What are your TSP options in retirement?

As you approach retirement, deciding what to do with your Thrift Savings Plan (TSP) is a big step. While many people are familiar with the most common choices, it’s important to understand all the available options so you can make the best decision for your situation. 

1. Stay in the TSP 

You are allowed to keep your funds in the TSP after retirement. This option offers several advantages: 

• Low fees: The TSP has some of the lowest administrative costs in the industry. 
• Simplicity: You can continue managing your investments using the same system you already know. 
• Flexible withdrawals: You can take partial withdrawals, set up recurring payments, or withdraw everything at once. 

The tradeoff is that the TSP offers fewer investment choices than an IRA, which limits your flexibility.
 

2. Roll Over to an IRA 

Moving your TSP funds to an IRA opens the door to new opportunities: 

• More investment options: You can access a wide variety of mutual funds, ETFs, individual stocks, and bonds. 
• Account consolidation: Combining retirement accounts may simplify your financial life. 
• Tax planning flexibility: Rolling over to an IRA may allow for Roth conversions or other tax strategies. 

Make sure to use a direct rollover to avoid triggering taxes or penalties. (tsp.gov rollover guidance)
 

3. Use a Hybrid Approach 

Many retirees choose to split their funds between the TSP and an IRA. This strategy combines the benefits of both: 

• Keep costs low with the TSP while exploring more options in an IRA 
• Customize your allocation based on your risk tolerance and retirement timeline 
• Access different withdrawal strategies to match your income needs 

This approach gives you more control while keeping a foot in both camps.
 

4. Purchase a TSP Life Annuity 

The TSP allows you to use part or all of your account balance to buy a life annuity through its provider, MetLife. This option includes: 

• Monthly income for life 
• Single or joint annuity options, including survivor benefits 
• Optional inflation protection through increasing payments 

Keep in mind that annuity purchases are permanent. Once you commit, you give up control of the funds used to buy the annuity. (TSP annuity calculator)
 

5. Transfer to Another Employer’s Plan 

If you continue working after federal service, you may have the option to roll your TSP into your new employer’s 401(k) or similar plan. This might make sense if: 

• You want to consolidate retirement funds 
• Your new plan offers better loan options or more flexible withdrawal rules 
• You plan to continue contributing and want all funds in one place 

Always compare fees and investment options before making this move.
 

6. Take a Lump-Sum Withdrawal 

You can also choose to withdraw your entire TSP balance at once. This may be appealing in some circumstances, but there are risks: 

• All funds are taxable in the year you withdraw them 
• No more tax-deferred growth on those funds 
• Risk of overspending if the money is not managed carefully 

This option should be used with caution, especially if your retirement will last several decades.

Note:
Be sure to consider your age and when you will need access to your funds. Different options come with different rules. For example, if you separate from federal service in or after the year you turn 55, you can access your TSP funds without the 10 percent early withdrawal penalty. However, if you roll those funds into an IRA, the age limit increases to 59½. Make sure your decision fits both your investment goals and your timeline for withdrawals.

Did we miss any other options? If so, let us know in the comment section!