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By, Josh Andrews
Have you heard about the big changes coming to the Federal government’s Thrift Savings Plan (TSP)? If you haven’t, this article is for you. And even if you have, read on as you might learn something you didn’t know. It’s not every day that major changes come to TSP.
What’s changing?
There are several changes coming to TSP anticipated for May to June 2022. For a summary of TSP changes and new features, check out the TSP communication site. I would also check its website for updates and anticipate timelines. Here’s a list of the major changes:
That’s a lot going on, but the most buzz surrounds number 5. For years, I’ve heard from military members that they desire access to more investment choices through their TSP. Now, they’ll have it. When eligible, TSP participants will have access to over 5,000 mutual funds in addition to the standard five funds and 10 lifecycle funds, which are a preselected mix of the standard funds.
The 5,000 mutual funds are accessed through the TSP mutual fund window. According to the TSP federal filings, a mutual fund window is “a type of self-directed brokerage account that gives individuals the ability to buy shares of mutual funds through a broker-dealer that has been selected by their retirement plan or by one of their retirement plan’s service providers.”
In short, it’s what allows TSP participants to buy shares of a non-TSP mutual fund through the TSP. These are mutual funds that TSP is providing access to buy or sell that are different than what’s available today. The term “mutual fund window” is important as it’s used often.
Is this something that sounds exciting to you? Well, as with most benefits, there’s often a cost associated, and, in this case, these costs are relatively high when compared to the lower costs associated with the core offerings.
The new costs
The good news is that if you stick with the standard five funds or the lifecycle funds, there’s no change in TSP fees. You still get the same low cost that TSP has become known for. However, if you choose to participate in the mutual fund window and invest in other mutual funds, you’ll incur additional expenses. As I write this in May 2022, these are the proposed expenses compared to the actual historic TSP expenses.
|
Historic TSP Funds Only |
Participating in the New Mutual Funds |
Annual maintenance fee |
$0 |
$95 |
Per trade fee |
$0 |
$28.75 |
Mutual fund specific fees |
Varies |
Varies |
TSP mutual fund window administrative fee |
$0 |
$55 |
Total |
Range from 0.043% to 0.058% |
$150 + $28.75 per trade + mutual fund fees |
TSP says the $55 initially proposed extra fee for what it calls a “fee designed to guarantee that the availability of the mutual fund window will not indirectly increase the share of TSP administrative expenses borne by participants who choose not to use the mutual fund window.” Basically, it means that all expenses of providing the additional mutual fund options will be paid for by those who elect to participate in it. This enables them to continue to provide the standard TSP funds at low cost.
Comparison of fees
This is where it can get tricky and only you can analyze based on your unique choices. But it’s safe to say that the new fees make the mutual fund window more expensive than the traditional TSP fund route. Only you can determine if this option is worth the extra cost.
How can I participate in the mutual fund window?
There are a few stipulations on when and how you can participate in the mutual fund window.
When you apply the restrictions presented in the second bullet, TSP participants must have at least $40,000 in their TSP to participate in the mutual fund window as 25% of $40,000 is $10,000.
Questions to ask yourself
Is the mutual fund window right for you? Only you can decide this and we suggest speaking with your financial planner to understand how this might affect your retirement plan before taking any action. The key thing to remember is that no matter your choice, saving for retirement is important. If you’re starting out and not sure where do begin, check out this article.
Disclosures:
This material is for informational purposes. Consider your own financial circumstances carefully before making a decision and consult with your tax, legal or estate planning professional.
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DID 286806 - 0522
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