Thrift Savings Plan Options When Leaving the Military

Leaving the military brings up many questions, including what to do with your Thrift Savings Plan (TSP) account. Most servicemembers contribute to their TSP account as an opportunity to build their retirement income while they are actively serving – it’s routine and often automated, so the level of effort is relatively low. Once servicemembers transition into civilian life, though, and contributions are no longer being made, the answer to the TSP question might not be so obvious.

What is TSP?

TSP is a retirement savings and investment plan for members of the uniformed services as well as for federal employees. It is similar to 401(k) plans that may be offered by civilian employers and it offers low-expense retirement investment options. Servicemembers covered by the Blended Retirement System (BRS) were automatically enrolled in TSP after 60 days of service.

What do you do with TSP after your service?

While separating from the service may feel overwhelming at times, the relieving thing about TSP is that you do not have to take immediate action. There is time to formulate a plan and understand your options, which can help you align your retirement savings with your new financial goals. Here are some options to consider.

1. Leave your money in TSP.

There is no requirement to withdraw or move your funds immediately after your service. In fact, there are some advantages to keeping your money in TSP.

• Low administrative and investment fees: TSP boasts some of the lowest fees in the industry.
• Continued growth: The money you contributed while in the service will continue to grow depending on how you have it invested within the TSP funds. Also, depending on whether you contributed to the traditional or Roth TSP, that growth can be tax-deferred or tax-free, so you won’t face an immediate tax bill.
• Simplicity: You don’t have to do anything special to leave your money in TSP. It’s an easy choice and one that still provides access to the TSP withdrawal options.
• Account Management: You still have full access to tsp.gov to manage your account and change your investment allocations.
• You can use your TSP to consolidate your retirement accounts: While you cannot directly contribute money into your TSP, you can roll eligible retirement accounts into your TSP. This is true for traditional IRA accounts and Roth or Traditional 401(k) plans. Doing so may allow you to consolidate retirement accounts for easier management with lower fees.

There are some limitations to consider.

• You cannot continue to directly contribute to TSP unless you return to federal service: After your service has ended, payroll contributions to your TSP account cease. While the money that is already in your account will continue to grow, unless you become a federal employee or return to a uniformed service, you can not contribute more money directly to your TSP. However, as mentioned above, you can contribute additional funds via rollovers, if you have those accounts available. If you do return to federal service, you will have to open a separate TSP account. You could then roll your active duty TSP account into your federal account, merging them into one account.
• Investment options may be limited: While TSP’s simplicity allows for very low fees, it does limit the types of investments that you have access to.

Leaving your money in TSP after separation allows for withdrawals and distributions once you turn 59 ½ years old. At that time, withdrawals are without tax penalties, although you may still need to plan for income tax if your distributions come from a traditional TSP account.

2. Roll your TSP funds over to a traditional or Roth IRA.

It is possible to roll your TSP funds into an Individual Retirement Account (IRA). There are no penalties as long as you follow IRS rollover rules.

Funds from a Roth TSP can be rolled over into a Roth IRA without penalty. Similarly, traditional TSP funds can be rolled over into a traditional IRA. If you contributed to both a Roth and traditional TSP during your service, be sure to transfer funds into their appropriate account type to avoid tax liabilities.

There are some advantages to rolling your TSP funds into an IRA.

• More investment choices and more control: While TSP only offers a few options of funds (G, F, C, S, I, and L funds), IRAs can offer access to stocks, bonds, ETFs, mutual funds, and more.
  Note: Although TSP offers a mutual fund window, there are some eligibility requirements and stipulations which can be found here.
• Withdrawal flexibility: Some of the withdrawal rules for IRAs are not as strict as TSP. IRAs offer early withdrawal exceptions like first-time home buying and education expenses.
• Improved Required Minimum Distribution (RMD) simplicity: IRA balances are aggregated for the purpose of determining the owner’s future RMDs. Under the current tax code as of July 2025, TSP, 401(k), and 403(b) accounts are not included in this aggregation calculation. They require their own individual distributions to satisfy the RMD calculation requirements.

There are some disadvantages to rolling your TSP funds into an IRA.

• Possible higher fees: This depends on the IRA provider and your investment choices.
• More responsibility: IRAs may require more management by you or by someone you hire than TSP does.
• Not adhering to the 60-day rule: Rolling over funds from one retirement account to another retirement account will generate tax liabilities and penalties if the distribution is not completed within 60 days. This can be particularly problematic in instances where the money is first transferred to the account owner before being transferred.

3. Roll your TSP funds over to a new employer’s 401(k) plan.

If you are hired by an employer that offers a 401(k) or 403(b) plan, you may be able to roll your TSP funds into that plan, depending on whether the new retirement account allows such a rollover. This may be a good idea for if you prefer to have all your retirement savings in one employer-sponsored plan.

This could be beneficial for a few reasons.

• Consolidation: You can keep your TSP funds and 401(k) in one place rather than tracking two separate retirement accounts.
  Note: Keep in mind that you can also do this when you leave employment by rolling your employer’s 401(k) into the TSP account.
• Continued growth: Your money will remain in a retirement status of tax-deferred or Roth growth.
• Loan options: Some 401(k) plans allow participants to borrow from their balance. TSP does not permit borrowing for separated or retired members.

There are some disadvantages too.

• Varied fees and investment options: Some employer-sponsored plans can be less diversified or more costly than TSP.
• There may be a waiting period: Sometimes you may need to wait for a specified time before becoming eligible to contribute or roll over funds.

4. Make an early withdrawal.

This is probably the least recommended option for your TSP account. While it is true you may withdraw your funds from TSP before age 59 ½, there are penalties and tax liabilities for doing so, with very few exceptions. There is also the loss of your potential retirement income. With no or less money in your TSP account, you will miss out on the growth potential of maintaining your TSP at full value. This could equate to a loss of hundreds or thousands of dollars over time.

The bottom line with this option: avoid it unless absolutely necessary. While it may be tempting to access your TSP funds, especially when facing financial uncertainty, resist the urge as much as possible. The long-term cost can be steep.

What choice is right for you?

Your TSP account is a valuable asset. It’s one that can help you reach your future financial goals in retirement. What to do with your funds greatly depends on your financial situation, your preferences for investment, and even your career plans after military service. It is recommended that you speak with a certified financial planner to avoid costly mistakes and help you align your TSP decisions with your goals.

The Navy Mutual blog is meant to provide basic information that generally applies to most situations and should not be construed as legal or tax advice. It is not meant to replace the services of a financial planner, insurance counselor, attorney, or tax advisor. You are encouraged to consult qualified legal and financial professionals for individual estate planning advice. Information contained in this blog post may change on occasion.