wrote
> My only argument here is your statement that IRAs beat a 401k. 401K is often match or beat an IRA in terms of fees.
As someone who has an IRA with public options that are lower fee than even TSP offers, your argument is objectively false.
Viewing a single comment thread. View all comments