Your TSP after the military
Leave it, combine it or roll it over.
No rush. Nothing has to be decided when you leave. Cashing out early is the costly mistake.
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1. What changes when you leave
Your uniformed services TSP account doesn’t close when you retire or separate. It stays invested in the funds you chose. What changes:
- Contributions stop, both yours and, under the Blended Retirement System, the service’s automatic 1% and matching contributions.
- The automatic 1% needs 2 years of service to keep. Leave sooner and it’s forfeited. Matching contributions are always yours. Anyone retiring has met the 2 years.
- You can now withdraw, but you don’t have to until required minimum distributions start in your 70s.
2. Your three choices
- Leave it in the TSP. Costs are among the lowest anywhere, and you can take money out later in single withdrawals, monthly installments or an annuity. See TSP withdrawal options.
- Combine it with a civilian TSP account, if you now work for the federal government. One account is simpler, but combat-zone money in your traditional balance has to stay behind (see below).
- Roll it to an IRA. You get more investment choices and can give to charity straight from an IRA later. You usually pay higher fees, and you lose the age-55 penalty exception, which applies only to employer plans.
Someone pushing you to roll over? Read the IRA rollover pitch and TSP vs. Fidelity and Vanguard first.
3. Combat-zone money
Pay earned in a combat zone was tax-free, and so were the TSP contributions made from it. Your TSP statement shows this as your tax-exempt balance. It follows its own rules:
- Traditional balance: the tax-exempt contributions come out tax-free, but their earnings are taxed. Each withdrawal takes a proportional share of tax-exempt money.
- Roth balance: tax-exempt contributions are never taxed, and the 10% penalty never applies to them.
- Combining accounts: tax-exempt money in your traditional balance can’t move to a civilian TSP account. Tax-exempt Roth money can.
- Rolling to an IRA: the TSP sends the taxable part first, and tax-exempt money goes only if you roll over more than the taxable part. Not every IRA accepts it, so ask first.
TSP rules let tax-exempt money go to a Roth IRA if the IRA accepts it. Since that money was never taxed, moving it to a Roth adds no tax on those dollars, and future growth can be tax-free. Get the exact tax treatment confirmed by a tax professional before you move it.
4. The 10% penalty
Withdrawals from a traditional balance before age 59½ usually owe a 10% penalty on the taxable part, on top of income tax. The penalty doesn’t apply if:
- You separated in or after the year you turned 55. Most military retirees leave in their 40s, so this rarely helps.
- You take installments based on your life expectancy. Change them too soon and the penalty can apply retroactively.
- The money is tax-exempt Roth contributions.
5. Your spouse’s rights
If you’re married, your spouse must sign off before you withdraw. Your spouse is also entitled to a joint annuity with a 50% survivor benefit unless they waive it. These rules apply even if you’re separated. Name your beneficiaries too: see TSP death benefits.
6. Working for the government again
- A civilian federal job opens a separate civilian TSP account. Your yearly contribution limit ($24,500 in 2026) covers both accounts together.
- Guard and Reserve members can keep contributing to the uniformed services account while they drill. See Guard and Reserve retirement at 60.
- Buying back military time for a FERS pension is a separate decision: see the military service buyback.
7. Frequently asked questions
Can I leave my TSP after I leave the military?
Yes. Your uniformed services account stays open and invested after you separate or retire. Service contributions stop, but you can leave the money there and withdraw it later.
Can I move my military TSP into my civilian TSP account?
Yes, after you separate from the uniformed services, if you have a civilian TSP account. The exception is tax-exempt combat-zone money in your traditional balance, which can’t go into a civilian account and stays in the uniformed services account.
Is combat-zone TSP money taxed when I withdraw it?
The tax-exempt contributions are not taxed, but their earnings are, if they are in your traditional balance. Tax-exempt money in your Roth balance is never taxed. Withdrawals include a proportional share of tax-exempt money.
Do military retirees pay the 10% penalty on TSP withdrawals?
Usually, if they are under 59½. The penalty is waived if you separate in or after the year you turn 55, but most military retirees leave younger. Installments based on life expectancy are also exempt.
Does my spouse have to agree to my TSP withdrawal?
Yes. If you are a married uniformed services participant, your spouse must consent to a withdrawal, and is entitled to a joint annuity unless they waive it.