If you’re serving in the military or working for the federal government, you have the opportunity to participate in the Thrift Savings Plan (TSP) provided by the government.
While the TSP offers some basic investment options, you may be interested in diversifying your retirement portfolio by incorporating physical gold and silver. This can help protect your savings against recessions, currency devaluations, and economic downturns.
In this guide, we’ll not only walk you through the process of converting your TSP into a Gold IRA but also explain the inner workings of TSPs and why they might not be the ideal choice for all your retirement funds.
TSPs 101
A Thrift Savings Plan (TSP) operates as a defined contribution plan, where you can contribute up to a set limit, but the value of your plan isn’t guaranteed. Unlike defined benefit plans, which ensure a specific pension amount, the performance of your investments dictates the growth of your retirement savings.
Similar to 401(k) and 403(b) plans commonly offered by employers, TSPs were established in 1986 under the Federal Employees Retirement System Act, tailored for federal employees.
Functioning like a 401(k), a TSP enables you to defer a portion of your income into a retirement account called the Thrift Savings Fund, overseen by a board of presidential appointees. Your employer may also match your contributions.
However, TSPs limit your investment options to a predefined set. You can choose from various funds, including the popular Lifecycle Funds, which adjust based on your expected retirement date. These funds comprise the G Fund (government securities), F Fund (fixed income index), C Fund (common stock index), S Fund (small-cap stock index), and I Fund (international stock index).
Notably absent from these options are physical precious metals like gold and silver, as well as gold-related stocks or exchange-traded funds.
But there’s a silver lining. Upon retiring from your government position, you have the flexibility to transfer your TSP funds to another qualified employer plan or an individual retirement plan (IRA) without incurring taxes.
What Plans Allow Gold Bullion?
Only a select few retirement accounts permit the inclusion of gold bullion, alongside other precious metals like silver, platinum, and palladium. These assets find a home in specific retirement vehicles such as individual 401(k)s (tailored for self-employed individuals) and Gold IRAs.
Setting itself apart from traditional IRAs, both Roth and traditional, a self-directed IRA offers a wider investment spectrum encompassing physical precious metals, cryptocurrencies, and even real estate.
To embark on this journey, connect with a reputable Gold IRA dealer. They’ll guide you towards a reliable self-directed IRA custodian, assist in selecting a secure gold storage facility, and streamline the entire setup procedure.
Regulations within IRAs outline the acceptable types of precious metal coins and bars. Among the preferred choices are coins minted by the U.S. Mint (like the “American Eagle” series) and the Canadian Mint (featuring the iconic “maple leaf” coins).
For bullion bars to qualify, they must meet specific purity standards. Opting for coins not only ensures convenience in purchasing but also provides clarity regarding the product’s authenticity. It’s crucial to note that only bullion coins, not numismatic ones, are eligible for inclusion in an IRA.
Within an IRA, you have the option to invest in “paper gold,” represented by gold mining stocks and ETF shares. However, it’s essential to distinguish these paper-based assets from physical metal. When purchasing gold mining shares, for example, their value correlates indirectly with the price of gold. External factors like strikes or cave-ins can significantly impact stock prices, even in times of robust gold prices.
ETFs, while convenient, can face challenges during sudden spikes in buying or selling activity, causing their value to deviate from that of gold. Conversely, physical gold and silver coins hold intrinsic value and are widely recognized as a form of currency, particularly in times of economic turmoil.
Consider the practicality of using stock certificates during a crisis, and you’ll understand why many investors prioritize owning physical gold over its paper counterparts.
How to Rollover Your TSP
Upon departing from federal employment, it’s crucial to transfer your TSP to another tax-deferred account to maintain your contribution capabilities. If you opt to roll it into a standard or Roth account, the value of your TSP will be considered taxable income for the current year.
Moreover, transferring your TSP to an IRA presents the opportunity to include precious metal bullion in a tax-deferred account. This arrangement ensures that you won’t incur taxes on the metal until you decide to withdraw it from the IRA.
You Have Two Options for Transferring Your TSP to a Gold IRA:
- Rollover: With a rollover, you withdraw funds from your TSP and transfer them to one or more IRAs. It’s crucial to designate the deposit as a rollover, not a contribution, as contribution limits apply. Additionally, you must complete the rollover within 60 days to avoid IRS penalties. However, this method can be prone to errors, potentially leading to significant tax liabilities and jeopardizing your retirement savings’ tax advantages.
- Direct Transfer: Also known as a trustee-to-trustee transfer, this method involves moving TSP assets or cash directly to one or more IRAs without any intermediary handling the funds. Unlike the rollover method, there’s no 60-day deadline to worry about, making it a more straightforward and preferable option.
It’s worth noting that you can maintain multiple IRAs, allowing you to diversify your retirement funds between a traditional IRA and a Gold IRA. You can determine the portion of your wealth you wish to allocate to precious metals and distribute your transfers accordingly. Many financial experts recommend allocating at least 10 percent of your investment portfolio to gold and silver.
When selecting a Gold IRA provider, ensure they are reputable and well-established in the precious metals market.
