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Feds to Offer More Choices in TSP Retirement Plan

Participants will be able to choose from thousands of mutual funds

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Marko Geber/Getty Images

 

The Thrift Savings Plan (TSP), the retirement savings account for federal government and military personnel, will dramatically increase the number of investment options, beginning in June.

The TSP works like a 401(k) or 403(b) plan. Workers can now invest their savings in five index funds, which track bond and stock indexes, such as the Standard and Poor’s 500 stock index. The plan also offers 10 target-date funds, which gear their investments toward a participant’s retirement date. Starting in June, however, workers will have their choice of 5,000 mutual funds from 300 mutual fund companies, as well as the ability to invest in stocks, bonds, specific industry sectors and other areas.

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The new mutual fund window won’t be available to all federal employees: It will be open to investors who have at least $40,000 in TSP savings. Further, participants must invest at least $10,000 in these new choices and can’t invest more than 25 percent of their holdings in that window. They will pay a $55 annual fee, a $95 maintenance fee and be charged $28.75 per trade. Investors will also pay other fees and expenses that the funds charge, such as the ongoing management fee.

The TSP will continue to allow investors to move their money around within current plan funds, meaning they can change the percentage of their holdings in different funds. Participants will also be able to transfer money between funds without reallocating the entire portfolio.

Changes to the TSP have been planned since 2009, when Congress authorized an expanded set of options.

Good for experienced investors?

Financial planners have mixed feelings about the changes in the TSP. “It’s outstanding for the self-directed government employee,” Dennis Nolte, a certified financial planner (CFP) at Seacoast Bank in Winter Park, Florida, said via email. Currently, investment options are limited to a few index funds. “I believe in personal choice in investing, and if folks have the time, temperament and talent to manage their own funds a bit more actively, more power to them.”

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