By Christopher Flis, CFP®
Upon leaving military life, veterans have many decisions to make, including where to live and what to do (or not do) for work. Although retirement savings accounts may be low on the priority list, it’s still critical for Veterans to consider what to do with their Thrift Savings Plan (TSP) accounts. As a retired Veteran and Financial Planner, I’ve assisted numerous Veterans with their TSP account decisions as part of an over-arching plan. Please allow me to share some considerations I’ve garnered through my personal and professional experiences.
Basics Of The Thrift Savings Plan
The Thrift Savings Plan is a retirement saving and investment plan offered to both federal civilian employees as well as members of the uniformed services. The structure and benefits of the TSP are similar to the 401(k) retirement plans offered by many private employers. You can save into the plan directly from your paycheck, and also choose how to invest your money. Contributions can be made on either a pre-tax or after-tax basis – Traditional or Roth. Note that if you choose after-tax, your contributions won’t provide you with a tax break today but can be withdrawn tax-free in retirement.
Unfortunately, you can no longer contribute to your TSP after you leave the military. If you choose federal civil service, you will be assigned a new TSP Account to which you may rollover your military TSP account so all your TSP funds are consolidated.
Options For Your Thrift Savings Plan
You have several options for your TSP after you leave military service and do not seek employment in the federal civil service. I’ve listed them below, along with some pros and cons of each:
Leave the money in the plan: If you wish, you can simply leave the money in the TSP until you start withdrawing it in retirement. This is the easiest option, and you can benefit from the low TSP fees and the plan’s simplicity. Conversely, while the plan’s investment options are basic and cover most investors’ needs, there are only 5 basic funds in the plan, so if you are looking for specific exposure to an asset not offered, the TSP will not be satisfactory for you.
Roll the TSP into an individual retirement account (IRA): By rolling your TSP into an IRA, you’ll have access to many more investment options. The cost advantages of the TSP used to be quite significant; however, the investment options in the TSP can be easily replicated with low-cost options outside the TSP at essentially the same costs. However, if you seek professional management of your IRA, any advisory fees will be in addition to your investment fees.
Roll the money into your new employer’s 401(k): By doing this, you can put all your retirement savings in one place, which reduces administrative burdens. Still, your money can only be invested in the options offered by the 401(k) plan, and fees may be higher than what you currently pay in the TSP. So be sure to fully review any new potential home for your TSP funds.
Take a lump-sum withdrawal: Unless you absolutely need your retirement money today, this option is generally not recommended. If you are younger than 59 ½, you will not only face early withdrawal penalties, your tax-deferred withdrawals will also be taxable. There are exceptions, of course; however, it is strongly recommended to speak with a financial professional before proceeding down this path.
Your Retirement Plan And Your Future
Making the transition from military to civilian life brings many changes. Don’t let saving for your future retirement plan get lost in the shuffle. The considerations above are only general in nature – every person is unique and so is his/her situation. Therefore, it makes sense to speak to a financial professional to assist with making the best decision for you. Our team at Resilient Asset Management can help you plan for your TSP funds and check up on your overall financial picture. Schedule a 30-minute introductory meeting or contact us at firstname.lastname@example.org or (901) 318-3423.
Christopher Flis is founder and financial planner at Resilient Asset Management, a fee-only Registered Investment Advisor (RIA) based in Tennessee. Chris graduated from the United States Naval Academy with a bachelor’s degree in computer science, earned a Master of Science in Computer Science from the University of Minnesota, and attended flight school in Pensacola, FL, launching a fulfilling and distinguished military career. Chris spent 20 years in the Navy as an F/A-18 Strike Fighter Pilot, which included tours in Japan, Australia, and California, combat missions in all areas of the Persian Gulf and Afghanistan, and time spent as the Executive Officer of Naval Base Guam and Director of Navy Casualty in Millington, TN. When Christopher was ready to make a career change, he turned to a passion he held since high school when he attended a lecture on personal finance and started managing his own investments. He earned his Certified Financial PlannerTM (CFP®) designation and now combines his passions and experience by serving military, retired military, business owners, and retirees. Chris provides comprehensive, customized financial services, helping his clients overcome their challenges and take opportunities so they can achieve financial independence.Chris lives in Downtown Memphis with his wife, Christine, and his son, Emerson. He is an avid runner and when he is not jogging for exercise, he is usually chasing his son around or walking his 3 dogs. To learn more about Chris, connect with him on LinkedIn.