TSP vs. Civilian 401(k): How They Compare for Military Members

When transitioning from military service to civilian employment, you'll often face a choice: keep your TSP, roll it to a 401(k), roll it to an IRA, or some combination. Understanding how TSP compares to typical civilian 401(k) plans helps you make an informed decision.

The Short Version

TSP is one of the best retirement plans available anywhere — lower fees than virtually all civilian 401(k)s, unique access to the G Fund, and simple well-designed options. In most cases, you should leave your TSP balance in TSP rather than rolling it into a civilian 401(k) unless that plan has compelling specific advantages.

For new contributions, use your employer's 401(k) if they match — the match is free money that outweighs fee differences.

Fee Comparison: TSP's Dominant Advantage

TSP expense ratio: Approximately 0.048% (2024) — this is the cost expressed as a percentage of your balance annually Typical 401(k) expense ratio: 0.5–1.5% for many plan menus; can be 2%+ in small business plans with actively-managed funds

The math over 20 years: On a $100,000 TSP balance, the difference between 0.048% (TSP) and 1.0% (typical 401(k)):

• TSP at 7% return, 0.048% fee: grows to approximately $382,000
• 401(k) at 7% return, 1.0% fee: grows to approximately $321,000

The fee difference costs approximately $61,000 over 20 years on a single $100,000 balance. Fees compound just like returns — lower fees have enormous long-term impact.

Some large employer 401(k) plans have very competitive fees (Vanguard-administered plans, for example). If your employer's plan uses low-cost index funds with expense ratios under 0.1%, the TSP fee advantage narrows significantly.

Investment Options Compared

TSP funds (5 core funds):

• G Fund: Government securities, stable value, unique to TSP
• F Fund: Bond index (Bloomberg U.S. Aggregate Bond Index)
• C Fund: Large-cap stock index (S&P 500)
• S Fund: Small/mid-cap stock index (Dow Jones U.S. Completion Total Stock Market Index)
• I Fund: International stock index (MSCI EAFE Index)
• L Funds: Target-date funds blending the above

Typical 401(k) fund menu: 15–30 fund options including actively managed funds, multiple bond funds, stable value, and target-date series. More options, but more complexity — and more opportunity to select expensive underperforming funds.

What TSP lacks: Individual stocks, REITs, sector funds, and other specialized investment products. For most retirement investors, this is fine. TSP's five funds cover the major asset classes adequately. For investors who want more control or specific allocations, an IRA at a brokerage provides more options.

The G Fund is irreplaceable: No civilian equivalent offers what the G Fund does — government security returns with zero volatility and no risk of principal loss. This unique feature is a legitimate reason to keep money in TSP rather than rolling to an IRA or 401(k).

Employer Matching: Use Your New 401(k) for This

If your civilian employer offers 401(k) matching, contribute at least enough to get the full match before doing anything else with retirement savings. Employer matching is an immediate 50–100% return on your contribution — no investment can match that.

Example: Employer matches 50% of contributions up to 6% of salary. On a $75,000 salary:

• Your 6% contribution: $4,500
• Employer match: $2,250
• Immediate return on the $4,500: 50%

This match advantage easily outweighs TSP's fee advantage for new contributions. Use your civilian 401(k) for new contributions up to the match threshold; keep your TSP balance in TSP.

After the Match: IRA vs. 401(k) vs. TSP for Additional Savings

After capturing your full employer match, the next priority for additional retirement savings:

1. Roth IRA (if income-eligible): After-tax contributions, tax-free growth, no RMDs. Maximum $7,000/year ($8,000 if 50+) in 2024.
2. Back to 401(k) up to annual maximum ($23,000 in 2024)
3. Traditional IRA if 401(k) is maxed and Roth is unavailable

Contribution Limits: TSP vs. 401(k)

TSP and civilian 401(k) plans share the same IRS annual contribution limits — $23,000 in 2024 ($30,500 if 50+). These limits are per plan type, not combined across all plans. If you separate mid-year and have contributed $10,000 to TSP, you can contribute $13,000 more to your new employer's 401(k) in the same year.

The Rollover Decision

Roll TSP to 401(k)? Generally not recommended unless:

• The 401(k) offers institutional-class funds with extremely low fees (comparable to TSP)
• You want consolidated accounts and the 401(k) quality is excellent
• The 401(k) has specific features TSP lacks that you need

Keep TSP and contribute to 401(k) for new savings: This is often the best approach — preserve the G Fund access and TSP's fee structure for your existing balance while getting the match on new contributions through your employer.

Roll TSP to IRA? Reasonable if you want more investment flexibility, Roth conversion access, or QCD availability later. Accept that you'll pay slightly higher fees and lose G Fund access.

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Sources: TSP fund information and expense ratios at tsp.gov, IRS 401(k) contribution limits (IRS Publication 560), FINRA 401(k) fee analysis, DoL 401(k) fee disclosure requirements (29 CFR § 2550.404a-5)