(This article originally appeared in the November 2024 issue of Military Officer, a magazine available to all MOAA Premium and Life members. Learn more about the magazine here; learn more about joining MOAA here.)

Servicemembers have access to the Thrift Savings Plan (TSP), the federal government’s defined contribution retirement savings plan. The TSP allows federal employees to save money in tax-advantaged accounts designed for retirement.

After a TSP account holder leaves federal service, they have many options for what they can do with their money, whether they left federal service recently or have been out for a long time.

Stick With TSP

The first option is to keep the money in the TSP. This is the easiest option, and it’s a good choice for many investors. The TSP offers a range of funds to suit various investor needs.

While other investing options are becoming more competitive, the TSP still has very low fees. That means more of your money stays in your pocket.

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Even if you decide to keep your money in the TSP, separation is a good time to review your investment choices. Consider if the funds you are invested in still make sense for the next stage of your financial life.

Do a Rollover

The second option is to move some or all of the money into another eligible retirement savings account. This might be an employer-based retirement plan with a new employer or an individual retirement account (IRA). When you move money directly from one eligible account to another eligible account, it’s called a rollover, and there are no tax implications.

There are many reasons why a rollover might be part of your plan. Maybe you want to simplify your accounts, or you want access to a specific investment not available in the TSP, or you want to convert some traditional funds into Roth funds.

If you have tax-exempt contributions in your TSP account from pay earned while serving in a combat zone, you will have a little more to consider when doing a rollover. While the contributions remain tax-free, the earnings on these contributions are not tax-exempt if they are held in a traditional account, but they could be rolled over to another traditional account.

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The tax-exempt contributions will be sent directly to you as a check if the new retirement plan or IRA won’t accept the tax-exempt contributions. If the goal is to keep that money invested, you will need to forward that check to your investment custodian. Because it was tax-free money, you can contribute it to a Roth account even though it is coming out of a traditional account. Some custodians might be more familiar with this process than others, so it might take some legwork on your part to get it straight.

Take a Distribution

You can withdraw some or all of your money from the TSP at any time after separating from the military. You might be subject to applicable income taxes on the distribution, and you might have to pay an early withdrawal penalty if you haven’t reached age 59½.

Make sure you understand exactly how your money will be taxed with any distribution. The rules are a little complex, and there might be exceptions to penalties.

[MORE ON YOUR PLAN: TSP.gov]

If you decide to do a rollover or take a distribution, you might want to consider leaving just enough money to keep your TSP account open. This will preserve the option to roll funds back into the TSP in the future. The TSP will automatically close your account when the balance falls below $200. To allow for market fluctuations, keeping more than $200 should ensure you don’t fall below the minimum.

There are numerous ways to handle your TSP when you leave the military. The simplest option — leaving your money in the TSP — often proves to be a sound strategy. This approach allows you to learn more and explore alternatives before making any significant financial moves. But other choices might be appropriate based on your situation, so carefully consider all options.