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  • Writer's pictureMelissa

New TSP Mutual Fund Window Offers Investors More Flexibility

The Thrift Savings Plan or TSP, the retirement savings and investment account offering for federal employees and members of the US armed forces, recently announced the addition of a mutual fund window to help give investors with eligible accounts more flexibility in their investments. We know changes like this can create a lot of questions, and we’re here to help!

What We’ll Discuss:

What is a Mutual Fund Window?

A “window” like this in investment terms means that a retirement savings and investment plan like a 401k or, in this case, the government Thrift Savings Plan (TSP), creates a way for investors to keep their money within the plan but still have access to funds or other investment options not normally offered by the plan sponsor.

Put simply, instead of only having access to TSP’s usual array of funds, investors with accounts that meet certain eligibility requirements will also be able to access an assortment of over 5,000 funds held with TSP’s mutual fund window vendor. This window is available within the plan, meaning eligible participants do not need to move their funds out of the TSP to gain access to other fund or investment options.

Who Is Eligible for the TSP Mutual Fund Window?

According to the TSP Mutual Fund Window Fact Sheet, the initial transfer via the window must be a minimum of $10,000, but may not equal more than 25% of your total TSP savings. This means in order to be eligible to use the mutual fund window and access the additional selection of funds, you’ll need at least $40,000 in your account.

Additionally, the window is made available to eligible participants regardless of current status in the federal government. Retired, separated, and current employees may utilize this investment alternative within their TSP accounts.

Who Might Be Interested in TSP’s New Mutual Fund Window

The TSP investment line-up has remained relatively simple for several years. The lettered funds — G, F, C, S, and I — as well as the lifecycle funds, which are a strategic allocation of the lettered fund options, provide broad diversification to TSP participants. However, as with many employer-sponsored retirement plans, the short list of investment options does not suit the needs of every investor.

The TSP mutual fund window may be best suited for those who are looking to invest more broadly across different asset classes or industries. Similarly, participants in the TSP who want to invest in funds that may more closely align with their values, like socially responsible or ESG-focused funds, may opt to utilize the window. It is important to consider risk tolerance, the time frame for when the funds may be needed, and the costs associated with the funds selected before investing.

Is the TSP Mutual Fund Window Risky?

All investing carries inherent risk. That said, there are some important things to be aware of about the TSP mutual fund window and the investment vehicles it will make available.

The first thing to know is that TSP funds are reviewed by a TSP plan fiduciary to determine whether they’re prudent investments. This means that while you should still make your investment selections according to your own goals, needs, and risk tolerance, you can at least be assured that the fund you can choose from as part of a TSP account is pre-reviewed.

When you choose to invest in mutual funds via the TSP window, you’ll be responsible for reviewing the prospectus for each fund you intend to invest in to be sure it’s an appropriate investment for you. You’ll have a lot more flexibility and a wider array of choices for how you invest your money, but you’ll have a little bit of homework to do… or to ask your financial professional to help you out with!

Another consideration is whether the fees associated with investment via the mutual fund window will be made up for by the performance of the fund(s) you select. TSP funds are designed to be low-cost, and that may not be the case for all mutual funds available through the window.

For a list of additional risks to consider, check out the fact sheet that TSP released regarding the mutual fund window. If you have more questions about the risks associated with the TSP mutual fund window, please feel free to reach out! We’re very happy to help.

How Do I Take Advantage of the TSP Mutual Fund Window?

According to TSP, “...with this option, you can transfer money from your TSP account, through the mutual fund window, and open a separate investment account provided by our mutual fund window vendor.” This means that the process to move your money into the mutual fund window will involve setting up an additional account specifically for the purpose of taking advantage of the mutual fund window. Once that is established, participants must affect a fund transfer to move money into the account for mutual fund investment.

The process isn’t complex, but it’s a good idea to consult with a financial professional to help you take advantage of this option if you’re interested. Need help? Give us a shout.

Does It Cost More To Use the TSP Mutual Fund Window?

As with most investments, there are some fees to be aware of. According to TSP’s Summary of Changes, the fees associated with using the mutual fund window are as follows:

  • $55 annual administrative fee

  • $95 annual maintenance fee

  • Trade fees of $28.75 each time you buy or sell shares of a mutual fund

  • Certain fees or expenses that are fund-specific

To learn more about how these fees will be assessed and what they’re for, you can also refer to TSP’s Mutual Fund Window Fact Sheet.

Do I Have to Make Changes if I Don’t Want To?

No! There is no requirement to participate in the mutual fund window offering, and no additional fees will be assessed if you decide not to. TSP’s usual fund offerings will not be affected by the mutual fund window. Also, it may be beneficial to review options outside of the TSP altogether, should you meet the eligibility requirements to do so.

For instance, an in-service withdrawal — or better put, a rollover — is available to participants who have met the age requirement of 59 ½. Individuals who have left federal service, including those who have retired, may also roll over all or a portion of their TSP funds if it makes investment sense to do so. If you aren’t sure if these options are right for you, we’re here to help.

The Bottom Line on TSP’s New Mutual Fund Window

TSP’s new mutual fund window will offer eligible investors the opportunity for a lot more flexibility in their investments, but those looking to take advantage of any of the 5,000 or so investments offered by TSP’s mutual fund window vendor will need to consider a few things prior to moving money through the window.

Ultimately, as TSP will still be offering their usual selection of funds and there is no penalty for not using the mutual fund window, the choice to invest in mutual funds using your TSP savings is an individual choice that should be made with your own risk tolerance, goals, and needs in mind.

If you need help deciding whether the TSP mutual fund window is a good option for you, I’d be glad to discuss it with you! Feel free to reach out and we’ll get your questions answered.

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