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For nearly four decades, the Thrift Savings Plan (TSP) has allowed millions of federal workers to save for retirement.

Designed as the federal government’s answer to the private sector’s 401(k) plan, TSP accounts offer similar features such as pre-tax contributions, tax-deferred earnings, and various investment options.

Features such as low fees, automatic and guaranteed matching contributions, and immediate vesting set the TSP apart from 401(k) plans which can have high fees and for which employer matching is optional. 

Is a TSP the Best Vehicle for Achieving Your Retirement Goals?

But what about when you are on the glide path to retirement or stop contributing after retirement? Are TSP accounts up to the critical task of creating lifetime income sufficiency and preserving capital in the face of high inflation? Do they provide enough investment flexibility to diversify into asset classes that stave off inflation and the potential loss of purchasing power?   

While there’s plenty to like about the TSP, it can be limiting from a long-term planning perspective. It offers five pre-packaged indexed investment options along with a zero-risk government bond fund and five lifecycle funds—essentially allocating a lifelong retirement portfolio to stocks and bonds. 

But those staring off into a retirement time horizon of 20 to 30 years may want to consider an allocation of inflation-eating alternative investments such as precious metals—an option not available in a TSP. It’s not even possible to own shares of mutual funds that hold gold mining stocks (“paper gold”). 

Related: How to Diversify Your Retirement with Physical Gold and Silver

Investing Beyond a TSP for Greater Retirement Security

Fortunately, for those seeking a more diversified approach to building their retirement savings, all or a portion of a Thrift Savings Plan can be rolled over to a self-directed IRA starting at age 59 ½.

With a self-directed IRA, you have greater freedom and flexibility to choose from a broader range of assets to create an asset allocation to meet any objective and suit any risk profile, including precious metals. 

Benefits of Investing a Portion of Retirement Savings in Precious Metals

Precious metals such as gold, silver, and platinum are strategic investments offering benefits well beyond the scope of traditional assets, including:

Diversification for lowering risk: Gold and other precious metals act as safe havens during periods of stock market volatility, insulating your wealth from the bubble-like behavior of the market. 

Low correlation with stocks and bonds: Precious metals tend to move counter to the direction of stock and bond prices, creating a hedge against volatility and providing ballast for portfolio stability. 

Protect purchasing power: Precious metals, particularly gold, have historically maintained their value and are a proven hedge against inflation. 

Over time, precious metals have shown to be safe and reliable stores of value for investors looking to build and preserve wealth while minimizing portfolio volatility and risk.

How much of your portfolio you allocate to precious metals should depend on your age, time horizon, and liquidity needs. Considering those factors, many investors allocate between 5 and 20 percent of their portfolio to precious metals. 

Related: Diversify Your Thrift Savings Plan (TSP) with Physical Gold & Silver

How to Hold Physical Precious Metals in a Retirement Account

Under IRS rules, certain types of self-directed individual retirement accounts (IRAs) are allowed to hold precious metals in the form of bullion or coins. With a gold IRA, you can invest in traditional investments, such as stocks, bonds, mutual funds, and exchange-traded funds (ETFs). But you can also hold alternative investments such as precious metals. 

Gold IRAs are structured the same as any traditional or Roth IRA, with the same tax benefits and governed by the same contribution and withdrawal rules. However, while regular IRAs can be opened through brokerage firms and other financial institutions, gold IRAs can only be established through administrators specializing in alternative, self-directed investments and accredited by the IRS to handle physical assets.  

How a Gold IRA Works

While there are similarities between gold IRAs and other IRAs, there are some key differences in how they work, specifically regarding the rules and procedures that must be followed to make them eligible to hold physical gold. 

Before the passage of the Taxpayer Relief Act of 1997, physical assets were not allowed to be held in self-directed IRAs. While that has changed, the IRS has imposed several rules and procedures that must be followed to invest in precious metals inside an IRA legally. 

A gold IRA administrator handles all aspects of the transaction, including purchasing the gold on your behalf and handling all the arrangements for insuring and shipping the gold to a storage facility. 

IRS Storage Rules

The IRS requires that your physical gold be stored according to its guidelines. Once you have completed the transaction, the custodian will hand your gold over to an IRS-sanctioned third party, typically an off-site depository.

Some custodians offer a choice of depositories, while others have a single option. They are responsible for inventorying and safeguarding your gold until you request to sell it or distribute it at some point in the future. Once stored, your gold never leaves the vault except under your direction. 

Related: Gold IRA Tax Rules – Buy Physical Gold & Silver (Tax Free)

IRS Approved Precious Metals for Gold IRAs

The IRS has set stringent guidelines for holding precious metals in a gold IRA. First, they must meet a minimum purity standard. Gold in all its forms must have 99.5% purity (24 Karats), except for the American Eagle Coin, which allows 91.67% purity (22 Karats). Silver requires 99.9% purity, while platinum and palladium require 99.95% purity. 

Second, coins must be minted by the U.S. or another approved foreign mint. Among the approved foreign mints are Canada, Australia, Switzerland (gold PAMP Swiss bars), and Mexico (silver Libertad coins). 

Finally, coins categorized as collectibles, such as graded or certified coins, are not allowed to be held in a gold IRA.

How to Buy Precious Metals with TSP Funds

If you currently have a TSP account and are 59 ½ or about to retire from the federal workforce, you are eligible to move your funds to a gold IRA.

To do that, you must first establish a self-directed IRA with an IRS-approved administrator. You can then request a distribution from your TSA administrator. . When you take possession of the funds, you must physically move them into your new gold IRA account. 

Related: Request Your Free Gold IRA Guide from Augusta Precious Metals

Gold IRA Rollover

Once the funds are distributed, you have 60 days to move the funds (funds must be recorded in the new account). If you miss that deadline, the distributed funds become taxable as ordinary income, and if you’re younger than 59 ½, you will be subject to a 10% penalty.

You must ensure your new gold IRA account is established and ready to receive funds. You are only allowed one IRA rollover within a 365-day period. 

The complication with IRA rollovers from an employer-sponsored plan is that the plan sponsor must withhold 20 percent of your distribution for tax purposes, regardless of your intent to roll it into an IRA. That means you would only be moving 80% of your funds.

You would eventually get the other 20% back through an IRS refund, but to meet the 60-day rollover deadline, you may need to come up with the balance yourself to avoid the tax and penalty on the entire distribution.

Certain circumstances, mainly related to reporting errors by the receiving financial institution, might qualify for a waiver of the tax and penalty if other conditions are met.

If you’re rolling over funds from another IRA to a gold IRA, the current custodian is not required to withhold taxes from the distribution. 

Direct Transfer

To avoid the potential complications of an IRA rollover, use the direct transfer method instead. With a direct transfer, you put a request into your current employer-sponsored plan administrator.

You are requesting that a certain amount of funds be sent directly to the administrator of your gold IRA. The current administrator informs the new administrator of the impending transfer, which is all handled between the two.

A direct transfer is straightforward, with no potential tax complications and no risk of missing deadlines because you never take possession of the funds.

How to Invest in Precious Metals Inside Your Gold IRA

Many of the top gold IRA administrators offer guidance and educational tracks to assist you in making an informed decision about your investment.

Some firms assign a specialist to walk you through your options and help you assess your understanding of investing in precious metals. The specialist will guide you through the process and help you with the paperwork. When you have selected your option, the specialist will execute the transaction and confirm your purchase. 

Once purchased, your precious metals will be shipped to a depository, where they will be secured in a vault and protected with insurance. 

 Summary: TSP to Gold IRA

 Your TSP has been a solid accumulation vehicle, offering great tax benefits and matching contributions. It’s what got you to where you are. But it may not be the best vehicle for getting you where you need to go—creating lifetime income sufficiency and preserving your wealth as you face a 20- to 30-year retirement horizon.

Limited investment options prevent you from diversifying into alternative investments that can hedge your portfolio against inflation while boosting its performance through market volatility.

Fortunately, you do have options. Once you leave the workforce or reach age 59 ½, you are eligible to move all or a portion of your funds to a self-directed IRA that will allow you to own a wider range of investment options, including precious metals.

Precious metals, particularly gold, have proven to effectively inoculate your portfolio against the unpredictability of the markets, significantly improving your outlook for a secure retirement. 

To learn more about diversifying your TSP with physical gold and silver, request your free Gold IRA Investor Kit from Augusta Precious Metals here.