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I'm About to Retire From the Military. What Should I Do With My TSP?

Retirement Funding TSP

There are a lot of things to do when you are retiring from the military. One thing you don’t have to do is move or change your TSP. In fact you don’t have to do anything with your TSP until you turn 70 ½ (and hopefully when we turn 70 ½, we’ll remember we’re supposed to do something). You don’t have to do anything with your TSP, but what should you do? Like squadron Weapons Officers used to say, “It depends.”

Leave the Money Where It Is

You can leave the money where it is and there are a lot of good reasons to do so. Here are a few

  • Phenomenally low expense ratios. While there are a few ETFs that come close to the expense ratios of the funds in TSP, TSP has the lowest expense ratios out there. And, expense ratios matter…a lot.
  • A money market on steroids. If you want to have a cash position in your portfolio you can’t beat the G Fund for that role. Since the G Fund resets its interest rate every month, you get medium to long-term interest rates with no principal risk. Can’t really find that anywhere else. The only thing that comes close is a Stable Value Fund in a 401(k).
  • Tax exempt balance. If you contributed to pre-tax TSP while deployed to a combat zone, you will have a tax-exempt balance (not the same as Roth). TSP will only transfer those funds to an account or custodian that can account for them. Most don’t.
  • Keeping as a Home Base. You may move around from job to job after you retire. The result may be a bunch of small 401(k) accounts. You can roll them into TSP after you leave a job and simplify your life. But, if you close TSP, you lose this option

Take the Money Out

You also may want to take the money out and that is fine too. Here are a couple of reasons to consider taking it out.

  • Access to more asset classes. You may want to move funds if TSP is your only investment account. While you can build an adequately diversified portfolio in TSP, you can diversify further in an IRA. Using an IRA can give you access to asset classes like Emerging Markets, Commodities, Real Estate and International Bonds.
  • Estate Planning. Assuming your spouse is your designated beneficiary for TSP and you  pre-decease him or her, when he or she passes away the options are not good from a tax standpoint. When your beneficiary passes away the funds in TSP will be paid out in a fully taxable transaction to his or her designated beneficiaries. That could cost literally thousands more in taxes than if the funds were in an inherited IRA.

The bottom line is if you have a TSP balance leaving at TSP or moving it out are both good choices. It just depends on what is most important to you.

Military Finances Aren’t the Same as Civilian Finances

By virtue of the fact that you served a full career in the military, your financial concerns are different than those of a civilian. We think you’re better served by a financial planner that lives military finance issues daily.


If you found this article useful, you might like the following blog posts:

TSP Loan? Step Away from the Paperwork...Please


What Military Officers Need to Know About TSP and Estate Planning


Don't Leave Money on the Table (And Don't Get Double Taxed Either)




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