TSP, 401(k), or IRA? Making the Smartest Choice for Your Post-Military Career

The DD-214 is signed, your uniforms are packed away, and you're staring at a civilian world full of possibilities. But between updating your resume, finding housing, and adjusting to a new routine, one critical decision keeps nagging at you: what should you do with that TSP account you've been building for years?

If you're like most veterans I work with, you might be thinking, "I'll deal with it later." But here's the thing—this decision is too important to put on the back burner. The choice you make about your Thrift Savings Plan could mean the difference between a comfortable retirement and working well into your golden years.

As someone who's helped hundreds of military families navigate this exact transition, I've seen the relief on faces when veterans finally understand their options. More importantly, I've witnessed the long-term impact of making informed decisions versus leaving things to chance.

Why This Decision Matters More Than You Think

Let me share a story that illustrates why this matters. Two veterans, both E-6s, both served eight years, both had roughly $85,000 in their TSP when they separated. One left his money in the TSP and forgot about it. The other took time to understand his options and moved his money to his new employer's 401(k) where he could actively manage his account.

Twenty-five years later, the first veteran had about $120,000. The second? Nearly $580,000. Same starting point, same timeline, but a $240,000 difference because of one decision made during their transition.

That's the power of making an intentional choice about your TSP. It's not just about where your money sits—it's about setting yourself up for financial security decades down the road.

Understanding Your TSP: What You've Built and Why It Matters

Before we dive into your options, let's acknowledge what you've accomplished. Building a TSP balance during your military service took discipline. Whether you contributed 5% or 50%, you made sacrifices to build this nest egg while serving your country.

Your TSP isn't just a retirement account—it's proof that you can build wealth. The habits you developed contributing to your TSP (automatic contributions, consistent investing, ignoring market volatility) are the same habits that will serve you well in civilian life.

But now you're facing a new challenge: the military made TSP contributions simple, but civilian retirement planning requires more active decisions. The good news? You already have the discipline and foundation to succeed. You just need to understand your options.

Your Three Main Options: A Deep Dive

Option 1: Leave Your Money in the TSP

This is the path of least resistance, and for many veterans, it's actually the smart choice. The TSP is widely regarded as one of the best retirement plans in the country, which is why it's worth seriously considering keeping your money there.

The TSP Advantage: Fees That Can't Be Beat The TSP's expense ratios are extraordinarily low—we're talking less than 0.05% for the C Fund compared to 0.50-1.50% for many civilian 401(k) options. Over decades, this difference in fees can cost you tens of thousands of dollars.

Investment Options: Simple but Effective The TSP offers five core funds that make your investments simple and effective from C to L.

When Staying in the TSP Makes Sense:

• You appreciate simplicity and don't want to manage investments actively

• You're satisfied with the core investment options

• You want to minimize fees above all else

• You're not planning to make regular contributions to this account

Potential Drawbacks to Consider:

• Limited investment choices compared to IRAs

• Withdrawal options in retirement can be restrictive

• No ability to do Roth conversions

• Limited flexibility for estate planning strategies

Option 2: Roll to Your New Employer's 401(k)

If you're starting a civilian job with a 401(k) plan, consolidating your retirement accounts might seem appealing. But this option requires careful analysis of your new plan's quality. Having all your retirement money in one place simplifies tracking and management. You'll receive one statement, make one set of investment decisions, and have one login to remember.

You will need to determine how good your new employer's 401(k) is. This is where many veterans make a costly mistake. They assume all 401(k) plans are created equal. They're not. Some are excellent, others are expensive disasters. It's important to consider the expense ratios of the funds, employer matching contributions, and potential withdrawal options in emergency situations.

Option 3: Roll to an Individual Retirement Account (IRA)

This option gives you maximum control and flexibility, but it also requires you to be more involved in managing your investments. With an IRA, you can invest in virtually anything: individual stocks, bonds, REITs, international funds, sector-specific ETFs, and thousands of mutual funds. You can also choose from dozens of reputable brokerage firms.

There are a few advantages of IRAs. You can convert traditional IRA money to Roth IRA during low-income years. There are also more options for accessing money before age 59½. When considering an IRA Choose your investments thoughtfully and monitor your fees and performance. You can keep your fees low by choosing good investments.

Special Considerations for Military Families

If You're Married: Making Joint Decisions

Your TSP decision affects your entire family's financial future. If you're married, consider your spouse's retirement benefits and timeline and the tax implications of the different choices. Also consider how your decisions fit into your overall financial plan.

If You Have Children: Long-Term Thinking

As a children's book author, I often think about the stories we tell our kids about money. Your TSP decision is part of that story. Are you teaching them about:

• The importance of long-term thinking?

• How small decisions compound over time?

• The value of being intentional with money?

Your retirement planning is also part of planning for your children's future. A well-funded retirement means you won't be a financial burden on your kids later in life.

If You're Planning Another Career Change

Many veterans change jobs multiple times in their first few years out of the military. If you think you might switch employers again soon, keeping your TSP or rolling to an IRA might be smarter than moving to a 401(k) you'll only use briefly.

A Step-by-Step Decision Framework

Use this framework to make your decision systematically:

Step 1: Assess Your Involvement Level

• Do you want to be hands-on with investments? (Points toward IRA)

• Do you prefer simple, set-it-and-forget-it investing? (Points toward TSP)

• Are you somewhere in between? (Could go either way)

Step 2: Evaluate Your New Employer's 401(k)

• What are the expense ratios on the best funds?

• How many good investment options are available?

• Is there employer matching you'd miss out on?

• What are the loan and withdrawal provisions?

Step 3: Consider Your Tax Situation

• Are you in a lower tax bracket now than you expect to be later? (Might favor Roth conversions in an IRA)

• Do you expect to be in a higher tax bracket soon? (Might favor traditional accounts)

Step 4: Think About Your Timeline

• How many years until retirement?

• Do you plan to change jobs again soon?

• When do you want to start accessing this money?

Step 5: Factor in Your Family Situation

• What does your spouse think?

• How does this fit with your other retirement accounts?

• What are your estate planning goals?

Common Mistakes to Avoid

• Mistake 1: Cashing Out Your TSP

• Mistake 2: Ignoring Fees in Your New 401(k)

• Mistake 3: Rolling to an IRA and Then Neglecting It

• Mistake 4: Making the Decision in Isolation

• Mistake 5: Overthinking It

The Bigger Picture: Building Your Civilian Financial Life

Your TSP decision is just one piece of your post-military financial puzzle. Other critical pieces include:

• Emergency Fund: Building 3-6 months of expenses in savings

• Insurance: Transitioning from military healthcare and life insurance

• Estate Planning: Updating wills, beneficiaries, and power of attorney documents

• Tax Planning: Understanding how civilian taxes differ from military

• Career Investment: Budgeting for education, certifications, or business startup costs

Remember, you're not just planning for retirement—you're building a comprehensive financial foundation for your family's future.

Final Thoughts: You've Got This

Transitioning from military to civilian life involves countless decisions, and it's easy to feel overwhelmed. But remember: you've already proven you can handle complex challenges. You've led teams, managed resources, and made decisions under pressure. This is just another mission to accomplish.

The choice you make today will compound for decades. Choose thoughtfully, but don't let perfect be the enemy of good. Your future self will thank you for taking action now.

Frequently Asked Questions

Q: How long do I have to make this decision?

A: There's no deadline for rolling over your TSP, but the sooner you make an intentional decision, the better. Don't let inaction become your default choice.

Q: Can I split my TSP balance between different options?

A: Yes, you can do partial rollovers. For example, you might roll part to an IRA and leave part in the TSP.

Q: What if I make the wrong choice?

A: Most choices aren't permanent. You can often roll money from a 401(k) to an IRA later, though moving money back to the TSP is generally not allowed.

Q: Should I roll my traditional TSP and Roth TSP to the same place?

A: Not necessarily. You might choose different strategies for each, such as keeping traditional TSP money in the TSP and rolling Roth TSP money to a Roth IRA.

Q: How do I actually initiate a rollover?

A: Contact both your TSP and your receiving institution (401(k) provider or IRA custodian). They'll walk you through the process. Always do direct rollovers to avoid taxes and penalties.