TSP Rollover After Separation: Keep or Move?

You separate from the military, finally catch your breath, and then the money decisions hit all at once.

One of the biggest is your Thrift Savings Plan: Do you keep your money in TSP, roll it into a civilian 401(k), or move it to an IRA?

Get this wrong and you can trigger taxes, higher fees, or years of avoidable complexity. Get it right and you keep compounding in a low-cost, disciplined system while your civilian career takes off.

This guide breaks down exactly how to decide, what mistakes to avoid, and the step-by-step process to execute a TSP rollover after separation without creating a tax mess.

Why this decision matters more than most veterans think

For many separating service members, TSP is one of the largest financial accounts they own. It may even be larger than checking, savings, and taxable investments combined.

That means your TSP choice affects:

• Your long-term investment costs
• Your retirement flexibility
• Your tax exposure in rollover year
• Your total net worth trajectory over decades

Even a 0.50% annual fee difference can cost tens of thousands of dollars over a 20- to 30-year period. Expense drag is quiet, but it compounds just like investment returns.

If you haven’t looked at your full balance sheet yet, start there first. Track your progress with Nova so this decision fits your complete financial picture, not just one account.

Your three main options after separation

1) Keep your money in TSP

For most veterans, this is the default baseline option to beat.

Pros:

• Historically low expense ratios
• Simple fund lineup that prevents over-trading
• Continued access to G Fund and lifecycle funds
• Strong creditor protections under federal law

Cons:

• Fewer investment choices than an IRA
• Some administrative processes can feel slower
• Less flexibility if you want advanced portfolio customization

If your current setup is working and you’re not paying high fees, keeping TSP is often a perfectly strong move.

2) Roll TSP into a new employer’s 401(k)

This can make sense if you value consolidation and your new plan is solid.

Pros:

• One workplace retirement account to manage
• Potential access to institutional share classes
• Easier logistics for people who prefer “one login” simplicity

Cons:

• Many 401(k) plans have higher fees than TSP
• Investment menus vary widely by employer
• You may lose access to TSP-specific fund features

Before moving anything, compare your new plan’s total cost and fund quality to TSP. Don’t assume “newer” means better.

3) Roll TSP into an IRA

IRAs offer maximum control, but that control comes with more responsibility.

Pros:

• Broad investment menu (ETFs, index funds, bonds, etc.)
• Flexible withdrawal and conversion strategies later
• Easy to align portfolio with your broader tax strategy

Cons:

• Much easier to overcomplicate your investing
• Potentially higher costs if you choose expensive funds
• Creditor protection rules differ by state and account type

An IRA can be powerful, but only if you’re disciplined about low-cost investing and clear asset allocation.

The tax rule that protects you: direct rollover only

If you remember one thing from this post, remember this:

Use a direct trustee-to-trustee rollover.

That means funds move directly from TSP to your new qualified account without the money touching your bank account. A proper direct rollover avoids current-year taxes and early withdrawal penalties in most cases.

A 60-day indirect rollover is riskier. If you miss deadlines or mishandle withholding, you can create a taxable event you never intended.

For official rollover and tax guidance, review the TSP withdrawal and rollover rules and IRS rollover guidance at IRS.gov.

A veteran-first decision framework (use this in 10 minutes)

Use these five checks before you move your TSP dollars:

1) Fee check

Compare all-in expense ratios between TSP and destination account. If the destination is meaningfully more expensive, keeping TSP may win by default.

2) Fund quality check

Do you have diversified, low-cost index options in the new account? If the menu is weak, don’t roll just for convenience.

3) Behavior check

Be honest: do more options help you, or hurt you? Many investors perform better with fewer knobs to turn.

4) Tax strategy check

If Roth conversions are part of your long-term plan, an IRA may provide flexibility. But that flexibility only matters if you’ll actually use it intentionally.

5) Simplicity check

During transition (new job, relocation, family changes), simple often beats optimal-on-paper. A good plan you follow beats a perfect plan you abandon.

Common mistakes separating veterans make

• Rolling over before comparing fees
• Cashing out “temporarily” and creating taxes/penalties
• Leaving old allocations untouched for years without review
• Ignoring beneficiary updates after major life events
• Making retirement moves without seeing total net worth impact

Your TSP does not exist in isolation. It connects to your emergency fund, debt payoff plan, VA benefits, and civilian compensation package. Built for veterans, Nova helps you track all of it in one place.

Step-by-step: how to execute a clean rollover

1. Choose destination account first (TSP, 401(k), or IRA) after fee/fund comparison.
2. Confirm rollover eligibility and instructions with receiving plan custodian.
3. Request direct rollover paperwork from TSP and receiving institution.
4. Verify account registration details (name, account type, tax treatment).
5. Monitor transfer status until funds settle in destination account.
6. Reinvest promptly according to your target allocation.
7. Document everything for tax records and future troubleshooting.
8. Review beneficiaries and contribution strategy in your new setup.

If you’re weighing broader transition money moves too, read more guides and pair this with your full military-to-civilian financial plan.

What to do this week (practical action plan)

• Pull your current TSP balance, fund allocation, and recent statement.
• Get the fee disclosure for your new employer 401(k), if applicable.
• If considering an IRA, shortlist one low-cost provider and 2-3 broad index funds.
• Choose your rollover path and calendar the execution date.
• Update your net worth tracker so you can confirm account movement and allocation after transfer.

Small administrative choices during separation can create massive long-term outcomes. Handle this one deliberately.

Key takeaways

• TSP is often hard to beat on cost and simplicity.
• A rollover is only worth it if it improves fees, flexibility, or execution.
• Always use a direct rollover to avoid unnecessary taxes and penalties.
• Evaluate this decision in the context of your total net worth, not a single account.

Nova was built by a veteran, for veterans. Track your TSP, VA disability, military retirement, and all your accounts in one place. Start your free 30-day trial.