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gigglesworthy t1_j26x6xq wrote

Reply to comment by Nagisan in Girlfriend is changing jobs. Should she move her 401K into the TSP? by buskingengineer

> While it is tough to beat TSP in a company 401k, it's easy to beat in an IRA, and IRAs have so much more flexibility and accessibility.

This advice doesn't sound right. An IRA doesn't have any special features that allow it to beat a 401k or the TSP.

The main advantage that IRAs have over most 401k's is access to more funds. But most of those other funds are worthless considering that the S&P 500 beats 90% of them over the long term. Add to that the very low expense ratio of 0.043% for the TSP C Fund (market index fund), and it's hard to see how an IRA can 'beat' the TSP. IRAa tend to have higher fees, except for access to some of the 0% funds like FZROX. Large employers that offer 401k/403b plans and the TSP have the negotiation power to demand lower fees for their employees. Individual investors with IRAs don't.

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Nagisan t1_j2710mp wrote

There's at least a few IRA options that have lower fees than TSP at every major brokerage. And beat doesn't have to be by a significant amount to beat it. Even slightly lower expense ratios with similar returns "beats" the higher ER option (TSP in this case).

TSP is great as far as employer plans go, but most of the big IRA brokerages have lower ER options available.

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gigglesworthy t1_j27aa8w wrote

Sorry I have to disagree here. With expense ratios like 0.04%, you're talking like a $25 difference over a decade. The difference is trivial, and not enough to 'beat' anything. An IRA doesn't provide much benefit here.

When we say that you should seek funds with low expense ratios, we're mostly talking about unscrupulous funds, mostly managed funds, who charge more than, say, 0.25% when they earn less then the market; or the old days where expense ratios like 1% were the norm.

So yeah, an IRA might have funds with a slightly lower expense ratio. But that won't help you to beat the market. The fees for most funds in most IRAs are going to be much higher than 0.04%.

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Nagisan t1_j27bk6k wrote

A 0.04% ER (vs 0% FZROX, for example) costs $25 on $62.5k per year...not 'over a decade'.

Yes, it's a small amount, but yes this is one factor that can make an IRA better than TSP.

ER isn't the only thing either...access to early withdrawals can be situational, not recommended, but still easier and cheaper with an IRA than with a 401k / TSP.

Look at it from the other way around, would you recommend someone roll money from an IRA (with good low ER funds) into TSP or a 401k? Why or why not? My point is entirely that there are more reasons to have money in an IRA than there are to have money in a 401k-style plan. TSP is great as far as 401k's go, but it doesn't beat (or match depending on your needs) an IRA so logically you should prefer to move your money to an IRA unless TSP offers something special (which it really doesn't other than maybe the G-fund).

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gigglesworthy t1_j2bdexg wrote

My math was admittedly simple but illustrates a point. If I invest $1,000 a year for 10 years and a marginal 6% return, a fee of 0.04% is about $31, that's not enough to make a meaningful difference. Source . It's probably not worth fretting over.

> would you recommend someone roll money from an IRA (with good low ER funds) into TSP or a 401k? Why or why not?

No, because it probably wouldn't make a big difference.

But, it depends on the fees. In my experience, funds in IRAs tend to be higher than those in 401ks, and are usually much higher than 0.04%. That's why I argue that 401ks and the tsp are superior in many cases. Large employers have negotiating power to demand low fees. Individual investors don't get that same luxury. This is of course not universally true.

My only argument here is your statement that IRAs 'easily beat' a 401k. Funds in a 401K will often match or beat an IRA in terms of fees. I have both. I've had to go through this decision multiple times.

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Nagisan t1_j2bhd6d wrote

> My only argument here is your statement that IRAs beat a 401k. 401K is often match or beat an IRA in terms of fees.

As someone who has an IRA with public options that are lower fee than even TSP offers, your argument is objectively false.

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