Questions about rolling over your TSP to an IRA? Just call USAA at 1-800-898-7382 for guidance on how to keep your retirement savings on track after military separation. Or log on to www.usaa.com, and click on the "Investments" tab for more information.
Financial Advice from USAA
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By
Mitch Swanda
USAA Financial Planning Services
Leaving the military for the civilian world can be a shock to the system, but it's nice to know that some things stay the same. Rolling over your retirement funds from the Thrift Savings Plan (TSP) to an Individual Retirement Account (IRA), for example, gives you the same advantages of tax-deferred investing.
An IRA rollover allows you to consolidate retirement funds after separation, but there are pitfalls to avoid. Consider these five steps to get the rollover started and keep your savings on track.
- Get Ready to Roll: First, set up a rollover IRA account that is ready to receive the TSP distribution. Contact your financial services provider to walk you through the process, or ask your financial planner to facilitate the transaction. Remember that the TSP can be rolled over to a “traditional IRA” only, which differs from other IRA plans, such as a Roth IRA.
- Analyze Your Options: With a rollover, you can transfer your TSP account in a lump sum, or in a series of monthly payments. Choosing the lump sum option can complete the rollover more quickly, but monthly payments will provide you the ability to rollover your TSP over a longer period of time. Your financial planner can help you determine the right choice for you.
- Roll the Right Way: With a few exceptions, there's a 10 percent penalty (in addition to paying taxes) if you withdraw TSP funds before age 59½. But a direct IRA rollover avoids the penalty, and your money can continue to grow tax deferred. When requesting a TSP distribution, specify that the funds be transferred directly to the IRA custodian. If you mistakenly receive a check in your name, immediately return it to the TSP administrator with the routing information for your IRA.
- Continue Contributing : Even if you've earned a military pension, chances are you'll need to continue building your nest egg to ensure a comfortable retirement. Before you fall out of the habit of contributing to your retirement, set up your new IRA with automatic monthly investments, which can be as low as $20 per month. In 2005, the traditional IRA allows contributions, which may be tax-deductible up to $4,000 per year ($4,500 for ages 50 and older), above the rolled-over TSP funds.
- Rebalance Regularly: As some investments perform better than others, your IRA can become too heavily weighted in one asset class, such as stocks or bonds, that doesn't match your risk tolerance. Maintaining proper asset allocation is an important part of meeting your retirement savings goals, so it's wise to “rebalance” your portfolio at least once a year.
As with any investment decision, seek expert advice before making a move that affects your financial future. Learn more about the TSP rules at www.tsp.gov, and talk to a financial professional to develop a retirement strategy for your specific needs.
Mitch Swanda is a salaried CERTIFIED FINANCIAL PLANNER™ practitioner with USAA Financial Planning Services, one of the USAA family of companies. Swanda served six years on active duty in the U.S. Navy.
The preceding discussion should not be interpreted as tax, legal, or estate planning advice for any individual. You should consult with your personal tax, legal, or estate planning professional for any specific guidance relating to your circumstances.
Financial advice is provided by the Financial Advice Center as a service of USAA Financial Advisors, Inc. -- USAA Financial Planning Services is a service mark of USAA that refers to the financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California), and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer.
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Last updated: August 18, 2005
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Property and casualty insurance provided by United Services Automobile Association, USAA Casualty Insurance Company, USAA General Indemnity Company, USAA County Mutual Insurance Company, USAA Texas Lloyds Company and USAA, Ltd. and is available only to persons eligible for group membership. Investment products and services provided by USAA Investment Management Company, a registered broker dealer. Life and health insurance and annuity products provided by USAA Life Insurance Company, San Antonio, TX except in NY. In NY, life insurance and fixed annuities provided by USAA Life Insurance Company of New York, Highland Falls, New York. Financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California), a registered investment adviser and insurance agency and its wholly owned subsidiary, USAA Financial Advisors, Inc., a registered broker dealer. Banking products provided by USAA Federal Savings Bank, an equal housing lender, FDIC-insured.
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