You should expect a flurry of financial decision-making when you transition from military life to the civilian world, which could happen in your 20s, 30s, 40s, or 50s.
Whether you resign or retire from your branch of service, you’re likely to begin a new job where you can build on the retirement savings you’ve accumulated in your TSP account.
One of the first decisions you may make is what to do with the balance in your TSP account—though there’s usually no need to act quickly. You’ll have three options.
Option 1: If your balance is at least $200, you can leave it in the TSP. Your balance will continue to compound, and you can reallocate your account holdings just as you could when you were contributing. And you’ll still benefit from being part of an extremely low-cost plan. However, you won’t be able to make additional contributions unless your new job is with the federal government.
Option 2: You can roll over your account value to an individual retirement account (IRA) when you leave the military or at any point in the future. The preferable method is to authorize a direct transfer from the TSP to the IRA trustee or custodian. You’ll want to choose a custodian that offers the types of investments you want to make and charges modest fees.
Option 3: You can have your account value transferred from the TSP to a new employer’s plan, but only if that plan accepts transfers. You’ll want to be sure the new plan offers comparable investment alternatives at comparable cost.
It’s legal to withdraw your vested account value from the TSP when you leave the military. But if you do, you’ll pay the income tax that’s due, plus a 10% tax penalty if you’re not yet 59, and wipe out your savings for the future. So it’s never a good idea.