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Q: I have worked for the federal government for six years and participate in the Thrift Savings Plan (TSP).

I also have a self-directed Roth IRA and 401(k) with Schwab. Getting near retirement, I am not really happy with the burden of self-directed accounts, and my trading costs are high because I tend to over-manage the portfolio. I also have a Vanguard taxable account. I am considering these alternatives for the retirement plans:

• Roll the Schwab 401(k) plan into the Thrift Savings Plan, which as you point out in columns is very low-cost.

• Keep the TSP and Schwab separate, and have Schwab administer the plans it has. It charges 0.75 to 1 percent of assets and has various plans. I don’t like to lose that much in costs (it would be about $7,000 a year in fees) compared to the TSP, but do you think Schwab could outperform TSP consistently?

• Transfer retirement plans to Vanguard and invest in a LifeStrategy Fund. I have heard that it is pretty hard for actively managed plans to beat the indexes, and the LifeStrategy Fund is built with index funds and regularly rebalances.

I am trying to simplify my retirement-fund management. I don’t think I do a very good job; I get too impulsive. Any suggestions would be welcome.

A: Whether you go to Schwab, Fidelity, Vanguard or another asset manager/fund company, the basic issue is whether management can recover the costs it imposes on your money.

Those costs vary from reasonable to ludicrous, but most are in the range of 0.75 percent or 1.5 percent, plus higher trading costs.

Here, decades of research are not encouraging. The research indicates that the additional costs will not be recovered. When you bet on managers, you are basically hoping that your manager will be one of the 30 percent (often less) who beat their target index.

The reason costs aren’t recovered is that even very intelligent people can’t predict the future.

In fact, you can have a low-cost, managed solution at the TSP, Schwab and Vanguard. You can do this very easily in the TSP, while enjoying its ultralow costs of 0.027 percent, by investing in one of the “L” funds.

Rather than consolidate the Schwab 401(k) plan into the TSP, why not keep it until you retire? Then you could move the TSP holdings into a familiar Schwab rollover account. You’ll have all your assets under one roof, free checking and online account information that shows your total holdings. That’s a lot better than having what some call “scattered asset syndrome.”


Copyright 2013, Universal Press Syndicate