What Should I Do With My TSP?

Updated: 10/1/2026

This article primarily addresses the options available for money held in the Thrift Savings Plan (TSP). It is not a directive or individualized advice; the goal is to consolidate the key considerations in one place and make the choices easier to understand.

The primary options discussed are:

1. Keep your money in the TSP.
2. Roll your TSP into an eligible retirement plan, such as a 401(k), 403(b), or governmental 457(b).
3. Roll your TSP into an IRA.

We’ve also included additional information about the TSP, including general planning considerations and recent changes to the TSP program itself.

Starting in 2026, Your TSP Added an Important New Option.

The TSP now allows Roth conversions within the plan. That changes an important part of the rollover discussion—but it does not answer whether you should keep your TSP, move it to an employer's 401(k), or roll it into an IRA.

For military members transitioning to civilian careers and federal employees approaching retirement, the Thrift Savings Plan (TSP) is often one of their largest retirement assets. After leaving service, the question usually becomes: What should I do with it?

There is no single answer. Each option has different investment choices, costs, withdrawal rules, tax-planning features, and implications for the rest of your financial plan. A change that took effect in January 2026 makes that comparison worth revisiting.

1. What Changed in 2026?

Effective January 28, 2026, the TSP began permitting Roth in-plan conversions. Participants can convert eligible amounts from their Traditional TSP balance to their Roth TSP balance without first moving the money to an IRA.

A conversion generally adds previously untaxed money to taxable income in the year of conversion. In exchange, the converted funds move to the Roth side of the TSP, where future qualified withdrawals may be tax-free. The conversion itself is not a way to avoid tax; it is a decision about when to pay it.

What this means: You no longer need to leave the TSP simply to convert existing Traditional TSP money to Roth. A rollover may still make sense for other reasons, but conversion availability alone is no longer the deciding factor.

The feature is available to eligible active participants, separated participants who retain their TSP accounts, and spouse beneficiary participants. TSP conversions have minimums and other operational conditions; check the current TSP guidance before acting.

2. Option One: Keep Your Money in the TSP

Keeping the account preserves access to the TSP's core investment lineup and its distinctive G Fund, which is invested in specially issued U.S. Treasury securities. Core-fund expenses are generally low, and the new conversion feature adds another tax-planning tool without requiring a rollover.

What to consider: The TSP offers a more limited investment menu than many IRAs. Its withdrawal mechanics and treatment of Traditional and Roth balances may also differ from the flexibility available elsewhere. The mutual fund window expands investment access, but has eligibility requirements and additional fees.

For someone who values the G Fund, straightforward investments, and the ability to make Roth conversions in place, retaining some or all of the TSP can remain a useful part of the plan.

3. Option Two: Roll Your TSP Into an Eligible Employer Retirement Plan

If your current employer’s plan accepts incoming rollovers, eligible TSP assets may be able to move into another employer-sponsored retirement plan, such as a 401(k), 403(b), or governmental 457(b).

This deserves particular attention for military retirees moving into airline or other private-sector careers. If the new employer's plan accepts incoming rollovers, eligible Traditional TSP money can generally be moved by direct rollover into its pre-tax 401(k) account without creating current taxable income.

Consolidating accounts may simplify account oversight, beneficiary coordination, and long-term distribution planning. Depending on the plan, a 401(k) may also offer institutional investments, competitive expenses, and access features that matter later in a career.

What to verify in the receiving plan:

• Does it accept incoming rollovers from the TSP, and which contribution types will it accept?
  
• What are its investment options, all-in costs, and distribution rules?
  
• Does it permit in-plan Roth conversions—and can incoming rollover dollars be converted under its terms?
  
• How might the employer's separation-from-service rules affect access to the funds?
  

Not every 401(k) permits incoming rollovers or in-plan Roth conversions. The plan document matters. Rolling the TSP into a 401(k) also means giving up direct access to the TSP's G Fund for the assets transferred.

4. Option Three: Roll Your TSP Into an IRA

An IRA generally provides a wider investment menu and more direct control over the custodian, investment allocation, and withdrawal strategy. Traditional TSP money can generally be moved to a Traditional IRA by direct rollover while preserving tax deferral; a subsequent conversion to a Roth IRA is generally taxable to the extent it involves pre-tax funds.

What to consider: Greater flexibility can be useful when coordinating retirement income, investments, beneficiaries, and conversions across accounts. But moving assets to an IRA also changes the distribution rules. In particular, the employer-plan age-55 separation-from-service exception to the 10% additional tax does not apply to IRAs. Other exceptions may be available depending on the facts.

For someone retiring before age 59½, the timing of a rollover should be reviewed before any money moves.

5. The Roth Conversion Decision Is Separate From the Rollover Decision

The new TSP feature makes it easier to keep two questions distinct:

• Where should the retirement assets live?
• And how much, if any, should be converted to Roth this year?

A Roth conversion can be useful in a year when taxable income is lower than it may be later. But the correct amount depends on the larger picture—not just the size of the TSP account.

Before converting, look at:

• Current and future tax brackets. A conversion adds income today; the potential benefit depends on the tax rate paid now compared with future withdrawals.
  
• Pensions, paychecks, and Social Security. Military retirement pay, a federal pension, airline compensation, and other income sources can materially change the calculation.
  
• Medicare premiums. A conversion may increase modified adjusted gross income and affect income-related Medicare premiums in a later year.
  
• Cash available for taxes. TSP does not withhold taxes from an in-plan conversion. Have a plan for the tax bill using funds outside the retirement account.
  
• Withdrawal timing and five-year rules. Qualified Roth treatment and certain early-distribution rules require careful attention, especially for younger retirees.

Conversions cannot simply be undone because the tax outcome turns out differently than expected. If you are already subject to required minimum distributions, the applicable RMD must be satisfied before converting.

6. One Retirement Account Is Not the Whole Financial Plan

Consider a military retiree now working for an airline. That household may have military retirement pay, a retained TSP, a current airline 401(k), IRAs, taxable investments, and a future Social Security benefit. Each account may be operating under different investment and tax rules.

The question is not whether one account is universally better. It is whether the accounts are structured to support the same retirement objectives: when income begins, where withdrawals come from, how much risk is appropriate, how taxes are managed, and what ultimately passes to beneficiaries.

Keeping a TSP, consolidating some assets into a 401(k), or using an IRA can each be appropriate in different circumstances. You may not need an all-or-nothing approach.

Make the Decision With the Full Picture in View

The 2026 Roth conversion update gives TSP participants an additional option. It does not eliminate the differences between the TSP, a 401(k), and an IRA.

Before initiating a rollover or conversion, compare the investment choices, total costs, withdrawal rules, tax consequences, and estate considerations against your broader financial plan. The best next step is the one that fits those pieces together—not the one based on a single new feature.

At Taurus Wealth Management, we help military families, airline pilots, and professionals coordinate retirement accounts, pension benefits, investments, and tax considerations so each decision supports the same direction.

If you're approaching a military or federal retirement, or transitioning into a second career, let's review how these choices apply to your accounts.