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Is it Time for a Re-look at TSP? Thumbnail

Is it Time for a Re-look at TSP?

Retirement Funding TSP

I'm generally a fan of TSP. One of the things I like about it is the low expense ratios. But, those expense ratios have been creeping up over the last few years and that could be an issue. So let's take a look.

TSP Expense Ratios Compared to Other Low-Cost Options

So how does TSP expense ratios compare to other options? Here is a comparison between TSP and investments I commonly recommend to clients.

Fund Total Expense Ratio Equivalent Investment Expense Ratio
C Fund 0.043% SCHX 0.03%
F Fund 0.046% BIV 0.05%
I Fund 0.049% IEFA 0.07%
S Fund 0.06% VBR 0.07%
G Fund 0.043% No True Equivalent

As you can see, with the exception of the C Fund, TSP has lower expense ratios than the selected alternatives, but the alternatives are pretty close. While I haven't explored every option out there, I do consider expense ratios when I select funds. In other words, there may be funds available that I don't use that have lower expense ratios (expense ratios aren't the only factor I use when selecting funds). You probably won't have low cost options like these available in a 401(k) or 403(b)

If expense ratios are your deciding factor, then TSP wins.

Other TSP Factors to Consider

There are other things to think about, when deciding what to do with your TSP. Here are a few:

  • Creditor Protection. As an employer sponsored plan, funds inside TSP are protected from creditors. Creditor protection is limited in IRAs but normally this isn't an issue for most people as in most states, $1M is protected
  • Diversification. While you can design a adequately diversified portfolio inside TSP. You can more precisely diversify outside TSP.
  • Tax Exempt Balance. If you have a tax exempt balance due to combat zone contributions, you can't transfer those funds to another retirement account (If the other retirement account can account for the tax exempt balance, you can transfer the tax exempt balance. I haven't found one that can).

Military Finances are Different

Just like serving in the military isn't like a civilian job, military finances aren't like civilian finances. We're guessing most advisors out there would have no clue about tax exempt balances inside TSP (as one example). That's why we think you should work with a financial advisor or planner who works with military financial issues each and every day. Give us a call if you'd like to chat.

If you found this article useful, you might like the following blog posts:

Watch Out for this TSP Tax Trap

Retired Military Finances 101: 401(k) plans. A Lot Like TSP, But Not the Same

What Military Officers Need to Know About TSP and Estate Planning

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