What You Should Know About TSPs and 401(k)s

What You Should Know About TSPs and 401(k)s

January 06, 2022

When you were in the military, you probably had access to a Thrift Savings Plan (TSP) to save for retirement, but do you know what your options look like once you are no longer on active duty?

Your Post-Active Duty Options

Once you separate from active duty, you may keep your TSP plan. However, it is important to note that TSP contributions come from a federal government payroll deduction. This means you may not be able to make any additional contributions unless you find other federal government employment.

An alternative to keeping your TSP plan is to move TSP funds to a qualified retirement plan, such as an eligible employer 401 (k) plan or an individual retirement account (IRA). If a qualified retirement plan does not accept tax-exempt contributions, any tax-exempt funds held in a TSP are paid directly to the TSP participant.1

Key Things to Consider

There are a few advantages and disadvantages to consider.

  • Keeping your TSP as it is may help you to "set it and forget it.” Even if you are no longer contributing to the TSP, you may be less tempted to change your retirement elections or modify your asset allocation. You may continue to save for retirement by saving funds in a separate IRA, 401(k), or another retirement account.
  • Moving your TSP funds to another qualified retirement account like a 401(k) or an IRA may allow you to continue making contributions and might increase your investment options with the funds you already have.
  • If you are willing to pay taxes on the non-tax-exempt portion of your TSP funds, you may be able to fully or partially cash out the TSP account value.

What Best Suits You?

Ultimately, how you choose to manage your TSP funds once you are no longer on active duty may depend on many factors, including your risk tolerance, how actively you want to manage your retirement, your projected retirement date, and your future job prospects. Talking over your options with a financial professional may help you determine an appropriate choice for your situation.

You are welcome to contact me if you’d like to discuss your unique circumstances and what may be available for you.


Important Disclosures:

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.

LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.

1 https://www.tsp.gov/publications/tspfs05.pdf

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