What to Do with Your TSP After the Military

Transitioning out of the military brings many financial decisions, including what to do with your Thrift Savings Plan (TSP). Whether you want to roll over your funds, leave them in the TSP, or start making withdrawals, understanding your options can help you make the best financial decision for your future.

Option 1: Leave Your Money in the TSP

One of the simplest choices is to leave your TSP funds where they are. This option keeps you invested in the TSP’s low-cost index funds, which have some of the lowest expense ratios available. However, you won’t be able to make additional contributions unless you transition to a federal civilian job that also offers the TSP.

Pros:

  • Extremely low fees compared to other retirement accounts.
  • Access to high-quality investment options.
  • Ability to make withdrawals when needed.

Cons:

  • No more contributions unless you become a federal employee.
  • Limited investment choices compared to an IRA.

Option 2: Roll Over Your TSP to an IRA (Recommended for Flexibility)

Rolling over your TSP into an Individual Retirement Account (IRA) is a popular choice for those who want more investment options. An IRA allows you to invest in stocks, bonds, ETFs, and alternative assets, giving you more control over your portfolio.

Using a service like Capitalize can make the rollover process seamless, ensuring your funds move without tax penalties or complications. With Capitalize, their dedicated agents will walk you through the process for free.

🔹 How to Rollover Your TSP with Capitalize:

  1. Answer their quick questionnaire on their website.
  2. If you don’t have an IRA already, they will work with you to open one up.
  3. After providing information about your existing 401(k), you’ll schedule a date and time for a representative to contact you when it’s ready to transfer. They’ll get in touch with your 401(k) provider so that all you have to do is authorize the rollover.
  4. Ensure the funds are transferred directly to avoid tax penalties.
  5. Once the rollover process is confirmed, keep track of when the rollover is complete.

Pros:

  • More investment choices than the TSP.
  • Can choose between a Traditional IRA (tax-deferred) or a Roth IRA (tax-free withdrawals in retirement).
  • Potential for higher returns with active management.

Cons:

  • If you roll over your traditional TSP account to a Roth IRA, it’s considered a taxable event, which you’ll have to pay taxes on. To avoid a taxable event, it’s recommended to roll over your TSP to a like-account. A traditional TSP can go into a traditional IRA and a Roth TSP account can roll into a Roth IRA. Both of these rollovers wouldn’t be considered a taxable event.

Option 3: Roll Over to a New Employer’s 401(k)

If your post-military career includes a job with a 401(k) plan, you may be able to roll your TSP funds into it. This keeps your retirement savings consolidated and allows you to continue contributions while taking advantage of employer matching.

Pros:

  • Continue contributing to retirement savings since the 401(k) has to be active to roll over into.
  • Consolidates accounts for easier management.

Cons:

  • Investment options vary by employer.
  • Fees could be higher than the TSP.

Option 4: Withdraw Funds (Last Resort)

Withdrawing from your TSP before age 59½ can result in income taxes and a 10% early withdrawal penalty, unless you qualify for an exception. If you need cash, consider partial withdrawals instead of depleting your entire account.

Pros:

  • Immediate access to funds if needed.

Cons:

  • Subject to taxes and penalties if under 59½.
  • Misses out on long-term compound growth.

Final Thoughts

Deciding what to do with your TSP after leaving the military depends on your financial goals. Rolling it over to an IRA using Capitalize gives you flexibility, while leaving it in the TSP keeps fees low. Whichever path you choose, ensure you’re making the best decision for your long-term financial security.

Want more military personal finance tips? Subscribe to the Spark to FIRE newsletter for insights from me on saving, investing, and growing wealth!

Similar Posts