TSP mutual fund window - federal employees

  • Approaching the 2-year anniversary of the TSP mutual fund window, we review if feds should reconsider “opening” their investment window.

In June of 2022, the Thrift Savings Plan (TSP) opened a “mutual fund window” that expanded the investment options from the 5 main cores funds C, S, I, G, and F (and the lifecycle funds that are comprised of those 5 funds) to around 5000 mutual funds. There are a few caveats, though, making a majority of feds hesitant to invest some of their TSP money into mutual funds within the new window.

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This article reviews the top items that feds should keep in mind when deciding whether or not to participate.

Investment Choices and Diversification

The TSP window contains mutual funds of many varieties. Some examples would be a growth-focused fund investing in US large-cap stocks, an international fund that includes Chinese companies, and a fund that tracks in the Russell 2000. Among numerous other types, the mutual fund window allows investors to target parts of the market that the core funds do not. The C-Fund tracks the S&P 500, which includes US large-cap equities, but the differentiation between growth and value stocks can’t be made like with the mutual fund mentioned above.

This can be great if you’ve got a disciplined and informed investment strategy and know how to properly diversify your investments. However, if you are sporadically selling in and out of various funds chasing returns, this can be disastrous to one’s retirement savings. With more choices comes more room for risk, but also potential for growth.

Fees and Account Restrictions

Before a TSP investor can open their mutual fund window, they need at least $40,000 in their account already. The reason for this is that there is a $10,000 minimum that needs to be transferred into the window before any mutual funds can be selected. On top of that, the maximum a TSP accountholder can have in the mutual fund window is 25% of their total TSP balance.

If those hurdles have been cleared, those who invest in the TSP window still have to be aware of fees, both to trade in and out of a specific fund plus the respective expense ratio of each of the selected mutual funds. Regarding the expense ratios of the 5 main TSP funds, they are typically lower or on par when comparing to similar investment vehicles out there. As for the mutual funds that are accessible via the window, that may not be the case for every fund. There are actively managed mutual funds available in the window and those typically charge more.

Benefits Ben, STWS

Benjamin Derge, ChFEBC℠

Ben, a Chartered Federal Employee Benefits Consultant℠-designated financial planner with an English degree, combines his love of writing with his knowledge of federal employee benefits in service of our clients as a content strategist here at STWS. He posts new content every week on the Benefits Ben blog. Ben specializes in helping federal employees, retirees, and their families optimize their benefits. His expertise encompasses digital marketing, benefits assistance, annuity management, investment management, and ensuring clients receive superior service and reliable advice.

** TSP Mutual Fund Window written by Benjamin Derge, Financial Planner, ChFEBC℠ The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Benjamin Derge and not necessarily those of RJFS or Raymond James. Links are being provided for information purposes only. Expressions of opinion are as of this date and are subject to change without notice. Raymond James is not affiliated with and does not endorse, authorize, or sponsor any of the listed websites or their respective sponsors.

***The Thrift Savings Plan (TSP) is a retirement savings and investment plan for Federal employees and members of the uniformed services, including the Ready Reserve. The TSP is a defined contribution plan, meaning that the retirement income you receive from your TSP account will depend on how much you (and your agency or service, if you're eligible to receive agency or service contributions) put into your account during your working years and the earnings accumulated over that time. The Federal Retirement Thrift Investment Board (FRTIB) administers the TSP.***

TSP mutual fund window - federal employees
TSP Mutual Fund Window - Federal Employees