TSP to Gold IRA

The federal Thrift Savings Plan has been a great way for military and federal employees to set money aside for retirement – at a very low cost. But there’s one big problem: It’s not diverse enough.

TSP Basics

Currently, the Thrift Savings Plan offers just a few investment options – three stock funds and two bond funds:

Stock funds

The Common Stock Index Investment (C) Fund;

The Small Capitalization Stock Index (S) Fund;

The International Stock Index Investment (I) Fund;

Bond funds

The Fixed Income Index Investment (F) Fund;

The Government Securities Index (G) Fund.

Additionally, there's an "L" fund, which is designed to provide income for TSP beneficiaries who are already retired.

As index funds go, the TSP funds are solid options within their own investment categories. But there’s no allocation to alternative asset classes, such as gold and precious metals, cryptocurrencies, or real estate.

The TSP allows you to choose a “lifecycle” fund that combines these funds for you according to your anticipated retirement date. But that doesn’t solve the diversification issue.

Currently, there is no option in the TSP that allows you to hold gold, silver, real estate, or any other alternative asset classes.

That's a problem. If you rely entirely on the Thrift Savings Plan for your retirement investing, you could wind up dangerously overexposed to just two major asset classes: stocks and bonds.

In the (inevitable) event of a major market downturn, or a debt-induced period of hyperinflation, you could be left seriously hurt.

Most investors with significant retirement assets can benefit from an allocation to alternative asset classes, such as gold and precious metals. These can be laggards when stock markets are hot. But when the stock market is rocky, rising interest rates are driving down bond prices, gold and silver can provide a vulnerable counterweight to these traditional asset classes.

But if your money is in the TSP, how can you diversify into gold? Is it possible?

Indeed, it is by using a self-directed gold IRA.

Related: Best Gold IRA Companies - View Our List of Top Rated Firms

Diversify with a Self-Directed IRA (SDIRA)

Here’s how to do it:

Once you retire or leave government service, the TSP terms allow you to transfer any or all of your TSP assets to your new employer's plan or to do a tax-free rollover into an IRA. You can also make an in-service partial withdrawal of vested assets from your TSP once you reach age 59½.  If you want to own gold and silver bullion directly rather than through a fund, you'll need to find an IRA firm specializing in self-directed IRAs, including gold IRAs.

Not every investment company allows you to do this. Most Wall Street firms are not set up to allow you to hold gold, silver, or any other alternative assets directly within your IRA. Most of them do stocks, bonds, money markets, ETFs, and mutual funds – and not much else.

Once you open an account with a self-directed IRA administrator or custodian, they can help refer you to a third-party vaulting and storage provider. These are the people who will physically hold your gold and silver coins, bars, and bullion on behalf of your IRA.

Do not take direct possession of IRA gold or precious metals.

Warning: Do not try to hold your IRA’s gold or silver directly in your possession. This is a violation of prohibited transaction laws. If the IRS catches you, they could disqualify your IRA and charge you income taxes on the entire amount, along with significant penalties.

When you have a gold or precious metals IRA, the assets should never pass directly into your hands. They must always be held by an authorized custodian on your IRA’s behalf.

Related: Diversify Your Retirement with Physical Precious Metals (Tax and Penalty Free)

TSP to IRA Transfer Methods

There are two ways to move money from your TSP to a self-directed IRA, the rollover method and the direct trustee-to-trustee transfer.

The Rollover Method

With the rollover method, you request a lump-sum withdrawal from your TSP. and then deposit it into your new IRA account within 60 days.

When you make the deposit, be sure to designate the deposit as a rollover from another plan, not as a new contribution. Otherwise, your new IRA custodian or administrator has no way of knowing the difference! And annual contributions to IRA accounts are limited to $6,000 or less, with an additional $1,000 allowed in ‘catch-up’ contributions if you are age 50 or older. Married couples can contribute up to twice the amounts allowed for single taxpayers.

Warning: The 60-Day Deadline

Note: Making that 60-day deadline is critical. Otherwise, the IRS will treat it as a withdrawal, and you'll be liable for income taxes and any early withdrawal penalties.

Because one missed deadline can easily cost you thousands in taxes and penalties, most people are better off using the direct trustee-to-trustee transfer method.

Related: Augusta Precious Metals Review - Research into the Gold Company's Ratings, Fees, and Client Reviews 

The Trustee-to-Trustee Transfer Method

With the direct trustee-to-trustee transfer method, the money never passes through your hands. Instead, you first open an account with a self-directed IRA or gold IRA provider. Once you have an account number and they are ready to receive funds, you contact the TSP and fill out the transfer request, telling them exactly where to send the money.

The TSP will then wire the funds direct to your new self-directed IRA.

Once your self-directed IRA is funded, you then specify in writing how you want them to invest your money. With gold IRAs, you generally tell them what gold bullion coins, bars, and rounds to buy, at what price, and where from.

Tax Benefits of Rolling Over

This not only preserves the benefit of tax deferral you got from your TSP – it allows you to keep making contributions for as long as you have earned income.

Rolling TSP assets over to a self-directed IRA also gives you another valuable option: You can convert part or all of your new traditional IRA's assets to a Roth IRA.

You'll pay current income taxes on any amounts you choose to convert. But once the process is done and the assets have been in the Roth for at least five years, they are never again subject to income tax.

Furthermore, while both the TSP and tfraditional IRAs force you to begin taking required minimum distributions (and paying income tax on them) beginning at age 72, Roth accounts have no RMDs at all. You can continue letting your Roth account assets compound tax-free for as long as you live. 

Related: Traditional Vs. Roth IRA for the Precious Metals Investor

Fees

Most self-directed IRA firms will charge a one-time set-up fee and an annual fee. Sometimes one or both fees are waived for large accounts.

Additionally, some self-directed IRA firms charge a percentage of assets under management (AUM fee), while others charge a flat rate per transaction based on a menu of services. If you have a large account and make just a few transactions each year, you may be better off with a flat-rate per transaction fee structure.

You may also have a monthly statement fee.

Your third-party vault or storage vendor who actually holds the gold on your behalf and provides the secure storage facility will have fees, as well. There may also be insurance premiums if you choose to insure your precious metals against theft or loss.

Related: Birch Gold Group Review - Insider Look at the Gold IRA Dealer's Ratings, Complaints, & Fees

Authorized Gold IRA Investments

Not all forms of gold and precious metals are eligible for IRAs. Jewelry and collectors’ items are not permitted within IRAs, nor are coins, bars, and rounds of insufficient purity and consistency.

IRAs can hold gold, silver, platinum, and palladium bullion bars and rounds, provided they have been produced by a national mint or a NYMEX or COMEX-approved refinery meeting specific purity requirements.

Authorized coins include:

• American Gold, Platinum, Palladium, and Silver Eagles
• American Gold Buffalo (uncirculated, not proofs)
• British Gold and Silver Britannias (from 2013)
• America the Beautiful silver coins
• British ‘Queen’s Beasts’
• British Shēngxiào Lunar Series gold and silver coins
• Canadian Maple Leaf coins
• Austrian Gold and Silver Philharmonics
• Australian Kangaroo/Nugget coins
• Australian Silver Kookaburra coins
• Australian Platinum Koalas
• Chinese Gold and Silver Pandas
• Mexican Libertad silver coins
• Isle of Man Platinum Noble coins

Note that some coins popular with investors and collectors outside of IRA accounts, such as the South African Krugerrand, are not on the list.

You don’t have to be intimidated.

But the laws governing allowable transactions within self-directed IRAs and other retirement accounts are complex. One wrong move can cost a great deal in taxes, fees and penalties. It’s important to do business with knowledgeable and experienced professionals with knowledge specific to self-directed IRAs.