How to save for retirement after TSP

When servicemembers transition from military to civilian careers, they have a lot to juggle. Where will they settle down? What are their skills, and how do those skills translate to a new career?

Through it all, one priority should remain top of mind: saving for retirement. You've likely taken advantage of the Thrift Savings Plan (TSP). But when contributing to your TSP is no longer an option, how can you continue to save for your retirement goals?

Read on for a roundup of the more common options for saving for retirement.

Transitioning your military TSP

As you leave military service behind, a common question is what to do with your TSP.  As you are making decisions on how to continue to save for retirement, you also need to decide what to do with the TSP funds you’ve amassed thus far.

The good news is that you really don’t have to do anything and you can keep your funds in TSP.  In many cases, that’s probably the best option.  But because each person’s situation is different, I’ve written an article on 5 things to consider before moving your TSP. This should help guide you in making the best decision for you.

Maximizing your retirement savings after military services

Let’s look at several options that might be available to you as you continue to save for retirement, an important goal for almost every person.

Employer retirement plans

Many organizations offer employer-sponsored retirement plans, such as 401(k)s and 403(b)s, as a benefit to help provide their workers with income in retirement.

These plans are an even bigger benefit if the employer offers a matching contribution. For example, if a company offers a 1-to-1 match on up to 5% of income and you contribute 5% of your pay into the retirement plan, you'll get another 5% free from the employer's matching contribution. At USAA, we call this "free money." Don't leave it on the table.

Roth or traditional IRA

Even without access to an employer retirement plan, one option is an Individual Retirement Account, or IRA. An IRA is a retirement vehicle that allows money to grow tax deferred. An IRA comes in two basic flavors: Roth or traditional. The main difference comes down to taxes and IRS eligibility requirements.

If eligible, a traditional IRA provides an up-front tax deduction. Contributions and growth are then taxed when you withdraw money during retirement. A Roth IRA is the opposite. There is no up-front tax deduction, but withdrawals are tax-free if meeting the requirements. Find more information in IRS Publication 590-A.

Even a stay-at-home spouse who doesn't have earned income can contribute to their IRA through a spousal IRA. The nonworking spouse can contribute out of the earned income from the wage-earning spouse. Keep in mind that the amounts contributed to the worker IRA and the spousal IRA can't exceed earned income. Read more in our Roth versus traditional IRA quick guide.

Options for entrepreneurs

Since many veterans are self-employed or business owners, what are some ways they can save for retirement?

While the following list is not exhaustive, these are some of the more popular retirement saving plans for small businesses:

• Savings Incentive Match Plan for Employers, or SIMPLE IRAs, are for businesses with up to 100 employees.
• Simplified Employee Pensions, or SEPs, provide a way for business owners to contribute to their employees' retirement plans, as well as their own. Only the employer can contribute to an SEP.
• One-participant 401(k)s, also called solo 401(k)s, may be an option for business owners who have no employees other than a spouse.

Remember that self-employed individuals still have access to IRAs if they meet the requirements. For more information on retirement plans for small businesses, check out IRS Publication 560.

TSP for federal employees

Many military members continue their service to their country by becoming federal employees. In fact, according to a 2021 report by the Interagency Veterans Advisory Council, 31% of all federal employees are veterans.

The good news is that the TSP is still available to some federal employees Opens in a new window.‍ ‍ ^{See note 1} The TSP website shows they're eligible to participate if they are a:

• Federal employee covered by the Federal Employees Retirement System (FERS).
• Federal employee covered by the Civil Service Retirement System (CSRS). Note: CSRS participants don't receive automatic or matching contributions, but this scenario is rare because it was replaced by FERS for anyone hired on or after Jan. 1, 1987.
• Civilian in certain other categories of federal service, such as some congressional positions and some justices and judges.

TSP benefits can vary between the different retirement systems, so take some time to understand the differences.

Here's an example of one difference: Those under the FERS retirement plan are eligible to receive an automatic contribution of 1% and up to 4% of additional matching contributions, similar to the Blended Retirement System, or BRS. However, the vesting periods can be different. Under FERS, the vesting period is either two or three years, depending on the job. BRS only has a two-year vesting period.

If someone has a military TSP and then joins the federal government, the account number stays the same. The sections are just divided into military and civilian sides. Once they separate from military service, they can combine the two through a TSP-65 form. This is common for Reserve members who are also civilian federal employees.

As you can see, there are plenty of options to save for retirement when you transition from a military career to a civilian one. During this stage of your life, an important piece of advice is to just keep saving. Make it a priority. Do your research and choose the best options for you.