Dave Ramsey says: Withdrawing money from old Thrift Savings Plan is wrong move
The other day, my wife and I discovered a Thrift Savings Plan (TSP) we’d forgotten about for over 10 years from my time in the Army. There’s a little over $3,200 in there.
We’re both in our thirties, and we’re trying to save up our starter emergency fund in Baby Step 1 of your plan. We were wondering if we should withdraw the money and use it toward Baby Steps 1 and 2, or just leave it in there.
The best thing to do is roll the money over into an IRA. Otherwise, you’re going to be hit with a 10% penalty — plus your tax rate — and end up paying 30%-40% of it to the government.
That’s kind of like asking, “Would it be a good idea to borrow $3,200 at 30% interest to pay off debt?” Of course not! That would be a really dumb idea. And in a sense, that’s what you’d be doing by just taking the money out of the TSP.
It’s not a ton of money, but conceptually, I hate the idea of giving the government 30%-40% of my money just to get my money out. So yeah, do some research, find a good investment professional near you — one with the heart of a teacher — and roll it into an IRA.
Congratulations to you and your wife for deciding to take control of your money. And thank you for your service to our country, Todd. I hope this helped.