Is Rolling Over Your TSP the Right Move? What Financial Advisors Won’t Tell You (But Should)

The Hidden Value Behind TSP Rollover Decisions Most People Miss

If you’re approaching retirement with a Thrift Savings Plan (TSP), you’ve likely encountered conflicting advice about whether to keep your money where it is or roll it over to an IRA. The standard advice you’ll find online is straightforward: “The TSP has rock-bottom fees, so you should never roll it over.”

But is that the complete story?

As with most financial decisions, the answer isn’t black and white. While the TSP offers excellent benefits, there are legitimate reasons why a rollover might better serve your retirement strategy—reasons that go far beyond the simplistic “fees are everything” argument.

The True Cost of “Free” Advice: Why Most TSP Rollover Discussions Miss the Mark

Many retirement savers face a barrage of conflicting information:

• “Don’t pay fees to an advisor when your TSP costs almost nothing!”
• “You don’t pay us anything—the products pay us!” (A major red flag)
• “Our indexed annuity guarantees you’ll never lose money!” (Usually too good to be true)

These perspectives fail to address what really matters: the value you receive relative to the costs you pay.

What the TSP Does Exceptionally Well (And Why That Matters)

Let’s start by acknowledging why many experts recommend keeping your money in the TSP:

• Incredibly low expense ratios (often below 0.05%)
• Simple, effective investment options
• Protection from creditors
• The G Fund (a unique government securities option unavailable elsewhere)
• Strong fiduciary standards

These benefits are significant and shouldn’t be dismissed lightly. For many federal employees, particularly those comfortable managing their own investments and with straightforward financial situations, the TSP might be an ideal solution.

Beyond Fee Comparisons: The Hidden Value of Thoughtful Financial Advice

But here’s what most articles miss: calculating value solely based on expense ratios ignores the potential benefits a skilled financial advisor can provide.

Vanguard’s research on “Advisor’s Alpha” quantifies this value at approximately 3% annually on average—far outweighing typical advisory fees. This value comes through several key services:

1. Behavioral Coaching: The Single Most Valuable Advisory Service

Consider this scenario: In March 2009, as markets bottomed during the financial crisis, many rational, intelligent investors wanted to sell everything and go to cash. Those who worked with advisors who kept them invested saw their portfolios recover and thrive in the subsequent bull market.

This behavioral coaching alone—preventing costly emotional decisions—can add approximately 1.5% in net returns annually according to Vanguard’s research.

2. Tax Efficiency Strategies Unavailable in the TSP

The TSP offers limited tax flexibility compared to an IRA managed by a knowledgeable advisor:

• Roth conversion strategies aren’t possible within the TSP but can be invaluable for tax planning
• The TSP only withholds federal taxes, not state taxes, potentially leaving you with an unexpected tax bill
• Strategic charitable giving using qualified charitable distributions becomes more flexible with an IRA

3. Customized Distribution Strategies for Your Specific Situation

While the TSP offers basic withdrawal options, a skilled advisor can create personalized distribution strategies that:

• Optimize your tax situation across multiple retirement accounts
• Balance withdrawals between taxable and tax-advantaged accounts
• Coordinate Social Security claiming with your withdrawal strategy
• Create a sustainable income plan that addresses market volatility

The Product Pusher Warning: How to Identify When “Advice” Isn’t in Your Best Interest

Not all financial professionals recommending TSP rollovers have your best interests at heart. Be wary of these warning signs:

• “You don’t pay us anything” claims (someone always pays—if it’s not you directly, it’s built into the product costs)
• Heavy emphasis on annuity products, especially indexed annuities with complex “upside potential with no downside risk” promises
• Reluctance to clearly disclose how they’re compensated
• Pressure to make quick decisions

A fiduciary financial advisor, in contrast, will:

• Clearly explain their fee structure
• Recommend keeping assets in the TSP when it makes sense for your situation
• Provide a written explanation of why a rollover might benefit your specific circumstances
• Never use high-pressure sales tactics

When a TSP Rollover Makes Sense: A Balanced Assessment

Consider a rollover when:

1. You need more comprehensive tax planning that the TSP’s limited options can’t accommodate
2. Your financial situation is complex (multiple income sources, blended family, legacy planning needs)
3. You value personalized guidance through market volatility and major life transitions
4. You want access to a broader range of investment options for specific purposes
5. You’re looking for integrated planning that coordinates all aspects of your financial life

When Staying in the TSP Makes Sense

Keeping your money in the TSP might be preferable when:

1. Your financial situation is straightforward
2. You’re comfortable managing investments independently
3. You prioritize simplicity and ultra-low costs above all else
4. You don’t need tax-optimization strategies beyond the TSP’s capabilities

The Quantifiable Value of Financial Advice: Beyond Fee Comparisons

According to Vanguard’s research outlined in their Advisor’s Alpha study, a good financial advisor can add approximately 3% in net returns annually through combined strategies:

• Behavioral coaching: ~1.5%
• Asset allocation and diversification: ~0.75%
• Cost-effective implementation: ~0.45%
• Rebalancing: ~0.35%
• Tax-efficient planning and withdrawal strategies: ~0.70%

Even after accounting for advisory fees (typically 0.75-1.25% annually), the net benefit can significantly outweigh the cost difference between the TSP and an advised portfolio.

Making Your Decision: A Thoughtful Approach

Rather than asking “Which option has the lowest fees?” consider these more valuable questions:

• “Which approach gives me the highest probability of achieving my retirement goals?”
• “What level of personalized service and planning do I need?”
• “How comfortable am I navigating complex tax and distribution decisions on my own?”
• “What value do I place on having an experienced guide during market downturns?”

The Bottom Line: Value Should Drive Your Decision

The TSP offers exceptional benefits for many federal employees. But making your decision based solely on expense ratios misses the broader picture of what comprehensive financial advice can provide.

The right financial advisor doesn’t just manage investments—they help you navigate life’s financial complexities, prevent costly behavioral mistakes, optimize your tax situation, and create a truly personalized retirement strategy.

That value often far exceeds the difference in fees between keeping your money in the TSP and working with a fiduciary advisor who truly understands your unique situation.

Before making your decision, consider both the visible costs and the hidden value that each option provides. Your retirement security deserves this level of thoughtful consideration.

Ted Toal is a Certified Financial Planner™ specializing in retirement income and tax planning for affluent professionals and business owners. With over 25 years of experience in wealth management, Ted helps clients transform retirement uncertainty into financial confidence through dynamic planning strategies.