TSP Interfund Transfers and Contribution Allocations
Considering withdrawing your TSP account after leaving federal service? For a good number of federal employees, this is the choice they make.
For others, as they leave federal service they may choose to conduct a TSP Interfund transfer, opting for a more conservative approach as they enter retirement. One big reason for this is because contributions for those enrolled before September 5, 2015 go to the G Fund by default. This means your contributions and earnings are invested into government treasuries, which are considered relatively safe and stable compared to the stock indices the other TSP funds are invested into.
But it also means that the TSP share price increase you need for your investments to grow faster could potentially be lower than you might want it to be. To give federal employees more of an opportunity to secure higher returns from their investments, the Federal Retirement Thrift Investment Board (FRTIB), which oversees the Thrift Savings Plan (TSP), changed the default investment to the Life Cycle (L) Fund targeted most closely to the year you turn 62. This is only applicable to those enrolled on or after September 5, 2015.
You are not required to perform a TSP withdrawal upon leaving federal service. Former federal employees can instead make TSP Interfund Transfers (ITFs) and TSP allocation changes. Although this is an option, is does not account for a federal employee’s desire to pursue TSP alternatives or to receive TSP advice as they look to increase their potential retirement income.
Why Choose TSP Interfund Transfers and TSP Allocations Instead of a TSP Withdrawal?
Ideally, you should consider avoiding any withdrawals from your qualified account until you at least 59 1/2 years old, or if you are 55 and retired as a TSP early withdrawal penalty can reduce the amount you will receive. The Thrift Savings Plan is also one of the lowest cost qualified plans available and therefore any withdrawal should be scrutinized. A challenge presents itself in the sense that lower costs do not necessarily result in higher performance or in safer investments. As in the case of the TSP G-Fund, your investments can have a very low-cost structure, but the performance of the TSP G fund can be less than what some federal employees desire. The movement of money using ITFs can also present a challenge for those employees who are less financially savvy, or for those who do not desire to ‘watch the market’ constantly. But if you are inclined to manage your own money, or if you’re satisfied with the G-Fund returns, then your ability to leave your money in the TSP remains intact after you retire from federal service.
You can do this online by using your TSP login or by calling the Thriftline. It’s usually processed on the same day if you make your request before 12 noon (EST).
Note that requesting an IFT shouldn’t affect how your future contributions are invested. To do that, you would need to make a Contribution Allocation, which can also be done at any time through your TSP login, or by calling the Thriftline.