One of the complaints I hear about TSP is the limited amount of investment options. Not sure I agree with that opinion, but it is out there. Well, a few years ago (2009) the Congress authorized TSP to offer other mutual funds to participants through a Mutual Fund Window. A short 13 years later the proposed rules covering the Mutual Fund Window were published in the Federal Register for comment (you have until 28 Mar to comment, if you so desire). The basics you need to understand is that when the rule goes into effect (maybe this summer), you'll be able to invest in up to thousands of different mutual funds. What to make of it?
If TSP is your only investment account, you'll be able to more precisely allocate your portfolio using the Window. Want to invest in a Real Estate Investment Trust (REIT)? Knock yourself out. The Window will allow you to put your money where your mouth is. Green investing your thing? Select funds that support what you want to support.
Getting money into and out of the Window will be a little less than seamless. Here are some of the issues:
- Your initial investment needs to be at least $10,000 and can't exceed 25% of your balance. That means you'll need $40,000 in the account before you can participate, Skippy.
- Follow-on contributions can't push the Window balance to more than 25% of your overall balance.
- You're limited to 2 inter-fund transfers in a month (this isn't new). It is unclear whether funds inside the Window count towards the limit, but you'll only be able to transfer into or out of the Window twice per month.
- If you are required to take a distribution from TSP (think RMDs) and the balance in the legacy TSP funds are less than required distributions, funds will be taken from the mutual fund with the highest balance (you might not want this).
I'm a hawk on expenses and if you are too, the Window may not be where you want to go. There are a lot of fees.
- $55 per year to guarantee the Window doesn't increase the share of TSP administrative expenses paid by those who don't use the Window
- $95 annual maintenance fee
- $28.75 per trade cost (regardless of size of trade)
- Mutual fund expense ratios.
Let me add that up for you. $150 per year just to have the account. Plus $115 per year just to make 4 trades. Plus, fund fees (.007% to 1.0% depending on fund). Wow...
What to Make of It?
If you have other investment accounts, I'd do my asset allocation into other asset classes in those accounts and stick with the legacy funds in TSP. If TSP is your only investment account, then the Window may be an option, but it certainly isn't a requirement. Make sure you keep an eye on expenses too.
Military Finances are Different
There are a lot of financial advisors out there that don't even know what TSP is. They have no idea about the intricacies involved in military and veteran finances. That is why we think you should work with a financial planner that deals with military financial issues each and every day. If you'd like to find out how we work with active and retired Senior Military Officers and NCOs, give us a call or use the button below to schedule a free initial consultation.
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