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What Should I Do With My TSP When I Retire or Separate from Service?

  • christopheromalley3
  • Sep 16
  • 3 min read
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If you’re a federal employee or member of the military, chances are your Thrift Savings Plan (TSP) is one of your largest retirement assets. It’s a powerful program—but once retirement comes, many people ask the same question:

What should I do with my TSP when I retire?

The answer depends on your goals, tax situation, and whether you want income, growth, or legacy wealth. In this guide, we’ll break down your main options, the risks most people miss, and how to turn your TSP into a secure, tax-efficient income plan.

The 4 Main Options for Your TSP at Retirement

  1. Leave it in the TSP

    • Pros: Low fees, simplicity.

    • Cons: Limited investment choices, subject to Required Minimum Distributions (RMDs), still taxable.

  2. Roll it into an IRA

    • Pros: More flexibility, broader investment menu.

    • Cons: Same tax rules, same RMDs.

  3. Withdraw as a lump sum

    • Pros: Full control over your money.

    • Cons: Triggers a big tax bill and may push you into a higher tax bracket.

  4. Convert to a Roth IRA

    • Pros: Future withdrawals are tax-free, better for long-term growth or legacy.

    • Cons: Upfront taxes due on the conversion.

Hidden Risks of Keeping Your TSP As-Is

While the TSP is one of the best government retirement plans, it comes with challenges in retirement:

  • Tax exposure: Every dollar you withdraw is taxable.

  • Mandatory withdrawals: RMDs force you to take money out even when you don’t need it.

  • Market swings: TSP funds are tied to the market—you could lose money right before or during retirement.

  • Inheritance rules: If left to children, they often must empty the account within 10 years—paying taxes at their top rate.

A Smarter Option: Turning Your TSP Into Tax-Free, Predictable Income

Many retirees don’t realize that their TSP can be strategically repositioned into structures that:

  • Provide guaranteed, predictable income for life and for your spouse and children

  • Account gets matched every year for life and every year after life

  • Grow tax-free instead of tax-deferred.

  • Protect assets from lawsuits, creditors, and market crashes.

  • Pass wealth tax-free to your spouse, children, and even grandchildren.

This is where the Family Endowment approach comes in. Instead of leaving your TSP exposed to taxes and volatility, you can redirect it into a private endowment-style plan—designed to act like the retirement funds of major universities and foundations.

Example: Retired Federal Employee with $750,000 in TSP

  • Traditional path: Roll to IRA. Forced RMDs begin at age 73. Every withdrawal is taxable. Kids inherit the balance, pay taxes within 10 years.

  • Endowment path: Redirect into a tax-advantaged endowment. Retiree receives steady, tax-free retirement that increases every year and Family inherits millions tax-free instead of a shrinking taxable account. This could potentially create a generational income of over $40 million.

FAQs

Can I leave my money in the TSP forever? No. At age 73, you must begin Required Minimum Distributions (RMDs), whether you need the income or not.

Is rolling my TSP into an IRA a good idea? It can give you more investment choices, but you still face the same tax rules and required withdrawals.

Can I convert my TSP to a Roth IRA? Yes, but you’ll owe taxes upfront on the converted amount. For large balances, a direct Roth conversion can be painful without proper strategy.

What’s the best way to pass my TSP to my kids? Leaving it directly creates a large tax burden. Converting it into a tax-free structure before passing it down can save your family millions.

The Bottom Line

Your TSP is one of your most valuable retirement assets—but it wasn’t designed to maximize wealth for families. With the right planning, you can turn it into a tax-free, predictable income system that doubles as a family legacy.

At Platinum Endowment, we specialize in helping retirees, business owners, and government employees transform their retirement plans into private endowments that protect wealth for generations.

👉 If you’re retiring soon or already retired, let’s talk about how to reposition your TSP for lifelong tax-free income and legacy wealth.

 
 
 

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