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Question: I am a federal employee and have been putting money in the government’s Thrift Savings Plan. But it doesn’t offer many investment options. I will be leaving my job soon… so can I transfer my account to a BUYandHOLD account? Then, hopefully I can select stocks and have more diversity?

Geoffrey Picket

Answer:

First, let’s explain what the Thrift Savings Plan is for those who are unfamiliar with it. The Plan, available for federal employees and members of the U.S. military, in many ways is similar to a 401(k) plan.

Contributions to the Plan not only lower your taxable income but they grow on a tax-deferred basis. Some divisions or branches of the federal government have an employer match -- but not all.

For 2009, you can contribute up to $6,500. If you’re 50 or older, you can put in another $5,500 (called a catch-up contribution). And those in the military who are deployed can put all of their tax-exempt combat-zone pay into the Plan –- just as long as total contributions for 2009 are not over $49,000.

Fees are low – like under $20/year for a portfolio worth $100,000.

In most cases, if you take out money before age 55 you’ll be hit with the standard 10% early withdrawal tax penalty.

You’re absolute right about the plan offering limited investment choices. It has only five index funds – a government securities fund, a fixed-income fund, an international fund, a small companies fund and a large companies fund.

There’s also an option known as Lifecycle Funds which picks funds based on how far away you are from retirement. The fund makes changes in your portfolio automatically – every quarter.

All this is explained at: www.TSP.gov.

A rollover

Now to answer your question – yes you can roll over the money into an IRA at BUYandHOLD. Click here for retirement related help topics. To open a Traditional or Rollover IRA here at BUYandHOLD, click here.

You want to ensure that the rollover to be from plan to plan to avoid any possible tax problems. If you have any specific questions during the process, you can always contact us.

$TIP: Keep in mind that generally you must start taking the required minimum distribution from the Thrift Savings Plan when you turn 70½ or the year you leave your federal job – whichever comes later. However, because of the recession, the minimum distribution requirement for 2009 was canceled. It was also canceled for IRAs and 401(k) plans.

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