139th News

Coping with Financial Issues of COVID-19 - Part 15

  • Published
  • By Randy Gerard, Personal Financial Counselor

I hope you all are staying healthy and safe. There is a lot of news regarding your Thrift Savings Plan so hope you find these Tidbits interesting


I. TSP vs IRAs: Since I frequently get questions or sense confusion between these two retirement vehicles, following are some common misconceptions and a clarification or two:

  • IRAs, created with the ERISA law in 1974 came first, and subsequent employer-sponsored plans such as 401-k and TSP were modeled after the IRA.
  • The IRA was structured to provide tax-deferred growth with a 10% penalty for withdrawals prior to the account holder reaching 59 ½. The TSP (and most other employer-sponsored plans) offers an exception to this rule. If you separate from service the year you turn 55 there is no 10% penalty (age 50 for “special category” employees). Special rules apply for service separations before age 55 (50).
  • RMDs:  The new law delays the starting age to 72 (no RMDs for Roth IRAs) but if you are still employed at age 72 the TSP allows an exception from the RMD. NOTE: If your plan includes working to age 72, come see me, we need to talk!
  • While there are some income-based restrictions contributing to a Roth IRA or deductible IRA, you can still contribute regardless of income to a non-deductible IRA (just ask Steve Bezos or Warren Buffet, e.g.). AND, there are no income level restrictions for your TSP, so do both if you can up to the respective annual limits.
  • Lastly, I strongly urge younger members that are just getting started (and up to 5-10 years from retirement) to take advantage of the Roth version of the TSP to allow more flexibility in tax planning upon separation. If you already have a “traditional” (pre-tax) portion from your own contributions (or government matching for those in the BRS), please know you have just one TSP account with two separate portions, not two separate accounts.

II. TSP Fund Changes:  FAs part of the TSP Modernization Act that was enacted at the end of 2019, several changes intended to improve the options, performance and better target retirement horizons for members. These new funds were implemented 1 July 2020 and I encourage members to access their account on https://www.tsp.gov/tsp/login.html and review them for possible changes. As always, if you have any questions don’t hesitate to contact me. In summary, here are the high points in my opinion of the changes:

  • There will be a total of ten funds going forward, 6 L-Funds and the original 4 segment indexes.
  • The L-Funds will now be in 5-year increments, not ten, so with the retirement of the L-2020 fund, the options will be: 2025; 2030; 2035; 2040; 2045; 2050; 2055; 2060 and 2065.
  • The allocation for the longer time horizon funds (2055, 2060 and 2065) will be more aggressive, approaching 99% stock holdings. The new 5-year L-Funds with shorter timelines, 2025, 2035 and 2045 with be adjusted to a midpoint of their respective L-funds that “wrap” them in timeline (e.g. 2030 and 2040 for the 2035 L-Fund). These changes were done to get more in line with “industry best practices” by having target dates within 2 years either side of expected retirement and also, in my opinion, help improve long term performance.

If any of this or prior weeks’ information is unclear or confusing, give me a call so we can discuss your personal situation. Don’t hesitate to reach out by phone, email or ask for a private Zoom session for you or your family members. Until next week, STAY SAFE!

Randy Gerard, PFC
C (573) 415-6934
O (816) 236-3659

This week’s thought: “Start by doing what’s necessary; then do what’s possible; and suddenly you are doing the impossible.” ~Francis of Assisi