Posted on Jan 8, 2024
Has anyone cashed out their TSP? Is it worth doing?
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Responses: 4
You're asking a question that amounts to "what's the best color". Personally, I just left it in place.
My opinion is that it's no better or worse than many out there*, as it really depends on your investment approach (Are you conservative? How much risk tolerance do you have? etc.).
Where it does 'shine' relative to other investment vehicles is that the fees for TSP are almost 1/10th of the average for the other plans*.
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* https://www.tsp.gov/fund-performance/
* https://www.investopedia.com/terms/t/thrift_savings_plan.asp
My opinion is that it's no better or worse than many out there*, as it really depends on your investment approach (Are you conservative? How much risk tolerance do you have? etc.).
Where it does 'shine' relative to other investment vehicles is that the fees for TSP are almost 1/10th of the average for the other plans*.
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* https://www.tsp.gov/fund-performance/
* https://www.investopedia.com/terms/t/thrift_savings_plan.asp
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Maj Bruce Miller
By 'cash out', I assume you mean making a full withdrawal.
It depends on the amount, but generally, the TSP, along with all other employer-sponsored retirement plans and IRAs are there to provide the supplemental income you will require when you retire. It is not intended to be a cash holding to consume at some point pre-retirement. To discourage this early withdrawal, the IRS assesses a 10% penalty on the withdrawn amount if not yet age 59.5 and the full amount will be reported as income such that you'll lose part of it to state (if applicable) and Federal tax. Now, there are some exceptions to the 10% early withdrawal penalty that have to do with things like an unforeseen hardship, medical expenses, legal expenses and the like, but none for a simple elective withdrawal. So unless there is some dire need, I strongly suggest you invest the balance of the TSP in an S&P 500 index ETF (razor thin expenses) (I assume one is available as an investment option in the TSP) and ignore it until you start Social Security. You'll be glad you did.
It depends on the amount, but generally, the TSP, along with all other employer-sponsored retirement plans and IRAs are there to provide the supplemental income you will require when you retire. It is not intended to be a cash holding to consume at some point pre-retirement. To discourage this early withdrawal, the IRS assesses a 10% penalty on the withdrawn amount if not yet age 59.5 and the full amount will be reported as income such that you'll lose part of it to state (if applicable) and Federal tax. Now, there are some exceptions to the 10% early withdrawal penalty that have to do with things like an unforeseen hardship, medical expenses, legal expenses and the like, but none for a simple elective withdrawal. So unless there is some dire need, I strongly suggest you invest the balance of the TSP in an S&P 500 index ETF (razor thin expenses) (I assume one is available as an investment option in the TSP) and ignore it until you start Social Security. You'll be glad you did.
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It's of better service to transfer it to commercial sector at age 59.5. For the same risks, you can reliably pull in 2% more. Why? TSP has a rather small mix and match options. Commercial has thousands. A financial advisor can manage the assets to optimize returns and otherwise establish a reliable cash flow to you. Everyone hits a point of either not wanting to work anymore or unable to work anymore. Typical retirement plans don't cover everything so you have to have multiple streams. TSP, 401, etc. are just part of the picture.
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Is free money over time worth banking on? Yes, yes it is.
It's a solid retirement option; it's competitive in the market. The fee we are charged to have the TSP programm and its employees handle our accounts is also on the lower end of comparable plans in the civilian sector. Also, the 5% matching is great and can be counted on.
If you don't take my word for it, take it from the full-time Chicago stock-broker and part-time Army Finance officer who instructed my class during our last year of ROTC. He gave everyone in the BN a rundown on TSP and made a point to say that if we are not contributing our max ammount to the TSP every year as active duty officers then we're idiots.
It's a solid retirement option; it's competitive in the market. The fee we are charged to have the TSP programm and its employees handle our accounts is also on the lower end of comparable plans in the civilian sector. Also, the 5% matching is great and can be counted on.
If you don't take my word for it, take it from the full-time Chicago stock-broker and part-time Army Finance officer who instructed my class during our last year of ROTC. He gave everyone in the BN a rundown on TSP and made a point to say that if we are not contributing our max ammount to the TSP every year as active duty officers then we're idiots.
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Suspended Profile
TSP contributions are not taxed going in but you will be paying that income tax on any TSP withdrawals you make. You will report those withdrawals (or your 'cashed out' TSP) as income on your federal and state tax filings, hence your tax bracket could easily change for that year. So, pay attention to any changes in the income thresholds that inform the federal tax brackets. The thresholds change in 2024 (for the better) and will likely change again in 2026 (for the worse). I began in 2023 to move a portion of my TSP into my ROTH IRA, paying the income tax now so the funds can grow tax-free and take advantage of the market lows before it rebounds from this 'rolling recession' we've been in.
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