Military Retirement and Your TSP

By The USAA Educational Foundation

What should you do with your TSP when you retire from the military? Is it best to just leave it alone or should you do something else? Fortunately, there are usually just a few major options to consider—and you can typically do more than one if you want.

Leave it

Leaving your money in the TSP keeps everything the same except you can no longer make regular contributions. You get to keep using the low-cost TSP investments, and you won’t create any current income tax issues. You’ll even still have the option to roll certain other retirement plans into the TSP. The TSP website contains a lot of information about the benefits of keeping the TSP, including this list of questions to ask before moving your money.

Roll it

Another option is to initiate a rollover—either into a new employer’s retirement plan (assuming you have one and it accepts rollovers) or into an IRA. This often appeals to those who want different investment choices and/or those who want fewer accounts to manage. Before taking this step, be sure to compare your potential investment expenses to those in the TSP. If you’ll end up paying more, what are you getting in return? Also, understand the tax implications. Direct rollovers to similarly taxed plans (traditional to traditional, Roth to Roth) typically don’t cause any immediate taxes, but if you go from traditional to Roth, or if you receive the money first, you could be in for a tax bill. Finally, it may make sense to leave a very small balance behind so you can transfer assets back into the TSP if you later change your mind.

Take it

The last major option—which is typically a bad option—is cashing out some or all of your plan. While this approach can sometimes produce a pile of unrestricted cash, it can also produce a pile of taxes and possible tax penalties. Plus, cashing out could put at risk your long-term ability to retire for good some day. In short, cashing out your TSP typically shouldn’t be part of your plan.

While there’s no single best way to handle a TSP at retirement, there is one constant that applies to everyone retiring from the military: you really should have a plan for what to do with this valuable resource.

The USAA Educational Foundation, a nonprofit organization, does not endorse or promote any commercial supplier, product, or service.

 

 

Tip of the Day

  • Written by Guest Blogger | May 28, 2014

    A #credit score may be used to decide the terms you are offered or the rate you will pay for a #loan. Learn more at http://ow.ly/C7EDv

Saver Stories View all »

Naval Battalion's Effort Yields Team Success

Written by Super User | November 26, 2010

Construction Battalion Five, DETAIL CHINHAE would like to share our campaign success story with you!

Currently we have 23 members on our Det, (all of whom have registered with militarysaves) and out of them 16 are planning for retirement by saving and investing money in the Federal Thrift Savings Plan.

Read more...

One Sailor's Course to Financial Freedom

Written by Super User | November 26, 2010

We all know its not easy to get out of debt once you in over your head. But it can be done with the sound advice and support that the Military Saves program offers. I am a testament to that. I was a recently divorced, single mother. Like many people I had credit card debt, a car loan, bad credit, and a low income job that never seemed to be enough to put food on the table.

Then I decided I'd had enough of living paycheck to paycheck and worrying about money all the time.

Read more...

Making Savings a Part of Marriage

Written by Super User | November 26, 2010

Capt. Rob Eckhardt is the first to admit that he hasn’t always been responsible with money. But less than 10 years after a rocky start to saving, Eckhardt reports that he and his wife are free from credit card debt, have a down payment on a home, and are saving regularly for retirement. And, as the Military Saves representative for his Air Force squadron, he’s helping others make similar progress.

Read more...