Ask Terry Questions Government Thrift Savings Plan vs other investments at RMD time

Government Thrift Savings Plan vs other investments at RMD time

By Terry Savage on March 09, 2014 | Financial Planning / Retirement

I am 71 and a retired Federal Employee with a CSRS pension and I am still working as a consultant. I must take required minimum distributions from my SEP IRA and from my Federal Government Thrift Savings Plan.

What is your opinion of the TSP?
I have about 250,000 in the SEP IRA and about 100,000 in the TSP. .I have been pleased with the returns in the TSP on my account– it is currentlly invested with 60% C Fund, 20% F fund; and 20% G Fund.. i have been very very conservative with the 250,000 which has been mainly in money market funds., The broker who will be investing the SEP IRA wants me to movel the TSP money and believes he can do better. I like the fact that the TSP has such low fees (about 29Cents per 1,000.. I also have a traditional IRA for about 30,000 which I can transfer to the TSP or to the broker.

Questions are– Should I leave the $100,000 in the TSP and just take the RMD? Should I move the other 30,000 in? Should I change the distribution of the TSP? Should I move the funds out of the bond fund– the F fund.

Thank you.

Terry Says:  Well, that’s a lot of questions.  Let me start with some basics.  You know that you can take your MRDs from more than one account, as long as you calculate the MRD that is required based on the value of ALL your retirement accounts.  Either of your custodians should do that for you.

Second, you know that the “broker” who is investing your SEP-IRA gets paid either by commissions on transactions/investments, and/or the total amount of assets under management.  Just so you understand the motivation behind that recommendation.  Now, no broker or investment advisor can or will GUARANTEE that he/she can perform better than any other investment.  In fact, it is illegal to do so.  So, whoever this broker is, this is just a bit of bragging– and personally, it turns me off!  Yes, it is easy to “beat” the returns of a money market fund — unless the stock market has a big decline!

No one says you have to roll your SEP-IRA to a broker.  You can use a major mutual fund company such as Vanguard, Fidelity, T. Rowe Price to handle the investments — and they will give you free advice on how to invest, and how to plan your withdrawals.

Now, hidden somewhere in your question was a concern about the investments INSIDE the plan(s), no matter where they are.  I don’t know enough about your total financial picture to do an analysis, but I will say that at least a portion of your money should be invested in a diversified stock portfolio to give you growth vs inflation.  And I will also note that if interest rates rise (how much longer can they stay this low?!) then you will lose money in your bond funds.  Having some chicken money in a money market fund lets you sleep at night, and stick with the portion you have invested in the stock market.  The real tricky part is how much to put in each category — stocks, bonds, “chicken money” —

So this “asset allocation” decision of your overall investments is one you should discuss with an advisor.  But I think the broker whom you reference is probably the last place I would start!

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