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Thank you for requesting more information about the TSP mutual fund window, a new investment option coming to the TSP in June 2022.
This email includes a lot of details. We encourage you to read through the information carefully if you’re considering supplementing your TSP investments with this new option.
 Overview
The mutual fund window is designed for TSP participants who are interested in greater investment flexibility. If you meet certain eligibility requirements and pay the necessary fees, you’ll be able to invest a portion of your TSP savings in your choice of available mutual funds.
With this option, you would transfer money from your TSP account, through the mutual fund window, and open a separate investment account provided by our mutual fund window vendor.
Once your account is established, you can buy, sell, and exchange mutual funds that you select from those available.
If you have more than one TSP account, such as a civilian account and uniformed services account, and you want to invest money from each account in the mutual fund window, you would need to establish two separate mutual fund window accounts. This means that eligibility requirements and associated fees would also apply separately to each account.
Mutual funds and TSP funds
A mutual fund pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Mutual funds are companies, and investors buy shares in them just like people buy stock in other companies that produce goods or provide services. Each share of a mutual fund represents an investor’s part ownership in the fund and the income it generates.
TSP funds are similar to mutual funds because they also allow investors to pool money and purchase shares of a portfolio containing hundreds of investment holdings. The difference is that our low-cost TSP funds are designed specifically for TSP participants. Only TSP participants can invest in them, and their only goal is to maximize participants' retirement savings.
Eligibility for the mutual fund window
There are certain requirements to participate in the mutual fund window:
- 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.
Additional fees
TSP participants who choose to invest through the mutual fund window will pay fees that do not apply to participants who invest only in TSP funds.
While cost is only one of several factors you should consider when making investment decisions, the cumulative effect of fees and expenses can substantially reduce the growth of your investments. When you keep your investment costs low, you’re able to save more of what you invest. The low fees associated with TSP funds can add up to many tens of thousands of extra dollars in savings over the long term compared with higher-cost mutual funds.
We want to be fully transparent about what you’ll pay if you use the TSP mutual fund window, so that you have all the information you need to make wise investment decisions.
These are the fees associated with the TSP mutual fund window:
- $55 annual administrative fee to ensure that 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 the mutual funds you choose
Annual fees
Annual fees cover administrative and maintenance expenses for the mutual fund window. When you initiate your first transfer, the combined $150 ($55 administrative fee plus $95 maintenance fee) will be taken proportionally from the TSP fund or funds you choose for the transfer. For each year after that, the annual fees will be taken proportionally from all the TSP funds in your account on the last business day of the month of your initial transfer.
Trade fees
When you buy or sell mutual fund shares, these are called trades. For each trade you make in the mutual fund window, you’ll pay the $28.75 trade fee, which is the amount that our brokerage service provider charges for buying and selling these funds.
Trade fees come out of the total trade amount. When you sell, you’ll receive a net amount of the proceeds minus the trade fee. When you buy, the trade fee comes out of the total purchase amount.
You pay a trade fee for every trade you make, even if you place several trades at the same time. However, if you’re moving money from different mutual funds within the same fund family (funds managed by the same investment company), you can choose to place an exchange and pay only one trade fee.
How it works
Once you’ve made the election to move money into the mutual fund window, you independently select which mutual funds you want to invest in with that money. You’ll be able to use a search and filter function to find mutual funds that interest you based on criteria and ratings you select. Each mutual fund listed will include detailed information in a full prospectus that you’ll evaluate before deciding to confirm your purchase.
To move money in and out of your mutual fund window account, you’ll need to perform a fund transfer. A fund transfer is another new feature coming in June that allows you to move money from one or more specific funds to another specific fund or funds without affecting the rest of your account. Fund transfers, along with reallocations (previously called “interfund transfers”), are limited to two transactions each month. The only exception is that there are no limits on fund transfers and reallocations if you’re moving money into the TSP G Fund.
You won’t be able to make an investment election for contributions to go directly into your mutual fund window account. And you won’t be able to request loans, distributions, or withdrawals directly from your mutual fund window account. If you need to access the money in your mutual fund window account, you need to sell shares and then request a transfer back to your TSP funds before requesting a withdrawal or distribution.
Consider the risks
Unlike our low-cost TSP funds, mutual funds available through a brokerage account aren’t vetted by a plan fiduciary to determine whether they are wise investments. This means that you need to carefully review the prospectus for each mutual fund you consider and make your own decisions about which ones will meet your investment goals.
If you prefer to invest in funds overseen by TSP fiduciaries, you should invest in TSP funds.
If you choose the mutual fund window option, the first risk to consider is whether your investments in mutual funds will grow enough to offset the additional fees. You should also keep in mind that any or all of the risks that apply to TSP funds may also apply to your chosen mutual funds, including the following:
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Credit risk—The risk that a borrower will default on a scheduled payment of principal and/or interest. This risk is present in the TSP F Fund and any mutual fund that includes bonds.
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Currency risk—The risk that the value of a currency will rise or fall relative to the value of other currencies. Currency risk occurs with investments in the TSP I Fund or any mutual fund that invests in non-U.S. companies because of fluctuations in the value of the U.S. dollar in relation to the currencies of other countries.
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Inflation risk—The risk that your investments will not grow enough to offset the effects of inflation. This risk is present in all funds.
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Market risk—The risk of a decline in the market value of stocks or bonds. This risk is present in any fund that holds stocks or bonds, including the TSP F, C, S, and I Funds.
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Prepayment risk—A risk associated with any fund that invests in mortgage-backed securities. This includes the TSP F Fund. During periods of declining interest rates, homeowners may refinance their high-rate mortgages and prepay the principal. A fund that holds mortgage-backed securities must reinvest the cash from these prepayments in current bonds with lower interest rates, which lowers the return of the fund.
As with all complex investment decisions, you may want to consult a qualified financial advisor.
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