As you may know, we work for many military and veteran families. As veterans ourselves, we take a lot of pride in offering fiduciary advice and planning for our veteran community. Retirement is usually at the forefront of financial planning, and the Thrift Savings Plan (TSP) can be a big part of your retirement. The TSP is the 401(k)-type retirement plan for government employees and military members, and what to do with your TSP when you retire or separate from military service is something to think about.

As with just about any financial decision, the answer is likely different depending on your specific situation. With that said, it’s helpful to look at both the pros and the cons of the TSP as it pertains to leaving military service.  Dave Ramsey, a famous radio personality, and author, often speaks favorably about the TSP as a retirement plan. However, his advice on what to do with any employer-sponsored retirement plan is to roll it into an IRA after you terminate employment. He suggests never leaving a plan with a previous employer and never rolling an old plan into your new employer’s plan. His rationale is that your investment options in an IRA are nearly unlimited. This is true, but if the TSP is meeting your investment objectives that advice may be oversimplified. 

The TSP is known for offering extremely low-cost investment options and that is a huge positive in our book. The TSP is also known for being very limited when it comes to the investments available within the plan. There are only 5 funds available in the TSP, and while they can be combined to access the broad equity and bond markets, that isn’t a lot of flexibility – especially as more and more civilian corporate 401(k) plans offer access to a brokerage window that greatly expands the investment universe.  Furthermore, the TSP Lifecycle Funds are a blend of the underlying individual funds, so you don’t get any new options there, either. While we will admit there’s a certain strength in the simplicity of the TSP investment menu, we tend to favor more options that are available via rolling the TSP into an IRA – especially for investors who are comfortable (and enjoy) doing investment research and portfolio management.

Flexibility in accessing your funds during retirement may be another reason to consider rolling the TSP into an IRA. The TSP offers limited methods of withdrawals that may not meet your income needs in retirement – especially before you have to start taking Required Minimum Distributions at age 70 ½.

If you decide to move your money out of the TSP you can roll it into an IRA, roll it into a new employer’s retirement plan, or cash out. There are no tax penalties for doing a direct rollover. There are possibly significant tax implications if you decide to cash out. If you decide to leave the TSP you should make sure you fully understand the process, which requires a good bit of paperwork and a notary. To learn more about the withdrawal process you can visit the TSP here, and if you’d like to ask questions or talk to one of us, you reach out to us via our website!

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