When you leave the military, your Thrift Savings Plan (TSP) doesn't leave with you — it stays right where it is, growing at some of the lowest expense ratios in the retirement industry. With fees of approximately 0.04% ($0.40 per $1,000 invested), the TSP is dramatically cheaper than most civilian 401(k) plans and mutual funds.
So what should you do with it? You have four main options, each with distinct advantages and drawbacks.
Option 1: Leave It in TSP ✅ (Often Best)
You can keep your TSP account open indefinitely after separation. Your money continues to grow with the lowest fees in the industry, and you maintain access to the same fund options.
✅ Pros
- Lowest fees in the industry (0.04%)
- Continues growing tax-advantaged
- L Lifecycle funds for auto-rebalancing
- Can still contribute if rehired by federal government
- Simple — nothing to do
❌ Cons
- Limited fund selection (5 core + L funds)
- Can't make new contributions as a civilian
- Customer service can be slow
- Less flexibility than an IRA
Option 2: Roll Over to an IRA
You can transfer your TSP into a traditional IRA or Roth IRA at a brokerage like Vanguard, Fidelity, or Schwab. This gives you access to thousands of investment options.
✅ Pros
- Thousands of investment options
- Better customer service
- Tax-loss harvesting opportunities
- Estate planning flexibility
❌ Cons
- Higher fees (typically 0.03%–1%+)
- More decisions to make
- Temptation to actively trade
- Roth conversion may trigger taxes
Option 3: Roll Into Your New Employer's 401(k)
If your new civilian employer offers a 401(k) or similar plan, you may be able to roll your TSP into it. This consolidates retirement accounts in one place.
✅ Pros
- Consolidation convenience
- May have employer match to maximize
- Loan provisions often available
❌ Cons
- 401(k) fees are often higher than TSP
- Limited fund selection varies by employer
- Lose access to TSP's unique G Fund
Option 4: Cash Out (⚠️ Last Resort)
You can withdraw your TSP balance as cash, but this should be avoided unless absolutely necessary due to significant penalties and tax consequences.
✅ Pros
- Immediate access to funds
- Useful in extreme emergencies
❌ Cons
- 10% early withdrawal penalty (under 59½)
- Income taxes on entire amount
- Permanently lose retirement savings
- 20% mandatory tax withholding
TSP Fund Comparison
| Fund | Type | Tracks | Risk |
|---|---|---|---|
| G Fund | Government Bonds | Special treasuries | Lowest |
| F Fund | Fixed Income | Bloomberg Barclays US Aggregate | Low |
| C Fund | Large Cap Stocks | S&P 500 | Moderate |
| S Fund | Small/Mid Cap | Dow Jones Completion | Higher |
| I Fund | International | MSCI EAFE | Higher |
| L Funds | Lifecycle | Target-date blend | Varies |
Key insight: The G Fund is unique to the TSP — it guarantees you'll never lose money while earning a return tied to long-term treasury bonds. No civilian retirement plan offers anything like it. This alone is often reason enough to keep your TSP open.
Our Recommendation
For most veterans, leaving money in the TSP is the best option. The fees are unbeatable, the G Fund is unique, and L Funds provide hands-off management. Only roll over to an IRA if you specifically want broader investment options and are comfortable managing your portfolio.
Never cash out unless facing a genuine financial emergency. The 10% penalty plus income taxes can consume 30-40% of your balance. That $50,000 TSP becomes $30,000–$35,000 after taxes and penalties.
Roth TSP Considerations (New for 2026)
Starting January 2026, TSP participants can directly convert traditional TSP balances to Roth TSP balances. This in-plan Roth conversion means you pay taxes now but enjoy tax-free growth and withdrawals in retirement. If you're in a low tax bracket now (common during military transition), this can be a powerful strategy.
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