A 2013 TSP survey indicated nearly 30% of respondents would transfer a portion of their TSP balance to a Mutual Fund Window. Yet, since it became available in 2022, only a few thousand TSP participants who meet the eligibility requirements have used it. Why are TSP account holders skittish about the Mutual Fund Window? Many believe the reason can be summed up in two words: hefty fees.
Overview: The TSP Mutual Fund Window
Designed for TSP participants interested in having access to more investment flexibility, the Mutual Fund Window provides the ability to invest in nearly 5,000 mutual funds. It’s similar to a self-directed brokerage account (SDBA) that’s available in many private sector 401(k) plans. To invest money from your TSP, you need to open a separate investment account. However, you must meet the eligibility requirements and pay the necessary fees before you can establish an account.
“You may not invest more than 25% of your total TSP account balance in the mutual fund window at any time.”
TSP Mutual Fund Window Eligibility Requirements
- Your initial transfer to the mutual fund window must be $10,000 or more but may not be more than 25% of your total TSP savings.
- You must have at least $40,000 in your TSP account to ensure that your initial transfer isn’t more than 25% of your total TSP savings.
- You may not invest more than 25% of your total TSP account balance in the mutual fund window at any time.
TSP Mutual Fund Window Fees
Keep in mind that the fees for investing through the Mutual Fund Window do not apply to participants who invest only in TSP funds. These include:
- $55 annual administrative fee (ensures that use of the Mutual Fund Window does not increase administrative expenses for TSP participants who do not use it).
- $95 annual maintenance fee
- $28.75 per-trade fee
- Plus other fees and expenses specific to the mutual funds you select
When you initiate your first transfer, the $55 administrative fee plus the $95 annual maintenance fee (a total of $150) will be withdrawn proportionally from all the TSP funds in your account.
Is It Worth The Risk?
As with any investment there are always risks. This includes whether or not your mutual fund investments will grow enough to offset the additional fees outlined above. However, with nearly 5,000 mutual fund choices you may be in a better position to manage risk. Since mutual funds available through a brokerage account aren’t vetted by a fiduciary, make sure you review the prospectus for each mutual fund you’re considering. For complete information, download the TSP Mutual Fund Window Fact Sheet.
Source: https://www.tsp.gov/publications/tspfs28.pdf
