Transfer from a previous IRA

[muttman]

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Hello all, first time post here. I have been in the TSP for 9 years now. I have not really thought much about how to allocate. Ihave beenputting in the max since day onewith a distribution of 5%G, 5%F, 35%C, 20 %S and 35%I. I am not inclined to make daily transfers. I am a let it ride for a while kind of guy.

Prior to Govt. Service, I was self employed. I have an IRA with Merril Lynch ($38K worth) and want to transfer it to the TSP. I found the Form TSP-60 to do this. I am currious, who else has done this or heard of this and what can I expect to encounter during the process?

A little more info about myself, I am 42 years old, will be eligible for retirement as a law enforcement officer in 11 more years. That does not mean I will retire then, but who knows?

 

[Rolo]

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Welcome, muttman!

Good job on starting from day one!

All I can offer to your question is to make sure that they do not withhold taxes during the direct custodial transfer. Some places inapropriately do so. The truth is, you can withdraw from your IRA yourself penalty-free provided that you put it back into a retirement account within sixty days (or is it thirty?). This is so you can change custodians yourself, where direct transfers are not available.

 

[yakers]

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That is the same question I asked recently and there has been no response. Has ANYONE transferred IRA money into your TSP account? I initiated a transfer just when Katrina hit and there has been no progress. My IRA holder (Oppenheimer) wants to confirm with TSP before sending the funds. In the commercial world the new agent coordinates with the old but I see the opposite in the TSP process so I have to ask the holding party to send in the money to TSP and they are unfamiliar with the process.

Now I could do this all myself but I want an agent to agent transfer to avoid tax withholding issues. I am trying to figure out if Katrina has set back the busines process that much or if I need to push the TSP folks or my IRA folks to get things moving.

 

[Birchtree]

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Muttman,

If you have faithly been dollar cost averaging for the last 9 years you have my attention and admiration. What you are actually alluding to is that you bought some tender pricing all the way down from 2000 into the classic triple bottoms in 2002 and 2003 - thats tremendous. And then you bought all the way up into Jan. 2004 and have been dollar cost averaging for the last two years. You certainly most assuredly must be up on the game. You could do just fine by not changing any strategy - except transferring the IRA. I wouldn't do it - leave it in place and select some nice dividend stocks that you can reinvest the dividends for future growth along with capital gains. I would think about taking the tax hit while the money in the IRA is moderate and shifting to a Roth IRA. The Roth is so much more pleasant for you and any potential heirs into the future. Then later on you can start to withdraw from TSP anduse the same traditional IRA account to receive tsp funds - and shift some of those funds into the Roth IRA also - watching the tax brackets is imperative.

I don't know if this is useful or not- I'm feeling bullish and rambling. I can actually hear the thunderous herd of hoofs in the distance.

 

[Sr]

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yakers wrote:

That is the same question I asked recently and there has been no response. Has ANYONE transferred IRA money into your TSP account?

This really is your world view of investment. TSP thinks US market, Old Europe and Japan, US Bond markets and Treasury represent the sum total of the investment universe and in this universe, indexed approach, allocated by PMT, is the best way to invest for retirement. Many believe this is is not so although what it has proposed is not bad at all. Commingling your IRA money with this TSP investment universe is needlessly restricting your options and so a second thought on this worth it, if I were you. The market action lately has been outside the TSP universe and may remain so for quite come time. Afterall US is no longer the center of the World Finance as it used to be when you now have to borrow a billionn $ a day from China and Japan to keep things moving here. One approach is to continue investing in TSP up to the match amount and invest other savings in IRA in asset class not even considered by TSP. To eacxh his own of course.

 

[Rolo]

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yakers wrote:

I initiated a transfer just when Katrina hit and there has been no progress. My IRA holder (Oppenheimer) wants to confirm with TSP before sending the funds.

NoooOOOOOO!!! Why do you want to castrate your Oppenheimer with TSP? I took over my wife's Oppenheimer Roth, got a web login, booted the schmuck running it, and it has been doing very well. The have a decent selection of funds.

My 1-year returns as of today: TSP, 15.66%; Oppenheimer IRA, 29.66%.

yakers wrote:

Now I could do this all myself but I want an agent to agent transfer to avoid tax withholding issues.

By IRS tax law, you can withdraw your entire IRA without withholding for the purposes of custodial transfer. You then have 60 days to get your money back into an IRA. If you have the chutzpah, you could try some day-trading for those 60 days.

 

[yakers]

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Well, I appreciate the comments here. One principle I like in investing is the general idea of diversification. For me that means a paid off house, my CSRS pension, TSP, my Trad IRA, Roth IRA some ibonds and a few stocks. Some before and some after tax. Because you never know exactly how things will go. So there is a good reason to keep the IRA separate as it does give me investment choices. Since the 1980s I have had my major trad IRA in an Oppenheimer capital appreciation fund (OPTFX). Today I would not buy this fund but I got it when I knew NOTHING about investing and based on that it has done OK, the load has long been paid, it had some good years around 1999 (beating the S&P500 at that time) and has now morphed into a closet index fund as its profile is the same as the S&P500. So why not just own the index, have lower fees and less risk?
Sr, I agree that the US market will lose some of its dominance in the future. I have one small IRA in an international fund (ANWPX) and I thought of moving this to the TSP as well as my larger Oppenheimer fund. I expected to put more into the TSP I fund to keep at least 20% of my TSP allocation to I. I can look around Oppenheimer for other funds, maybe international (after all the load has been paid already) but for fund expenses. I don't know how much international to own but 20% seems like a minimum to me. The US market is 50% of the world market so even up to 50% is not unreasonable.

After diversification my next principle is low cost. Any active fund will have more costs than a passive fund and an indexed fund has less risk than a managed fund. As much as I love Vanguard for its low costs the TSP costs are even less.
My third principle is to favor passive/index investing over actively managed funds. This makes me a fan of the TSP. I do understand that for international and small cap stocks managed funds may outperform index funds so I might look for some non index funds in these areas.
The last issues or principles I look at are tax considerations and risk. While some well performing stocks and funds can be identified it is a lot more difficult to do so if you consider return on a risk adjusted basis. I had a bother in law who once mortaged his house to buy options contracts. He was lucky to break even. I would have had ulcers with that much risk. As to taxes I just try to keep bond funds (the little I have) in a tax free account like my Roth.
Rolo, thanks for the info about a transfer to me which I have to complete to the TSP in 60 days. I may have to go this route and getting my IRA fund to sync with the TSP people isn’t working. I would be interested to know what Oppenheimer fund you are referring to with that nice return. How long have you held it and intend to hold it? What are the associated loads & expense ratios?

 

[rokid]

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Yakers,

I like your strategy!

However, since you have money outside of TSP you might consider an emerging markets (EM) index fund. EM's don't correlate with either U.S. or EAFE stocks. Therefore, they're a nice diversifier. They're about 7% of the world stock market. Another nice diversifier is a REITS index fund. Again,REITS don't correlate with U.S. stock funds and they have a nice return - mostly dividends.