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.

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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.

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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)
• Institutional structure and security

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

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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

In times of market stress, the worst financial decisions often feel like the most logical ones. A trusted advisor can help you stay the course and avoid emotional decisions that could derail your long-term plan. This alone can account for over 1.5% of additional value per year.

2. Tax-Efficiency Strategies the TSP Simply Can’t Offer

While the TSP works fine for accumulation, it falls short when it’s time to withdraw money strategically:

• No Roth conversion capabilities (until 2026, and even then, with restrictions)
• No Qualified Charitable Distributions (QCDs) allowed from TSP balances
• No option to withhold state taxes from distributions
• Withdrawals are made pro rata from all funds (C, S, I, G, F, L)—even when selling stocks during a down market is the last thing you want
• You can’t invest Roth and Traditional balances differently, which limits planning flexibility

In contrast, an IRA offers total control over withdrawal source, tax strategy, and asset allocation—essential tools for retirement tax planning.

3. Customized Distribution Strategies for Your Specific Situation

Your TSP gives you a few basic choices for withdrawals. That’s it.

A tailored retirement plan, on the other hand, can:

• Blend income from IRAs, Roths, taxable accounts, pensions, and Social Security
• Create a tax-efficient glide path
• Adjust dynamically for healthcare needs or changing spending goals
• Minimize taxes over your lifetime—not just this year

If your retirement income strategy involves more than one account, a rollover gives you the flexibility you need to manage the full picture.

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Estate Planning Oversights You Shouldn’t Ignore

The TSP’s inheritance rules have some quirks that can lead to unintended consequences:

• TSP doesn’t allow per stirpes beneficiary designations—if one of your named beneficiaries dies before you, their children could be unintentionally disinherited
• Beneficiary Participant Accounts (BPAs) are rigid, especially for non-spouse beneficiaries
• The TSP does not allow the 10-year stretch IRA rule within its own structure

An IRA gives you more control and clarity in legacy planning—especially if you want assets to pass efficiently to your children or grandchildren.

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When a TSP Rollover Makes Sense: A Balanced Assessment

Consider a rollover when:

• You need more comprehensive tax planning that the TSP’s limited options can’t accommodate
• You want more control over distributions—especially in volatile markets
• You’d benefit from more flexible estate planning
• You value personalized guidance throughout retirement
• You want to invest your Roth balance more aggressively than your Traditional balance
• You’re looking for coordinated planning that integrates taxes, withdrawals, Social Security, and legacy goals

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When Staying in the TSP Makes Sense

Keeping your money in the TSP might be preferable when:

• Your financial situation is simple and stable
• You’re comfortable managing investments independently
• You prioritize simplicity and low cost above all else
• You don’t need customized distribution or tax strategies
• You’re not concerned with legacy planning complexities

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Watch Out for Product Pushers: Not All Advice Is Created Equal

Just because someone recommends rolling over your TSP doesn’t mean they’re looking out for your best interest. Some “advisors” are really salespeople in disguise.

Be cautious if you hear things like:

• “You don’t pay us anything.” (Translation: the product pays them—and you’ll pay hidden costs one way or another.)
• “This annuity guarantees upside with no downside.” (Red flag—most come with surrender charges, restrictions, and opaque fees.)
• “Act now before this window closes.” (Pressure tactics are a hallmark of commission-based sales, not true fiduciary advice.)

Ask how they’re compensated, whether they’re legally required to act in your best interest, and what value they actually provide beyond the product.

A true fiduciary advisor will:

• Explain their fee structure clearly
• Make recommendations that are in your best interest—not theirs
• Suggest staying in the TSP when it’s the right call
• Create a written, strategy-based plan for your retirement—not just sell a product

If someone can’t explain what they do beyond selling investments or annuities, that’s a problem. You deserve more than a product—you deserve a plan.

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The Quantifiable Value of Financial Advice

According to Vanguard’s Advisor’s Alpha study, a good financial advisor can add roughly 3% in net returns annually through:

• 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 paying a 1% advisory fee, the net benefit is substantial—and it comes with the peace of mind that you’re not going it alone.

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The Bottom Line: Value Should Drive Your Decision

The TSP is a fantastic accumulation tool. But retirement is about distribution, coordination, and strategy.

If you want a partner who integrates your investments, tax planning, income strategy, and estate goals into one cohesive plan, a rollover makes sense.

Before making your decision, weigh both costs and value. Retirement is too important to leave to chance—or to the limitations of a government-run platform that wasn’t built for full-service planning.

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.