What to Do with Your Thrift Savings Plan (TSP) After Leaving the Military

When you leave the military, you can no longer contribute to your TSP, but your account can still grow with low fees and flexible investment options. If your balance is $200 or more, your account can stay open. Here are your five options for managing your TSP after separation:

• Leave Assets in Your TSP: Your money continues to grow based on your chosen investments. TSP offers low fees (often lower than index funds) but limited investment options (five main funds and target-date funds). You can’t contribute, but you can adjust your investments as before.

• Roll into an IRA: Gain access to diverse investments (stocks, bonds, ETFs, real estate) and more control. Avoids the 10% early withdrawal penalty (if under 59½). Ideal for consolidating accounts or bypassing Roth TSP Required Minimum Distributions (RMDs) by moving to a Roth IRA.

• Roll into a New Employer’s 401(k): Transfer to a 401(k) with strong investment options and low fees. Penalty-free and simplifies account management.

• Transfer to a Qualified Annuity: Provides guaranteed income for life or a set period, with tax-deferred earnings. Irreversible, with higher fees and potential risks (e.g., limited payouts if you pass away early). Death benefits may apply.

• Withdraw as a Lump Sum: Gives immediate access but incurs a 20% tax withholding and a 10% penalty (if under 59½). Large withdrawals may push you into a higher tax bracket. Not recommended due to significant tax and fee hit.

Consider:

• TSP Advantages: Simplicity, low fees, familiarity.

• IRA Advantages: More investment choices.

• Key Factors: Balance simplicity, investment options, and fees based on your needs.

#military #personalfinance #thriftsavingsplan #militaryretirement #financialfreedom