5 things to consider before moving your TSP

All military or federal government employees who have contributed to the Thrift Savings Plan, or TSP, eventually have to decide what to do with it. The question members ask is: Should I move it or leave it where it is?

Since each person's situation and needs are different, each person might come up with different reasons for how they answer that question.

Remember the following five considerations as you make your decision.

1. TSP has withdrawal options that fit your retirement needs.

TSP provides options for accessing your retirement funds in ways that meet your needs, particularly in retirement. Having the ability to only withdraw your retirement funds as needed is one key to not outliving your money.

In the past, TSP offered limited options for how to use your money in retirement. However, that's in the past, and TSP options offered now are very comparable, if not identical in many cases, to a civilian 401(k). This benefits you in retirement.

2. You can have a TSP and an IRA.

It's not a choice of one or the other. You can leave your TSP account intact and open an IRA or participate in your employer's retirement plan for new yearly contributions. This enables you to continue to save for retirement after TSP. If you want to learn more about the different options after TSP, check out our video. If you decide to open an IRA to continue your retirement savings journey, explore your options at USAA's IRA page.

3. TSP has early withdrawal options.

Unlike an IRA, TSP provides additional early withdrawal options. In the TSP, if you separate from service during or after the year you reach age 55 or the year you reach age 50 if you meet the qualifications listed by the IRS, the 10% withdrawal penalty doesn't apply. Therefore, if you meet the qualifications, you can withdraw money from your TSP without a penalty before you might be able to do the same with an IRA. If you move your TSP account to an IRA, you could lose this benefit.

4. Pay attention to taxes.

If you decide to move your TSP account into an IRA, make sure you transfer the funds directly to your new institution instead of via an indirect transfer, where the money comes to you first. This will help you avoid mandatory tax withholding. The traditional, or pretax, portions of your TSP will be transferred to a traditional IRA at your new institution. From there, some people decide to convert their traditional IRA into a Roth IRA.

Keep in mind that since you haven't paid taxes on the traditional TSP portion, you could have a big upfront tax bill. Anytime you are transferring between accounts, we recommend seeking reputable tax advice before making any decisions.

5. Examine expenses and fees.

Before moving your investments, understand the expenses and fees you pay for your current investments as compared to what you will be paying in your new investment. This will help you understand if the best option is to stay where you are or move the money to a new provider.

There is a price to doing business and there are many different types of fees. Mutual fund annual operating expenses, annual account maintenance fees, brokerage fees and more. These can take a bite out of an investor's bottom line. While TSP is low cost, it does have fees. TSP fees will be lower than some investments but can be higher than others.

Therefore, consider expenses and fees. While they can be minimized, it's hard to avoid them altogether. But a word of caution: Lower fees don't always mean a better investment. Here is an example. If Mutual Fund A has an expense ratio of 0.02% and Mutual Fund B charges 0.5%, Mutual Fund A isn't automatically the better buy. If Mutual Fund B is consistently outperforming Mutual Fund A by 2 to 3 percentage points each year, the expenses might be worth it to earn a better return.

While this list isn't exhaustive, remembering these five guidelines will help you make an informed decision as you decide whether to move your TSP.