Ramifications of moving everything out of TSP to Vanguard

[rktect1]

I am in the situation where I do not contribute monthly to TSP. I am sitting on the same pile of tax-deferred money and interest trying to make it a larger pile. But while some years are really great, others fall short. Overall I am probably averaging 7% per year for the last 10-12 years. I really should have just set it in the S fund and left it.

But I am looking at alternative options here to TSP. Who knows what happens to the money if I take it out and move it to Vanguard? I am thinking to obviously put it into another retirement account or IRA/roth , as I am only 48. What are the penalties, if any? What WOULD happen if I took it out of TSP and did not put it into an IRA/roth, etc but just placed it in mutual funds?

Lets pretend this is $100K. I have a full time job and am head of household paying 25% taxes but inching towards 28% What happens to that money?

Any help is appreciated.

 

[evilanne]

I am in the situation where I do not contribute monthly to TSP. I am sitting on the same pile of tax-deferred money and interest trying to make it a larger pile. But while some years are really great, others fall short. Overall I am probably averaging 7% per year for the last 10-12 years. I really should have just set it in the S fund and left it.

But I am looking at alternative options here to TSP. Who knows what happens to the money if I take it out and move it to Vanguard? I am thinking to obviously put it into another retirement account or IRA/roth , as I am only 48. What are the penalties, if any? What WOULD happen if I took it out of TSP and did not put it into an IRA/roth, etc but just placed it in mutual funds?

Lets pretend this is $100K. I have a full time job and am head of household paying 25% taxes but inching towards 28% What happens to that money?

Any help is appreciated.

It is up to you, but if you just take it out to invest (not rolling it over) it will be taxable income + 10% penalty under age 59.5 (about $38K tax, leaving $62K to invest). If you roll it over into IRA, it will basically same as TSP except you have more investment options--just make sure you know what the fees and transaction costs will be with what you want to invest in. If you roll it over into a Roth IRA, you will pay taxes ($25-28K) on the whole amount but the principle & earning will be tax free when you withdraw in retirement. You can roll it over into IRA and gradually roll it over so it isn't as much of a tax impact. If you have an 401(k) where your currently work, it may be possible to roll your TSP over to your current plan if you like their options. If you completely withdraw your funds from TSP, you cannot go backwards. If you want to keep TSP as an option, you can leave a small balance so you can transfer funds back into TSP in the future.

 

[DrDetroit]

If you are not contributing to the TSP do you have another job that has a 401k, 403b or another tax deferred plan? This is the obvious landing spot for the funds you have in the TSP. If not rolling it over to a traditional IRA is your best option, but would you be contributing to that to make "your pile" bigger? You can only put in $5500 a year until you are 50, then $6500 after. I would suggest putting the money in a place you currently make regular contributions, if not I'd probably leave it where it is. Taking the penalty and having to pay taxes is not a decent option IMO.

 

[rktect1]

If you are not contributing to the TSP do you have another job that has a 401k, 403b or another tax deferred plan? This is the obvious landing spot for the funds you have in the TSP. If not rolling it over to a traditional IRA is your best option, but would you be contributing to that to make "your pile" bigger? You can only put in $5500 a year until you are 50, then $6500 after. I would suggest putting the money in a place you currently make regular contributions, if not I'd probably leave it where it is. Taking the penalty and having to pay taxes is not a decent option IMO.

My current job has me an my employer contributing to the IMRF in Illinois. Dont worry, chicago cant get its greedy fingers into this pension pie and it is very well funded. But i cant add any extra money into this. I do have a small vanguard traditional IRA that i started but then stopped adding to it because my standard vanguard account allows me to take money back out without a penalty. I am doing pretty good with my vanguard mutual funds and probably better than my tsp account.

 

[userque]

My current job has me an my employer contributing to the IMRF in Illinois. Dont worry, chicago cant get its greedy fingers into this pension pie and it is very well funded. But i cant add any extra money into this. I do have a small vanguard traditional IRA that i started but then stopped adding to it because my standard vanguard account allows me to take money back out without a penalty. I am doing pretty good with my vanguard mutual funds and probably better than my tsp account.

You should be worried about Illinois, rather than Chicago.

 

[rktect1]

You should be worried about Illinois, rather than Chicago.

It isnt tied into illinois the way those teachers pension funds were. Illinois cant touch this plan and it is almost 100% funded.

 

[DrDetroit]

My current job has me an my employer contributing to the IMRF in Illinois. Dont worry, chicago cant get its greedy fingers into this pension pie and it is very well funded. But i cant add any extra money into this. I do have a small vanguard traditional IRA that i started but then stopped adding to it because my standard vanguard account allows me to take money back out without a penalty. I am doing pretty good with my vanguard mutual funds and probably better than my tsp account.

Well I think you either roll it over to a traditional IRA where you can continue to add money to it over time, or leave it as it is. If you have any chance to return to the federal government then I'd leave it in the TSP, because you won't be able to transfer those funds back in. I appreciate that you want to grow that money but you aren't paying fees in the TSP and you can probably get quite aggressive with it and let it ride with your other income streams. I would think about paying $800-$1k to get a one time, fee only, financial plan done by a fiduciary. They can give you the best advise based on all your variables. Good luck to you.

 

[evilanne]

My current job has me an my employer contributing to the IMRF in Illinois. Dont worry, chicago cant get its greedy fingers into this pension pie and it is very well funded. But i cant add any extra money into this. I do have a small vanguard traditional IRA that i started but then stopped adding to it because my standard vanguard account allows me to take money back out without a penalty. I am doing pretty good with my vanguard mutual funds and probably better than my tsp account.

FYI...IMRF is better funded than most but not fully funded--funding ratio of 87% (Sept 2015) see https://www.illinoispolicy.org/5-things-to-know-about-illinois-unsustainable-municipal-pension-fund/

 

[rktect1]

FYI...IMRF is better funded than most but not fully funded--funding ratio of 87% (Sept 2015) see https://www.illinoispolicy.org/5-things-to-know-about-illinois-unsustainable-municipal-pension-fund/

That was a fun article to read. No bias at all.

as of march 14, 2016. The imrf is 93% funded.