Waiting for the TSP Mutual Fund Window to Open?

The author says that the upcoming TSP mutual fund window is not without drawbacks and that IRAs may provide federal employees with a viable alternative.

The TSP has announced the launch of a mutual fund window this year to give federal employees the ability to invest in mutual funds with the Thrift Savings Plan, but it will be expensive.

Ask any homeowner exploring renovations about the costs associated with new windows. She or he will share the project can be very expensive. A recent online article at Forbes Advisor reported the average price of replacing a mid-range double-hung window is about $600 and can be as high as $1,200.

Thrift Savings Plan participants should likewise be prepared for similar sticker shock. The Federal Retirement Thrift Investment Board is preparing to deliver a mutual fund window on the TSP website.

Using a TSP account as a launching pad into the mutual fund universe seems expensive to me. The price tag is not as expensive as a trip aboard SpaceX or Virgin Galactic, but it is considerably more than a ticket purchase for an amusement ride ticket in a touring carnival.

The forecast cost of admission to participate in the TSP mutual fund window will be:

  • an annual maintenance fee of $95.00
  • another annual fee of $55.00 to defray administrative expenses
  • a cost for each trade of $28.75
  • potential additional fees and expenses for some of the mutual funds

The forthcoming mutual window expenses seem to be at odds with the Federal Retirement Thrift Investment Board being a champion of low administrative fees for the TSP index funds experience. When one adds up all those fees for the mutual fund window it seems expensive to me. Enough about expenses; on to safety. 

What About Risks with the TSP Mutual Fund Window?

Safety is a concern for rocket ships and traveling carnivals. Future astronauts must pass physicals and undergo training. Riders are to be of a certain height and age for safety precautions in the carnival world.

The Federal Retirement Thrift Investment Board approaches risk mitigation differently. TSP mutual fund window clients will have to sign an acknowledgment of risk to participate.

But wait; there is more.

The Federal Retirement Thrift Investment Board seeks to further alleviate risk for those TSP investors wanting to use the mutual fund window by putting in place the following strategy:

  • Mutual fund window investors must have at least $40,000 in their TSP accounts. 
  • Mutual fund window transfers cannot be more than 25% of a TSP index fund balance. 
  • The minimum initial transfer into the mutual fund window is $10,000.

TSP participants waiting in line for the mutual fund window to open should consider killing time by bringing along a copy of the Verses of Happiness: The only book you need to be Happy!!! The author, Dr. Debasish Mridha, offers this advice, “The window of opportunity is always open, you just have to find it.”

Is There a Good Alternative to the TSP Mutual Fund Window?

An alternative window of opportunity to the TSP mutual fund window may be an Individual Retirement Arrangement (IRA) with an investment firm with an online presence like Vanguard or Fidelity. This option is attractive for several reasons. 

An investment firm with an online presence may impose no annual fees or transaction costs for many of the IRA mutual funds available to their clients. This is because the funds offered could be a no-load variety which is possible because the shares are distributed directly by the investment company instead of going through a secondary entity. Such funds are sold without a commission or sales charge. There is also an opportunity for thousands of other no-cost or low-cost mutual fund choices.

The investment companies’ online platforms will include educational resources, including accessible webinars and articles.

There is the opportunity for free investment advice on call every day of the week from staff members who have sometimes earned designations like the Certified Financial Planner®, Chartered Financial Consultant®, and others. These financial advisors, at no additional costs, can assist you in making more efficient and effective investment decisions for the IRA contributions. This is because if you inform them of your existing TSP index fund portfolio, they will be able to provide you with specific recommendations for nominating the most appropriate choices from among the available universe of mutual funds to enhance and improve your asset allocation end state. Investors without such help sometimes mirror their current TSP asset blend and thereby do not benefit from using an external source of investments.

TSP participants having familiarity with the Traditional TSP or Roth TSP can look forward to similar choices when contemplating IRA choices. This is because the choice for an IRA can be either of a Traditional or Roth variety. 

TSP participants thinking of making IRAs part of their financial planning should understand the consequences of being enrolled in an employer-sponsored retirement plan. TSP participants when still working in the federal government or the armed services are consequently enrolled in an employer-sponsored retirement plan. Therefore, specific guidelines for contributions and income tax deductions for IRAs pertaining to the workers in such plans are important to understand and follow. The Internal Revenue Service provides this information online within their Frequently Asked Questions online resource.

About the Author

Francis Xavier (FX) Bergmeister, CLU®, ChFC®, CASL®, ChSNC® has been Certified Financial Planner® for 30 years. He is a graduate of the Wharton School and earned a Doctor of Arts from George Mason University. He provides retirement seminars thru Federal Career Experts.