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Need Advice: Rollover a TSP to 401k? Or take the penalty and withdraw?

Edit: Ultimately I will make this decision on my own, so I'm not asking you guys to tell me what to do. I'm seeking other points of view to better make my decision. Thanks again :)

My military career will be coming to an end within the next few months. I have a TSP which takes 20% of my military earnings during drill weekends, so overall the total in the account is less than 2,000 FRNs.


Should I rollover the TSP into my full-time job's 401k or personal ROTH for retirement savings?

Or should I just shut down the TSP, take the penalty, and supplement my actual savings or my bullion collection with the cash?

Where I'm at: Currently, I'm thinking of taking the penalty and just putting it towards my on-hand savings/bullion. As much as I'd like to set aside for retirement, it's still 40+ years away and it's less than 2,000 FRNs. I'm thinking that the cash could be put to better use, outside the retirement fund... in fact, I'm still unsure if I'm even making the right choice by putting CASH away for retirement (401k) in these current economic conditions. The FED will keep printing Benji's and devaluing it anyways... If economic collapse happens, I'll never see those funds again. But then again, if economic collapse doesn't happen and I DO get to experience life in America for another 40+ years, it's nice to have some retirement funds set aside, so I'm not thinking of quitting my retirement saving altogether just yet.

The crossroads... decisions, decisions...

Thanks everyone!

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ecorob's picture

withdraw it immediately...

buy silver (watch out for counterfeits), and relax

if I had 40 years until retirement I wouldn't sweat this decision AT ALL!


its 'cos I owe ya, my young friend...
Rockin' the FREE world in Tennessee since 1957!
9/11 Truth.

tasmlab's picture

Blow it on booze and dope

Blow it on booze and dope, and maybe upgrade your TV and take a nice girl out on a date.

More seriously, your biggest investment opportunity right now is getting your next job set up. A little extra cushion may give you extra time to find a higher-paying job. Or possibly start a small business.

Getting a small investment return, avoiding/paying a fee, or hedging inflation are probably all minutia compared to the work you'll do for the next 45 years or so.

(I'm assuming you are young)

Currently consuming: Morehouse's "Better off free", FDR; Wii U; NEP Football

Just an observation: I see

Just an observation: I see lots of value judgments, but zero math.

For example, the early w/d penalty, as I gather, is 10% (so ~$200); but the entire (gross) amount of the w/d is also included in, and therefore taxed as, ordinary income at whatever marginal rates are applicable based on your earnings level. Even an add'l 10% as ordinary income tax = ~$400 total. Giving up 20% principal up front is not insignificant, even if your expectations of alternatives are highly optimistic.

Moreover, even as it is less than 2k, we must also consider your MAGI at the end of the year: Will this amount be the straw that pushes you into a higher top marginal tax bracket? If so, the difference that this will cost you at the highest margin would have to be considered an additional strike against early w/d worth being aware of. If it doesn't push you into a higher top marginal bracket, then maybe I just wasted a bunch of words; but the crucial point is that there are countless considerations that haven't been addressed for a crowd here to be able to offer a recommendation with a high level of confidence. Or any level of confidence, I would argue. Nobody has even scratched the surface of understanding what best suits your circumstances, prospects and values.

As a final note in that vein, PMs have already been suggested. While it is true the vast majority of us (yes, in this instance I dare presume to speak for "us") are very much in favor of PMs, I would offer that this is true for varying reasons and with varying levels of understanding as to what PMs are and are not.

I consider them as long term stores of value. I do not consider them investments. This is not a distinction without a difference; it is a very important discernment.

Thus, if you give up 15-25 percent on the front end in taxes, but are seeking to 'invest' the proceeds rather than 'save' them, you have put yourself at a great disadvantage right off the bat, even with a rosy outlook for alternatives. After all, we haven't even heard what investment options you have in your 401k to compare prospects and considerations.

But if you have a portion of your assets already pegged for investments, and the proceeds of the w/d would be to save for the long-term rather than invest, then perhaps it is worth the risk aversion and long term security to take the hit up front and convert to PMs. In this instance, preservation - long term, where the 15 - 25 hit will likely become negligible over time - is more important than total real return, where other investment options may offer better prospects.

Lots and lots to consider. This topic is one that of necessity begs many more questions; absent them, frankly, if I were you, I'd be skeptical and disappointed in any confident answers you receive.

Thank you for taking the time!

I'll fill in the blanks as best as I can. Please bare with me.

I started setting aside for retirement 1-2 years ago. I have a 401k through my company (~5k). I have a ROTH through USAA (~2k). I have my TSP through the military (~2k). And I have my safe for PMs, Commodities and extra cash that I don't want to let the banks lend out. I don't include my safe in my "retirement" funds, but like you said, I see them as long term stores of value. A hedge against hyper-inflation. I think I'm pretty well diversified.

My pay raise at work has already placed me in a higher tax bracket (got a raise, get paid less... sad day) so I'm not worried about a w/d pushing me over. I'm at the bottom end of my higher bracket.

On the penalty: From TSP website -

Your decision has tax consequences:

You will owe taxes on the taxable amount of any payment you receive from your account. The taxable amount of any lump sum payment or monthly payments lasting less than 10 years is subject to 20% Federal income tax withholding if not transferred to an IRA or eligible employer plan.

By my remarks in the OP and comments below, you can tell that I am leaning towards the w/d as opposed to rollover. Ultimately I'm still deciding on whether or not the tax hit would be worth it. I'm not particularly struggling financially, so I'm not desperate for the cash. I am, however, worried about economic collapse. This whole decision is based soley on that premise. Being young and aware(politically speaking) of the financial downfalls this Country has looming over us, puts me in a position that I want to prepare and be ready. If collapse is inevitable, then I would say PMs would be the way to go. But if there is a chance that we can turn the tide and change the financial system before total collapse occurs, then I would love to just roll it over.

I am no investment expert, however. I've been talking to family/friends/co-workers about this decision, and decided to take it to the DP as well.

Thanks LapHog for taking the time to respond. I'm not sure if I covered all the grounds you were looking for, but this reply IS getting a bit long, so I'll end it here.

Take care brother.

My Political Awakening: I Wanted to Change the World...
I am NOT Anti-America. America is Anti-Me - Lowkey
How to Handle POLICE STATE Encounters

In general, I see where you

In general, I see where you are coming from, but as a former adviser I still would have a boatload of questions to ask before I could offer what I would consider thorough guidance. But I'm meticulous like that. :-) And though I'd love to take the time, I'm short on that commodity these days!

But I'll leave you with just one other idea that hasn't yet been mentioned, in case it's worthwhile. Does your 401k offer the ability to take a loan? Most do, up to a certain percentage of your vested amount (so long as you meet a certain minimum account balance first, usually). If so, you might consider rolling over the TSP and then taking a loan for the max amount, using the proceeds of it to purchase the PMs instead.

In this way, you avoid the tax hit; you get your PMs; and then you are merely making minimum payments back to yourself in the 401k at a set rate of interest over the maximum allowable term. Be aware that this could preclude you from making additional contributions to your 401k until the loan is repaid, though it may not. It depends on your plan's rules and guidelines, since they vary from company to company.

In any case, best of luck in whatever decision you make.

Also- as a sidenote- if the sh!t really does hit the fan, PMs will not be as important as most in here imagine. When society first delves to those miserable depths, it will be all about bartering with survival necessities: food, ammo, health kits, lighters, matches, band-aids, etc etc. Those will be the currencies. PMs will be very very far down the list, severely diminished in value until such time as some semblance of structure/normalcy is restored. So make sure you consider that, too, in weighing your options so that PMs don't skew your judgment one way or the other in a SHTF scenario.

It is not very much the decision shouldn't be that hard

I would just withdrawal and turn the funds into cold hard cash, i.e. silver coin. It is on sale right now get it while it lasts.

Does anybody think

that a rollover would be the best route? I'm still leaning towards the withdrawal

My Political Awakening: I Wanted to Change the World...
I am NOT Anti-America. America is Anti-Me - Lowkey
How to Handle POLICE STATE Encounters

I agree with the two of you.

And Hey, bullion is awfully low right now *wink, *wink.

“When a well-packaged web of lies has been sold gradually to the masses over generations, the truth will seem utterly preposterous and its speaker a raving lunatic.” – Dresden James

Take it and buy bullion or

Take it and buy bullion or some other tangible useful asset while you still can... 401k's are on borrowed time...

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Thanks hawkiye

Current poll results are:
1 vote: Rollover (non-dp user/friend of mine)
2 votes: Buy something tangible (Myself and You)

I'm still leaning more towards your suggestion. Thanks again :)

My Political Awakening: I Wanted to Change the World...
I am NOT Anti-America. America is Anti-Me - Lowkey
How to Handle POLICE STATE Encounters