By Gerri Walsh, President, FINRA Investor Education Foundation

September 17, 2013

No, this has nothing to do with obedience training for your pooch. “Rollover” is a financial term for when you transfer money from one retirement plan to another without any tax consequences.

Military members who participate in the Thrift Savings Plan (TSP) face a “rollover moment” when they decide to leave the service. Should you leave your money in the TSP? Should you roll it into a new employer’s 401(k) plan? What about an IRA? Or should you just withdraw the money and stash it in your bank account?

If you’re facing a rollover moment, following these tips can help you avoid mistakes that can torpedo your retirement savings: 

Generally speaking, the worst financial decision you can make regarding TSP retirement savings is accept an early distribution. Unless you’re at the IRS retirement age of 59½, the amount you withdraw from TSP will be subject to income tax, including state income taxes where applicable. An additional 10 percent tax is applied on top of that as a penalty for receiving tax-advantaged funds intended for retirement. There are some exceptions, but as a general rule, don’t withdraw the money unless you have no alternative.