Can You Keep Your TSP After Leaving the Military? Your Options Explained

When you separate from the military, your TSP account doesn't disappear. You have choices about what to do with it, and "do nothing" is a legitimate option for many veterans. Here's what happens and how to think through the decision.

What Happens to Your TSP After Separation

Your TSP account continues to exist after separation. Your balance stays invested in whatever funds you've selected. You can:

1. Leave it in TSP (do nothing)
2. Roll it over to an IRA
3. Roll it over to a new employer's 401(k) (if your next employer offers this)
4. Withdraw it (usually a bad idea, triggers taxes and possibly penalties)

You cannot continue making contributions after separation unless you become a federal civilian employee (in which case TSP continues as your federal employee retirement account).

Option 1: Leave It in TSP

Leaving your money in TSP is often the best default option, particularly if:

The fees are exceptional. TSP's expense ratios (approximately 0.048% in recent years) are among the lowest of any retirement investment product available. A typical IRA at a brokerage charges 0.03–1%+ for equivalent funds. Staying in TSP means paying almost nothing in management fees.

You want access to the G Fund. The TSP G Fund (Government Securities Investment Fund) is a unique product available only to federal employees and TSP participants. It provides returns linked to intermediate-Treasury rates with zero volatility and no risk of principal loss, something no private equivalent offers.

You're not ready to decide. Separation is a chaotic time. Leaving your TSP alone while you sort out employment, housing, and your next phase is fine. The account will continue growing, and you can project how your balance grows if you leave it in TSP before deciding whether to roll it out.

Minimum balance: After separation, you can leave your money in TSP as long as your balance is at least $200. Balances below $200 will be automatically distributed.

Option 2: Roll Over to a Traditional IRA

A rollover from Traditional TSP to a Traditional IRA moves your money without triggering taxes. Benefits:

More investment options. TSP has 5 funds + L Funds. An IRA at Vanguard, Fidelity, or Schwab gives you access to thousands of funds, individual stocks, ETFs, bonds, and other instruments. If you have specific investment preferences TSP can't accommodate, an IRA provides flexibility.

Roth conversion access. Traditional TSP cannot be directly converted to Roth TSP after separation. But Traditional TSP rolled to a Traditional IRA can then be converted to a Roth IRA, giving you more retirement tax planning options.

QCD access. Once you're 70½ and have an IRA, you can make Qualified Charitable Distributions (up to $108,000/year in 2025, indexed annually) directly from the IRA to qualified charities, satisfying RMDs without taxable income. QCDs require an IRA, not TSP.

Tradeoff: You'll pay higher expense ratios than TSP (even at efficient brokerages like Fidelity/Vanguard). You lose access to the unique G Fund.

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

If you're starting a new job with a 401(k) plan, you can typically roll your TSP directly into that plan. Benefits:

• Keeps retirement savings consolidated
• May enable TSP-favorable loan terms if that 401(k) has good options

Drawbacks:

• Your new employer's 401(k) fees may be higher than TSP
• You lose TSP's unique features (G Fund, specific fund options)

Evaluate your new employer's plan quality before rolling in. If their plan options are poor or fees are high, leaving money in TSP is usually better.

Option 4: Cash Out (Almost Always a Mistake)

Withdrawing your TSP at separation triggers:

• Ordinary income tax on the full Traditional TSP withdrawal in the year you take it
• 10% early withdrawal penalty if you're under 55 at separation (or under 59½ in most cases)

Example of the cost: A 35-year-old veteran with $30,000 in Traditional TSP who cashes out:

• Federal income tax (22% bracket): $6,600
• 10% penalty: $3,000
• Net received: approximately $20,400 from a $30,000 account

Only consider full withdrawal in genuine financial emergencies after exhausting all other options.

The Decision Framework

If your new employer has a good 401(k) with low-cost index funds: Roll into 401(k) for simplicity; or leave in TSP and maintain separate accounts.

If you'll be self-employed or your new employer has a poor plan: Leave in TSP. The G Fund and low fees are hard to beat.

If you want Roth conversion flexibility or QCD access eventually: Roll to Traditional IRA.

If you're unsure: Leave it in TSP until you've settled into your post-separation situation. You can always roll it out later. You cannot put it back in TSP once withdrawn.

Rolling Over: The Mechanics

To roll TSP to an IRA:

1. Open a Traditional IRA at your chosen brokerage (Vanguard, Fidelity, Schwab are well-regarded)
2. Request a direct rollover through TSP (tsp.gov), specify the receiving institution and account
3. TSP sends funds directly to the IRA custodian (direct rollover avoids mandatory 20% withholding)
4. Confirm receipt at the receiving institution

Avoid requesting a distribution check sent to yourself, if you do this, TSP withholds 20% for taxes, and you must deposit 100% of the distributed amount (including the withheld 20% from your own funds) within 60 days to avoid taxes and penalties on the withheld portion.

Sources: TSP: leaving federal service, IRS Publication 590-A (IRA rollovers), IRS Publication 590-B (QCDs and RMDs), 5 U.S.C. § 8432 (TSP contributions). Figures reflect 2025 limits and can change annually; confirm against the official source before acting. This is general information, not financial or tax advice.