What to Do With Your TSP After Leaving Federal Service

Left Federal Service? Your TSP Didn't Leave With You.

Whether you retired, took a buyout, or were part of the wave of federal workforce cuts — your Thrift Savings Plan is still sitting there. Here's what actually changes now, and what's worth understanding before you touch it.

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Ken Luckinbill — independent advisor based in Winterset, Iowa.

What Happens to Your TSP the Day You Leave

Your balance doesn't disappear, and it doesn't have to move anywhere. If you have $200 or more in your account, it stays right where it is — invested exactly the way you left it, in the same funds, at the same low cost.

What does change: no more contributions come out of a paycheck, because there is no more federal paycheck. That also means no more agency matching. Unless you're rehired into federal service, new money stops going in — permanently.

What doesn't change: the rules, the fund lineup, and the fees stay the same until you decide to do something different.

Four Things You Can Do With It

None of these is automatically the "right" one — it depends on your fees, your investment options, your tax situation, and what you want the money to do next. This is what's on the table:

1. Leave it in the TSP

Keeps you in a low-cost lineup of index-style funds (the G, F, C, S, and I funds, plus the L funds that blend them). You won't be able to add new money, and your investment choices stay limited to what TSP offers.

2. Roll it into an IRA

Opens up a much wider range of investment choices. Done as a direct, trustee-to-trustee transfer, your money moves without being taxed or withheld — Roth TSP money rolls into a Roth IRA, traditional TSP money rolls into a traditional IRA.

3. Roll it into a new employer's plan

If your new job offers a 401(k) or similar plan that accepts incoming rollovers, your TSP balance can move there instead.

4. Take a distribution

You can withdraw money as a partial distribution (minimum $1,000), a full distribution, scheduled installments, or use it to purchase a life annuity. Each option carries its own tax consequences depending on how much of your balance is Roth versus traditional.

There's no way to get this right from a web page. A conversation about your specific numbers is worth more than a general guide ever will be.

Two Rules Worth Knowing Before You Move Anything

The 20% withholding trap

If you have TSP send the money to you directly instead of moving it straight to another account, the IRS requires TSP to withhold 20% for taxes automatically — even if you fully intend to redeposit it within 60 days. A direct (trustee-to-trustee) transfer avoids that withholding entirely. This is one of the most common — and most avoidable — mistakes people make when they leave.

Required withdrawals still apply, even after you're gone

Once you reach age 73, the IRS requires you to start taking annual distributions from traditional TSP and IRA balances — whether you're still working or not, and whether you're still a federal employee or not. That age moves to 75 starting in 2033. Roth TSP balances have been exempt from this requirement since 2024, the same treatment as a Roth IRA.

This page is general, educational information — not a recommendation for your specific situation. Rules around federal benefits and retirement accounts are detailed and change over time; talk with a qualified advisor or tax professional about your own circumstances before acting.

How We'd Think Through This Together

This is the same process we use with every client who's navigating a transition — federal or otherwise.

Discover

Where your TSP sits today, what you're paying, and what you actually need this money to do for you.

Develop

A plan for what stays, what moves, and when — built around your timeline, not a sales deadline.

Executing the transfer or distribution correctly, so a paperwork mistake doesn't trigger an avoidable tax bill.

Defend

Revisiting the plan as your income, taxes, and health coverage needs change after federal service.