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Question for the Money Doctors

Question submitted on Aug 27, 2022.

Question

I am retired military and a current federal employee with 2 TSP accounts and a 457 with a separate state government agency. TSP civiIian account is Roth and military is non-Roth. Should I keep my money in the same TSP accounts or move everything to a ROTH IRA? My 457 is a non-ROTH and my military TSP is also non-ROTH. What do you recommend?

Answer

Thank you for your service!

There are pros/cons to keeping your money in the TSP accounts and 457 plans.

One consideration is cost.   I think the TSP accounts are invested in low-cost portfolios.  However, 457 plans tend to be higher cost.

Another consideration is investment choice.    In the TSP and 457 plans, you are limited to the investment portfolios offered by those plans.  If you moved them to your own IRA accounts, you have a much wider choice of investments.

Another consideration that may or may not matter to you is liability protection.  Money in the TSP plan is federally protected which means if you were to go bankrupt or get sued, no one can get to that money.   An IRA account is protected under state law which means a creditor might be able to get to that money.  If you live a low risk life style and unlikely to get sued or go bankrupt, this many not matter to you.

Another consideration regarding your Civilian TSP account which is a Roth, it will be subject to Required Minimum Distributions once you reach age 72.  However, if you rolled this money into a Roth IRA, there are no Required Minimum Distribution requirements.

You have more flexibility when you roll these accounts into IRAs - traditional and Roth.  You should also consider the types of investments in terms of cost and your financial objectives.


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