TSP mutual fund window

TSP Mutual Fund Window: What You Need To Know

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Have you got a Thrift Savings Plan? If you do, then you should learn more about the latest TSP mutual fund window. In June 2022, the Federal Retirement Thrift Investment Board released a mutual fund window (MFW) for TSP participants.  This means that there is now a larger variety of investment choices available to investors within the TSP.  We cover the TSP mutual fund window in detail below. 

What is a TSP and how does it work?

The Thrift Savings Plan, better known as TSP, is a retirement savings plan for government employees. TSP is very similar to a 401(k) that you might see a civilian employer offer. Government employees can defer part of their income into the TSP to save for retirement. The government also matches part of the employee’s contributions to the TSP, much like a 401(k). 

Government employees can choose Roth TSP or Traditional TSP, or a mixture of both. They can choose to save up to the IRS maximum for 401(k) plans each year ($23,000 in 2024) into their TSP. They can then go into their TSP account and choose how they would like to invest their retirement savings. 

Prior to 2022, the TSP only offered TSP-specific funds to invest in. In 2022, TSP opened a mutual fund window option for TSP participants. This allows broader investing options for those who do not want to be limited to TSP-specific funds.

How does a mutual fund work? 

A mutual fund is a pool of investments that allows many investors to invest in a specific pool of assets. Mutual funds allow for diversification without having to buy thousands of individual stocks. There are many types of mutual funds, and not all are created equal. It is important to understand the type of fund you are invested in, as well as the fees associated with that specific mutual fund. 

How does the TSP mutual fund window work? 

The TSP mutual fund window allows TSP participants to put some of their TSP savings into mutual funds outside of the TSP. This option allows for more investment flexibility that was not available to TSP participants prior to this option opening. TSP participants must meet certain eligibility requirements before investing in the mutual fund window, but if they do meet those requirements, they can choose to move some of their money into this window. 

What is the eligibility for the mutual fund window? 

In order to be eligible to invest in the TSP mutual fund window, a TSP participant must have at least $10,000 they want to move to the mutual fund window, and they cannot invest more than 25% of their TSP account in the mutual fund window. So in order to move any funds to this investment window, you must have at least $40,000 in your TSP account. 

How much do TSP mutual funds cost?

As with any investment, there are costs associated with using the TSP mutual fund window. While the TSP core funds are all very low cost, the mutual fund window comes with added expenses that the TSP core funds do not have. These expenses are as follows:

  • $55 annual fee to ensure that the use of the mutual fund window does not indirectly increase TSP administrative expenses for TSP participants who choose not to use the mutual fund window
  • $95 annual maintenance fee
  • $28.75 per trade fee
  • Other fees and expenses specific to chosen mutual funds

So using this option is not cheap, and costs must be taken into account before you choose to move money here. 

What mutual funds are available in the TSP mutual fund window?

There are over 4,000 mutual funds available in the mutual fund window. These will cover all sectors of the stock and bond market. It is important to know what you are investing in, and why, before choosing a mutual fund. 

What are the pros of investing through the mutual fund window? 

The pros of investing in the TSP mutual fund window are flexibility. It allows participants to choose investments they would not normally have access to within the TSP. An example of this is Emerging Markets. TSP does offer an international fund within their core funds, but they do not offer Emerging Markets. Using the mutual fund window allows for an investor to expose part of their portfolio to this market if they choose.

What are the cons of investing through the mutual fund window?

As explained above, this is not a free way to invest. There are fees associated with these investments, and if you are only putting $10,000 into the mutual fund window, these fees are a large percentage of your overall investment. 

What are the risks of investing through the mutual fund window?

The main risk is not knowing what you are investing in. Simply moving money into the window and randomly picking mutual funds could be a costly mistake. Many new investors will choose mutual funds simply based on past returns, which is not indicative of future returns and is not a sound way to choose an investment strategy. 

Choosing to invest in mutual funds should be a strategic decision that is made after doing research on the mutual funds you might want to consider. The TSP core funds are a great low-cost way to diversify your portfolio, so it is not entirely necessary to utilize the mutual fund window simply because you can.

Should I invest in the new TSP mutual funds in 2023? 

As with all financial decisions, it is important to consult your financial advisor before making large investing decisions like this. There is no way to say whether you should or shouldn’t invest in this option without knowing your full financial picture.  If you want help with your finances and are interested in having a comprehensive financial plan, feel free to schedule a discovery call with one of our financial advisors today!

Best Financial Planner Washington DC

Alvin Carlos, CFP®, CFA is an investment advisor and fee-only financial planner, in Washington, D.C that works with clients across the country. He has a Master’s degree in International Relations from SAIS-Johns Hopkins. Alvin is a partner of District Capital, a financial planning firm designed to help professionals in their 30s and 40s achieve their financial goals through smart investing, reducing taxes, retirement planning, and maximizing their money. Schedule a free discovery call to learn how we can help elevate your finances.

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District Capital is an independent, fee-only financial planning firm. We help professionals and entrepreneurs in their 30s and 40s elevate their finances and maximize their money. We are based in Washington, D.C and we work with people virtually nationwide.

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