Federal/Military Thrift Savings Program

Any Thrift Savings Program participant, on leaving Federal or military service, is faced with several options.

• (1) Withdraw it. For most people, this is a counterproductive option. If you withdraw your money and deposit it in your savings account, you'll face taxes — and possibly a penalty tax — if you're under 59½ years old.
• (2) Leave it in the TSP. While the government will let you keep your TSP account, you won't be able to add any more money to it. If you don't withdraw the full balance by age 70½, the government automatically converts your entire balance into a lifetime income annuity.
• (3) Take it with you. To obtain the greatest flexibility while preserving important tax benefits, you can complete a tax-free transfer — called a rollover — to a traditional Individual Retirement Account (IRA). Upon separation the participant then has 60 days to complete the rollover of the funds to a qualifying account to preserve tax-deferred status.

Option 1 costs you money. Not recommended. Option 2 is doable but do you really want the government to hold on to your money?

Option 3 is often the best alternative. You have control over your money and can make the investment decisions. Rolling over your TSP into an Individual Retirement Account allows you to maintain tax-deferred investments. And by taking charge of your own money you can increase the value of your retirement funds.