The Thrift Savings Plan (TSP) is a simple and efficient retirement savings option for federal employees, offering five core funds that make investing easy to manage. In contrast, an Individual Retirement Account (IRA) provides a vast array of investment choices, which can feel overwhelming for those accustomed to the TSP’s straightforward structure. Many federal employees struggle to find IRA investments that align with the familiar TSP funds after making the transition. In this article, we’ll explore IRA investments that closely resemble each of the five TSP funds, as well as discuss when it might make sense to move your TSP to an IRA.
TSP Investments Similar to IRA Investments
Some individuals open an IRA not because they want to change their investment approach, but simply to gain more control over their funds. Let’s explore investment options that closely resemble the five core TSP funds (C, S, I, G, and F), so you can maintain a similar strategy while benefiting from the added flexibility. The IRA investment options we’ll explore come from three widely used brokerage firms including Vanguard, Fidelity, and Charles Schwab.
C Fund
The C Fund in the TSP tracks the S&P 500 index which invests in the largest 500 U.S. companies. Similar IRA investments include:
VOO (Vanguard S&P 500 ETF) – 0.030% fee
FXAIX (Fidelity S&P 500 Index Fund) – 0.015% fee
SWPPX (Schwab S&P 500 Index Fund) – 0.020% fee
The C fund’s expense ratio (fee) is 0.036%.
S Fund
The S Fund tracks the Dow Jones U.S. Completion Total Stock Market Index, which includes small- and mid-cap U.S. stocks. Comparable IRA funds are:
VXF (Vanguard Extended Market ETF) – 0.050% fee
FSMAX (Fidelity Extended Market Index Fund) – 0.035% fee
The S fund’s expense ratio (fee) is 0.051%.
I Fund
The I Fund is an international stock fund that replicates the MSCI All Country World Investable Market Index, excluding the United States, China, and Hong Kong. While it’s difficult to find IRA alternatives that are exactly like the I fund, there are a few comparable ones:
FSPSX (Fidelity International Index Fund) – 0.035% fee
SCHF (Schwab International Equity ETF) – 0.060% fee
The I fund’s expense ratio (fee) is 0.038%.
G Fund
The G Fund is unique in that it provides U.S. government-backed securities with no risk of principal loss while earning an interest rate based on long-term Treasury bonds. There is no fund quite like it. However, here are IRA investments that get close to replicating what the G fund does:
VMFXX (Vanguard Federal Money Market Fund) – 0.110% fee
SPAXX (Fidelity Government Money Market Fund) – 0.420% fee
SNVXX (Schwab Government Money Fund) – 0.340% fee
The G fund’s expense ratio (fee) is 0.037%. Please note: the fees for the IRA alternatives are 3-11 times larger than the G fund fee.
F Fund
The F Fund tracks the Bloomberg U.S. Aggregate Bond Index, representing a diversified mix of U.S. government, corporate, and mortgage-backed securities. Comparable IRA options include:
BND (Vanguard Total Bond Market ETF) – 0.030% fee
SCHZ (Schwab U.S. Aggregate Bond ETF) – 0.030% fee
The F fund’s expense ratio (fee) is 0.037%.
Summary
When Does It Make Sense to Move From the TSP to an IRA?
Deciding whether to roll your TSP into an IRA after retirement is a significant financial decision that depends on several factors. While the TSP has advantages such as low fees and simplicity, an IRA offers greater flexibility and a wider range of investment options. Here are some situations where moving your TSP to an IRA may make sense:
More Investment Choices – The TSP offers a limited selection of investment funds (G, F, C, S, and I funds). While these are solid choices, an IRA allows access to thousands of mutual funds, ETFs, and individual stocks, which can provide more tailored investment strategies.
More Withdrawal Flexibility – TSP withdrawals come with certain rules and restrictions, such as proportional withdrawals from all funds. With an IRA, you have greater control over how and when you withdraw money, which can be beneficial for tax planning and managing market risk.
Easier Access to Professional Management – If you want a financial advisor to manage your retirement savings, they typically cannot directly manage TSP funds. Rolling your TSP into an IRA allows you to work with an advisor who can develop a customized strategy for your retirement.
However, moving your TSP to an IRA may not always be the best choice, especially if you plan to retire before 59½. The TSP allows penalty-free withdrawals in retirement starting at age 55 (or 50 for special provisions), while an IRA would impose a 10% penalty on early withdrawals. Additionally, the TSP’s ultra-low fees are hard to beat, so any IRA you consider should have a cost structure that justifies the move.
Ultimately, whether to roll over your TSP into an IRA should be based on your individual retirement goals, investment preferences, and need for flexibility. Consulting with a financial advisor can help determine the best course of action for your specific situation. For more information about the TSP vs IRA, check out this article/video.
Conclusion
While funds like the C, S, and F Funds in the TSP are relatively easy to replicate with similar private investment options, the G and I Funds are less straightforward to duplicate outside of the TSP. Additionally, the fees for IRA alternatives can vary significantly compared to TSP fees—some are lower, while others may be higher.
If you decide that moving your TSP to an IRA is the best option, please do your research on what investments to use. Make sure you understand their fees, how they work and how they’re invested. If you would like to meet with an advisor to discuss your personal situation, feel free to schedule an appointment with us here: https://hawsfederaladvisors.com/get-started-now/
