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My wife and I both work and have access to a TSP and a 403b retirement plan. We cannot currently afford to contribute the maximum $18,500 per year to both plans, but plan on making contributing enough to both plans to fully maximize the matches provided by both employers with enough left over to max out either of our individual limits. Since our relationship is stable and we are not worried about whose account the money is in, what is the proper way to compare the 403b and TSP to decide which account to deposit more into?

To clarify, one of you has access to the TSP and the other to the 403(b). We are definitely going to contribute enough to get the full match in both and now want to know which to contribute additional, unmatched money to.

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If I am reading this right, one of you has access to the TSP and the other to the 403(b). Also I am reading that you are definitely going to contribute enough to get the full match in both and now want to know which to contribute additional, unmatched money to.

In that case, the determining factor is which plan has better available funds. Here "better" means they have funds that cover all asset classes and that have low fees (expense ratio).

The TSP only has 6 funds, but they pretty much cover the basics (low risk, bonds, large cap, small cap, international, and target-date). Their fees are extremely low, around 3.8 basis points per year.

Your 403(b) probably has competing funds and it is possible, but not likely, that some (most likely large-cap US equity funds) will have lower fees than the TSP. You will have to look at your own options in the 403(b), but most likely the TSP will be better in this respect. If you do not want to research this further, you are safe (and most likely right) putting all excess in the TSP.

The two will be the same in terms of tax implications.

  • Thank you for the rewording. I edited the question to include that summary. The 3.8 basis points is the "Net Administrative Expenses" from the link you provide? – StrongBad Feb 1 '18 at 18:25
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    Yes. This can be compared to the "expense ratio" for funds in your 403(b). In the 403(b), "net expense ratio" means what they charged last year and "gross expense ratio" means what they are contractually permitted to charge. There are only like a couple of funds out there that have fees below 3.8 basis points unless your employer has a very special contract with them. The TSP is managing funds at or below cost. Of course, the TSP has no special funds like real estate, inflation protected, emerging markets, or sector funds. But those aren't the bulk of your portfolio, generally. – farnsy Feb 1 '18 at 18:28
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Step 1 would be to contribute the max to get the match in each, you have that down. Good job.

Step 2 would be to contribute to the best plan up until its max. You suggested that you must choose between a 403(b) or TSP; but, if you meet the income requirements, a better choice would be contributions to a traditional or ROTH IRA in your own brokerage account. You can open up a free account with many brokers (Fidelity or Vanguard for example) and have a much wider choice of investments. I would take a long look at this for your step 2.

Once that is meet, then Step 3 would be to decide between the 403(b) and TSP. You don't give details about the 403(b). What are the fees? What are the investment choices like? The fees for the TSP are very low, but there are very few funds to choose from. Considering that, which plan do you guys prefer?

Those are the kind of questions you should be asking. Coming up with a detailed plan would need a lot more information.

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