What Happens to Your TSP When You Leave the Military

Separating or retiring? Your TSP doesn't disappear — it's yours to keep. But you'll have choices to make, and a few of them carry real tax consequences. Here's a clear rundown.

Your money is vested (mostly)

Everything you contributed, plus all government matching contributions, is yours immediately. The only piece with a catch is the automatic 1% contributions under the Blended Retirement System, which vest after two years of service. Hit that mark and 100% of your balance goes with you.

Option 1: Leave it in the TSP

You don't have to move anything. The TSP is well known for very low fees, and you can keep your money invested in the same funds after you separate. You can't make new contributions once you leave federal service, but your balance keeps growing with the market, and you can still rebalance among funds.

Option 2: Roll it over

You can roll your TSP into an IRA or a new employer's 401(k). Reasons people do this include wanting more investment choices or consolidating accounts. Two important cautions:

• Use a direct (trustee-to-trustee) rollover so the money moves without being paid to you. An indirect rollover can trigger withholding and a 60-day deadline.
• Keep Roth and Traditional straight. Roll Roth TSP into a Roth IRA and Traditional TSP into a Traditional IRA to avoid an accidental taxable event. (See Roth vs. Traditional.)

Option 3: Withdraw it

You can take money out, but cashing out early is usually the most expensive choice. Withdrawals of Traditional funds are taxed as income, and taking money before age 59½ generally adds a 10% early-withdrawal penalty (with some exceptions). Beyond the tax hit, you lose decades of potential compounding.

Common mistakes to avoid

• Cashing out a small balance "because it's small." Left invested, even a modest balance can grow substantially over decades.
• Leaving before the 1% vests (under BRS) and forfeiting it unnecessarily, if you're close.
• Doing an indirect rollover and missing the 60-day window — turning a tax-free move into a taxable distribution.
• Losing track of the account. Keep your contact info updated with the TSP so you don't lose sight of your money.

Your options at a glance

What happens to a Roth TSP after you leave?

Your Roth TSP balance stays Roth. You can leave it in the plan or roll it into a Roth IRA. One advantage of the Roth IRA route: Roth IRAs have no required minimum distributions during your lifetime, while balances left in the TSP are subject to RMD rules. Keep Roth and Traditional dollars moving into matching account types when you roll over, to avoid an accidental taxable event.

You don't have to choose all-or-nothing

The TSP allows partial withdrawals and installment payments in retirement, so you can leave most of your balance invested at low cost while drawing income as needed. This flexibility is often overlooked in the rush to roll everything into an IRA.

Frequently asked questions

Do I lose my TSP when I leave the military?

No. Your contributions and all matching contributions are yours to keep. Under BRS, only the automatic 1% requires two years of service to vest. You can leave the money in the TSP indefinitely.

Should I roll my TSP into an IRA?

Sometimes. An IRA offers more investment choices, but the TSP's fees are among the lowest anywhere. Compare costs carefully before moving money out — higher IRA expenses can quietly erode returns over decades.

What's the penalty for cashing out my TSP early?

Traditional withdrawals are taxed as ordinary income, and taking money before age 59½ generally adds a 10% early-withdrawal penalty, with limited exceptions. You also lose future compounding.

Can I still change my investments after I separate?

Yes. You can't make new contributions, but you can still rebalance among the G, F, C, S, I, and Lifecycle funds while your balance stays in the TSP.

Related reading: TSP funds explained · Lifecycle (L) Funds guide · BRS vs. High-3