Investing In Precious Metals With Your TSP
The U.S. federal government employs more people than any other organization in the world, totaling 3.4 million civilian and military personnel. It shouldn’t come as a surprise that it also offers the world’s largest retirement savings plan: the Thrift Savings Plan (TSP). As of 2020, the most recent data from the IRS on TSP enrollment comes from the end of 2018, when they announced that TSPs covered 5.5 million current and former federal workers and military members.
But while TSPs allow individuals a great opportunity to start saving for retirement, it doesn’t need to remain the only account you keep. We’ll review the basics of TSPs here, and then explore the option of diversifying your retirement holdings through a Precious Metals IRA.
(If you know about TSPs and want to skip straight to the rollover section)
The TSP is part of the Federal Employees’ Retirement System (FERS), which has three components: TSP, the FERS annuity, and Social Security. Unlike the other two parts, the TSP is optional. And unlike the annuity component, contributions to TSP are on a pre-tax basis, which makes it one of the most important parts of the FERS system for those saving for retirement.
The key thing to note about the TSP is its similarities with 401(k)s and other defined contribution retirement plans in both the private and state government sectors. The basic contribution limit of $19,500 (as of the 2020 tax year) still applies. It too offers a catch-up window after the age of 50 that increases the contribution limit by $6,500 (2020). And as noted, those contributions are on a pre-tax basis, which makes it easier to build up a nest egg while also reducing short-term taxes.
The TSP was born out of the Federal Employees’ Retirement System Act of 1986 to replicate the benefits of 401(k) plans for federal employees. Like its private sector kin, the Thrift Savings Plan has evolved over the years, which changes including:
- Two-way rollovers – In July 2001, TSP participants were given the option of rolling IRAs and 401(k)s into their TSPs.
- The Thrift Savings Plan Enhancement Act of 2009 – This law broadened a number of key aspects of TSP, including automatic enrollment (or an opt-out rather than opt-in policy) and a few additional investment options.
- Roth Options – In 2012, participants were granted the option of making Roth contributions, which are on a post-tax basis but tax exempt when deducted.
While it closely resembles 401(k)s and other like plans out there, the TSP has some key differences, both in its benefits and in the rules governing it.
Benefits of the Thrift Savings Plan
We’ll get into some of the regulatory problems you might expect from a federal-government-run retirement plan. But that bureaucracy and red tape does come with a number of benefits participants are able to enjoy while they work with their employer, and this can be a fantastic way to gain entry into retirement savings.
- Automatic matching – Whether you want it or not, federal employees are still the benefactors of employer contributions. Meaning even if you opt-out of a TSP, you’ll still have one. One percent of a federal worker’s income is contributed to their TSP automatically.
- Additional guaranteed matching – For those who do contribute a portion of their own income to a TSP, their employing agency or service matches anywhere from 1% to 5%, depending a number of factors. While this is offered for many with 401(k)s and similar plans, with TSPs, it’s guaranteed considering it comes from the federal government itself.
- The G Fund – One of the available asset allocation options under the TSP is unlike the rest. The G Fund, really the “Government Securities Investment Funds,” is made up of specific Treasuries issued by the U.S. government for this purpose. Since it is guaranteed by the full faith and credit of the U.S., it is the only fund without a risk of loss of principal. While protected for inflation, these offer very low returns. If you opened a fund before September 5, 2015, and didn’t select a fund, you were automatically enrolled in the G Fund.
- Pre-packaged investment options — There are five different lifecycle funds (“L funds”) you can invest in as part of the TSP, that each provide a different combination of five funds: the G fund (already mentioned above), the F Fund, the C Fund, the S Fund, and the I Fund. The particular investment options available with a TSP span a range of particular funds, listed below. The existence of the different L Funds is intended to simplify decision-making by prescribing investment allocations.
- The F Fund (“Fixed Income Index Investment Fund”) is higher risk than a G fund, which increases the chances of higher returns. The F Fund is comprised of treasury agency bonds, corporate bonds, non-corporate bonds, and some securities backed by assets.
- The C Fund (“Common Stock Index Investment Fund”) also bears some higher risk, but also potential for higher returns. The C Fund follows the performance of the S&P 500.
- The S Fund (“Small Cap Stock Index Investment Fund”) involves investing in stocks for companies excluded from the S&P 500, but part of the Dow Jones U.S. Completion Total Stock Market Index. Yields with the S Fund are stock dividends as well as any gains.
- The I Fund (“International Stock Index Investment Fund”) matches the performance of the MSCI EAFE (Europe, Australasia, Far East) Index. Yields with the I Fund result from stock dividends, gains, and also currency value fluctuations.
- Immediate Vesting – Unlike many other retirement plans, TSP participants are fully vested on day one for matching contributions. For 401(k)s and other such plans, that’s not always the case.
- Low Administrative Fees – Because of its massive size (roughly $500-$600 billion in assets under management), it is able to keep its admin fees to a minimum. Meaning more of participants’ money is going toward savings. Though, one reason for these low fees is also the biggest drawback to TSP.
As you can see, there’s plenty to like about the Thrift Savings Plan. The automatic and guaranteed matching is something really only the U.S. federal government could offer. However, as noted above, because it is a federal program there are plenty of specific rules worth knowing.
Rules of the Thrift Savings Plan
It could take days of your time to learn about each and every little rule that separates TSPs from their private sector brethren. Many people find the rules to be too restrictive; for example, only five people who participated in an Army pilot TSP from more than a decade ago are still participating. If you are interested in learning the intricate details, this is a good start.
That said, there are some specific rules anyone interested or involved with the Thrift Savings Plan should be aware of:
- Both forms of employer contributions are not Roth eligible – Neither the 1% automatic contribution, nor the additional guaranteed matching from a participant’s agency or service can be considered Roth contributions. Meaning, if a participant prefers the tax exemption on that money during retirement, they are out of luck for that portion of it.
- Contributions end with retirement or when employment is ended – Not so much a surprising rule, but an important one; contributions stop immediately when service is ended. That limits TSP’s usefulness as a retirement savings plan. That’s especially true as many federal employees are offered early retirements.
- Early withdrawal fee – Participants withdrawing from their TSP before then age of 59½ must pay a 10% penalty on that money alongside what they owe in taxes. Certain hardship and service-specific exceptions apply, however.
- Extremely limited asset options – There are only ten plans available to participants. Alongside the G Fund, the rest are index and life-cycle funds. Meaning, the options for participants are extremely limited.
While certain benefits like guaranteed matching contributions and low admin fees might appeal to some, the TSP’s limited options in terms of how to actually build one’s retirement savings can put an otherwise smart planner at a disadvantage in the long run. For some, it may be a wise move to reallocate retirement savings into a Self-Directed IRA, which lets you diversify your portfolio using alternative assets such as precious metals.
Precious Metals and the Thrift Savings Plan
Limited fund options make for poor retirement planning. We don’t give investment advice here. But it doesn’t take a Warren Buffett or a Bill Gross to know that if you limit how to protect or even build your savings, you could end up hurting your nest egg. Even when it comes to saving for retirement, don’t put your eggs in one basket.
The TSP does offer a few choices for where to place your assets, such as the F Fund for bonds, C Fund for stocks, and L Funds for broad mixes of these for target date planning; but this stands as a very limited set of options.
Precious metals like gold, silver, platinum, and palladium offer benefits to savers beyond the scope of what conventional retirement assets can provide.
- Diversify to lower risk– Precious metals act as safe havens against market fluctuations. Contrast this to the TSP, where even the guaranteed G Fund, made up of government-backed Treasuries, is exposed to volatility. Stocks, bonds, and even currencies are all obviously inherently risky to one degree or another; they are a limited set of options and all based on the same fiat currency.
- Precious metals tend to perform well when paper assets are in decline – The performance of stocks, bonds, and other paper assets tends to move in the opposite direction of precious metals like gold. This allows individuals saving for retirement to hedge their losses.
- Secure purchasing power – Because precious metals tend to maintain their value, the purchase power behind your holdings is maintained over time.
For anyone the least bit interested in diversifying their retirement nest egg, the likes of gold and silver should be on the table.
If you currently have a TSP and would like to reallocate some of your retirement savings into alternative assets like precious metals, you will need to open a Self-Directed IRA (SDIRA). An SDIRA is the type of IRS-approved account that can hold assets beyond the conventional mutual funds, stocks, and bonds. You might be able to roll over assets from your TSP into your SDIRA.
Am I eligible to roll over my TSP?
The biggest caveat to rollover eligibility tends to be whether you are still working for the employer with whom you set up the TSP. If you are still employed by them, depending on your specific plan, you may be deemed ineligible for a rollover; and unlike with 401(k)s, even if you are 59.5 years of age or older, this ineligibility may persist until you leave your employer.
A rollover may take a bit of time to fulfill, but it avoids withdrawal fees and maintains the tax advantages associated with these plans; you won’t incur any penalties. However, if you’re seeking immediate access to your money, you might withdraw funds and then transfer them—some or all of the funds in your TSP—directly into your SDIRA; however, you might incur fees and penalties for this. Your Precious Metals Specialist can start answering any questions you might have about your specific situation, and whether a transfer or rollover is appropriate.
How do I open my precious metals IRA with Birch Gold Group?
The steps involved in rolling over savings and starting a self-directed Precious Metals IRA are simple. Here at Birch Gold Group, we work hard to make them even simpler by assigning you a Precious Metals Specialist who is on-hand to answer any questions you may have along the way, whether you’re setting up your Precious Metals IRA or checking in on an existing account.
- Open a new self-directed IRA (SDIRA) account – First you’ll choose the type of Precious Metals IRA you would like to open, selecting from Traditional, Roth, SEP, or SIMPLE. Your Precious Metals Specialist will work with you to select your new custodian and apply for an SDIRA with them.We work with the leading custodians who are specialized in precious metals, such as Equity Trust Company and STRATA Trust Company.
- Roll over from funding source(s). For example, if you are eligible, you might choose to roll over some or all of your funds from your TSP. You can also roll over or transfer funds from any other eligible accounts you currently hold.Again, your Precious Metals Specialist will walk through a review of your accounts so that you can make the best decision for your retirement, and then will help you navigate the steps to take with your old custodian(s) to make this smooth and easy.
- Choose your precious metals – Your Precious Metals Specialist will walk you through your options and talk you through how to select precious metals to achieve your retirement savings goals.We offer four IRS-approved precious metals for placement in your IRA: gold, silver, platinum, and palladium.
- Make your purchase – Your Specialist will confirm with you that you’re ready for this step before walking you through the required paperwork. Your custodian—a financial institution, not a single individual—will take care of paperwork and executing any transactions that you request. They will track your account and make sure your assets are where you intended for them to be.
- Store at depository – Once purchased, your precious metals will be stored in a safe and secured depository. Our list of approved depositories includes Delaware Depository, featuring insurance of up to $1 billion, and Brink’s Global Services, the largest non-bank, non-government holder of precious metals.
- Keep track of your assets – Keep in touch with your Precious Metals Specialist as you track the performance of your Precious Metals IRA. They can help you initiate any transactions you’d like, as well as provide you with the most up-to-date buyback quote.
Each of these steps is made simpler and more convenient with the help of a Birch Gold Specialist. If you are interested in rolling over any TSP funds into a Precious Metals IRA, take a look here for more details.
Call Birch Gold today at (800) 355-2116 to get matched up with a Specialist, and start buying your Precious Metals IRA today.