Using TSP after service

I did 5 years AD and 1-ish year RC, so I was totally out of the military by 2022.

I rolled my TSP asap for a few reasons:

1. I’m a “less accounts is easier” person and I already had IRAs (Roth and Traditional) that I could roll my TSP to.
2. I wanted more investment options, which I have in my IRAs.
3. I wanted to convert my Traditional TSP balance to Roth. TSP rolls out the rumored “in-service conversions” slated for 2026, but I wanted to do the Conversion ASAP, and could do that via IRAs.
4. 2022 was the same year TSP changed administrators, and boy was that a Charlie Foxtrot. Since I had the option to roll my money out of TSP, I got it out.
5. I didn’t want to risk the double-beneficiary issue that TSP still has. At TSP, the first inheritor can keep the funds at TSP, but the second inheritor cannot. So say, for example, I passed away and my TSP went to my spouse, and then he passed away shortly after and my TSP went to my child. Because my child is the second inheritor/beneficiary, my child would’ve had to empty out the entirety of the TSP right away, instead of taking a 5-year withdrawal timeline. Had the TSP been six plus figures of Traditional money at the time of inheritance for my child, that would’ve been an awful tax bill.

Aloha Anonymous,

Here's a comprehensive list of pros & cons to keeping the TSP:

Reasons To Keep Your TSP Account (or NOT)

A long-time reader (and good friend!) writes about their financial independence: “Is there ever an issue to keep money in the federal Thrift Savings Plan instead of moving it to a brokerage firm? I…

Military Financial Independence

When my spouse and I retired in 2002, we spent the next 16 years converting our (traditional) TSPs and IRAs to Roth IRAs. These days, in our 60s, we're happy that we don't have to deal with the TSP's beneficiary rules.

The conventional wisdom long ago (that I remember hearing from folks like Clark Howard) was to leave the TSP money in the TSP and not to roll it over. The rationale for this was that there was a time when a "low fee" index fund had an expense ratio in the 0.5% to 0.8% range, while the comparable TSP funds were around 0.05%. In recent years, the fees on S&P500 and total US stock market funds at the big brokerages have fallen to anywhere from 0% (at Fidelity) to 0.04% (at Vanguard, I think). So, cost savings wouldn't be the reason to leave the money in the TSP today. There's nothing wrong with leaving it, but neither is there anything wrong with rolling it over (e.g., as part of a consolidation strategy).

Not what you asked but.... While you might (or might not) be currently interested in the G fund. The G fund is a unique investment instrument that is not available anywhere else. For this reason, I personally have kept a small amount of money in my TSP account, so that I can always choose to switch back to the TSP at a later date to take advantage of the G fund.

I worked in federal service and left about 15 years ago. I kept a small 401k at TSP for a few reasons: 1) it is very cheap to maintain, low fee 2) it can be a receptacle for any 401ks I may have from other employers 3) management is quite good, customer service very responsive. My husband early retired from government service during the COVID payouts. He’s had zero issues with management of his investments.

I'll caveat and say I wish I had known this before I transferred, as I would have put all my money in the C fund. All in all, if you are putting everything in the "C" fund (TSP's S&P 500 fund), it looks like the expense ratio is 0.059%. If you put it in VTI, it's around 0.03%, which is negligible; it's about the cost of a Chipotle burrito once a year. I would think about a couple of things. You can access the TSP at 55 if you retire early, taking advantage of the rule of 55. If you rolled into an IRA a 72(t), from what I understand. If it's Roth, there is more nuance, but the rule of 55 remains.

Another consideration is that Federal Employees also get access to a TSP as a retirement vehicle, so if you get a federal job, it may be worth keeping in the TSP.

Summary: If consolidating your retirements into one brokerage is important for simplicity, I don't see a reason not to. You could potentially save marginally on the expense ratios. If you plan to access this money before 59 1/2, you could have more flexibility keeping in the TSP due to the rule of 55, particularly if you get a federal job.