Retirement savings plans can sound like alphabet soup and with each PCS, I gained a new job and a new retirement savings plans; with another jumble of letters and numbers. When I worked in the corporate world, I had had a 401(k) plan. When I was a civil servant for the federal government, I had a TSP. Currently, I am working in higher education and I save for retirement with a 403(b) and a 457. On my own, I’ve also invested in a both a Traditional and ROTH IRA. I told you, alphabet soup, right?
Welcome to Military Life
Bright eyed and bushy-tailed, I marry my servicemember and his PCS orders whisked me away to happily ever after in Seoul, South Korea. Next, I promptly lost my corporate job. Now, I’m a civil servant in the federal government with a TSP. I finally decide that I needed to rollover my 401(k) into my traditional IRA. Back then, I didn’t even realize I could have just as easily rolled my 401(k) directly into my TSP, but that’s a discussion for another time.
So now, I have a TSP and a traditional IRA and I’m a newlywed. My husband and I file our taxes as “married filing jointly” and now our AGI is in the range where we can’t take the full traditional IRA deductions, so the ROTH IRA is looking a little more interesting to me. I don’t roll over my 401(k) or traditional IRA to my ROTH IRA, well because, I can’t afford to pay the taxes on it.
I collect retirement plans
Are you still with me? This is getting confusing. So now, I have a traditional TSP, a ROTH IRA, and a traditional IRA, but no 401(k) because I’ve rolled it over to my traditional IRA. Five years after I first opened my TSP, we’ve PCS’ed again, and I’ve just accepted a position working in higher education where I now contribute to a 403(b) and a 457.
I faithfully contribute a percentage of my paycheck to my 403(b) and 457 every 2 weeks and on a monthly basis, and I’m also making a small transfer from my checking account to my ROTH IRA to fund that as well. While my ROTH IRA is in an account where I can only buy into funds and not individual stocks, my traditional IRA is in an account where it’s a mix of stocks and index funds and for me, that’s more fun to look at and I check it almost every day.
My 403(b) is growing slow but steady and I’m pleased with the amount I’ve amassed with my IRAs, when I get a postcard in the mail at my new home. The postcard is from my friends at the Thrift Savings Plan and they tell me they’ve been trying to track me down, as it seems they don’t have a good address for me anymore. They’re correct. Since I quit working for the federal government, we’ve actually PCS’ed three times.
My life has been busy. I totally forgot about my TSP account due to three moves, a new baby, and a new job. I tracked down my account login information and find out that I have $50k in my TSP that I had totally forgotten about. Lucky for me, I had my money in funds that grew with the gains from the good years the stock market had enjoyed and I hadn’t lost any money from neglecting my account for three years.
Even after listening to my hot mess of a retirement savings plan story, military spouses should never be afraid to invest in their employer’s retirement savings plans even if they know they will move, change jobs, and change plans. Every little bit you can contribute will eventually add up. Even my measly three years as a GS civilian translated to $50k in my TSP.
So as military spouse and collector of retirement savings plan types, what should I do with my old retirement savings plans when I change jobs? Using my TSP as an example, I really have four choices.
Option #1: Withdrawal it in a lump sum
This is generally always a bad idea and goes against the whole point of why I have been meticulously squirreling away money from your paycheck every month. I could enjoy the benefits of a cash inflow now, but I would also lose about 30% of what I had in my account do to taxes and early withdrawal penalties. Although this technically is one of the choices I have, it’s not an option I’m going to consider.
Option #2: Keep it in the TSP
I could just keep my TSP funds right where they are. The TSP provides great value and it has the lowest fees I’ve ever seen for a retirement savings plan. In 2016, the TSP’s average net expense was $0.38 per $1,000 invested. (Although in fairness, just a year earlier it was only $.29, so keep an eye on fees wherever you invest your money). While the TSP won’t allow me to make any additional contributions since I’m not a federal employee any longer, I can still reallocate the funds I already have invested in my account.
As compared to other retirement savings plan choices, the TSP has a limited selection of choices with just five fund and a handful of lifecycle fund options. This is good if you don’t want to be overrun with investment options, but bad if you prefer to have a variety of investment options. Keeping my funds in the TSP doesn’t seem like a bad choice, but I also have to remember they are there, so I don’t misplace my investments again. Although you can’t beat the value of the TSP, with only $50,000 in my account, I’m not sure it’s worth my time to try to keep up with this account.
Option #3: Rollover to IRA
Since I already have an IRA plan, it would be very easy for me to just rollover my TSP into my existing IRA. It would give me better control and more options of where I choose to invest my retirement funds. However, I’m not sure I’m in love with my current IRA provider. However, I always have the option to roll my TSP over to my IRA and then later, I could roll it over to my current employer’s 403(b). Rolling my TSP over to my IRA would also give me one less retirement account that I have to worry about managing.
Option #4: Rollover to new employer’s plan
I could also rollover my TSP account to my current employer’s 403(b) since they allow rollovers. My 403(b) plan is high quality, provided by Fidelity, it’s easy to use, and it has simple investment choices with relatively low management fees. Again, consolidating my accounts is a huge positive because I don’t have to waste time managing several different accounts….or forgetting I had an account altogether.
Sometimes your decision will be an easy one. Some employer plans force you to withdraw your funds after you leave. Some employer plans won’t allow you to rollover old funds into your new plan. In these circumstances, your decision regarding where to rollover funds might already be made for you.
So what was my final decision on where to keep the funds I’ve invested with my TSP? I’m definitely not going with option 1, withdrawing my funds in one lump sum. While there is nothing wrong with Option 2 and leaving my TSP funds where they are, I don’t want to be bothered with managing this isolated amount for the rest of my life. Option 3, a rollover to my IRA makes sense because I can consolidate accounts and avoid early withdrawal penalties. However, I’m going with Option 4, a rollover to my employer’s 403(b) plan. I will enjoy all the benefits of Option 3 but with slightly lower management fees and the slightly higher protection that comes with an employer sponsored plan verses an IRA.
Small disclaimer. I made my decision based on my own personal circumstances and needs. Make financial decision based on your own personal circumstances.