The TSP Mutual Fund Window opened up to participants on June 1st – here’s everything you need to know.
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In 2009, a law was passed that gave the Federal Retirement Thrift Investment Board (FTRIB) a pathway to creating a “mutual fund window,” which is commonly called a “self-directed brokerage account” in comparable 401(k) plans in the private sector. The TSP’s governing body then officially committed to adding such a self-directed account to the government’s retirement plan in 2015. After around seven years, the additional investment options are at last available to TSP investors – but it is important to know the restrictions, costs, and investment options.
Rules and Restrictions
A minimum TSP balance of $40,000 is required to gain access to the new window. Because the maximum amount allowed to be moved to the window is 25% of your TSP balance, and there’s a minimum initial transfer amount of $10,000, those with a TSP balance less than $40,000 are not allowed to access the new options. Should your TSP grow to the needed $40k, then you’re good to go. To move money into the window, it has to come from the G-fund and you’ll be limited to 2 transfers between the TSP core funds and the window, per month. Read more here.
However, if you’re able to access the new investment choices, it’s smart to review the costs before initiating the move. You will be allowed unlimited trades within the mutual funds available via the window, but there’s a $28.75 fee per trade so that expense will add up quickly if you trade too much. The window also entails two separate annual fees – one at $95 and the other at $55 – and these could increase in the future. On top of that, each mutual fund you choose to invest in comes with its own expense ratio, which is typically less than 1% of the invested amount. Read more here.
More Options - Know the Risks
Unlike the TSP’s core funds (G,F, C, S, and I), the mutual funds in the window are not vetted by the FTRIB to ensure the fund managers are practicing prudent investment practices. While they are evaluated to make sure the mutual fund options are individually compliant, there is no fiduciary responsibility when it comes to the mutual funds. There are a wide variety of choices available in the window, including ESG funds and funds with diverse fund managers, but it is important to remember to review your choices carefully before investing. And also, with more choice comes more room for error. We’ll have a future article on the options available in the window, including tips on how to evaluate and select the best mutual funds for your financial situation.
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Until Next Time,
**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.