Transition & Retirement
Your account doesn't vanish with your CAC. Here are the three real options at separation, and what cashing out young actually costs.
Soldiers return home after deployment - the end-of-service decision point for the TSP. Photo by Maj. Lisa Kopczynski, Indiana National Guard, DVIDS (public domain).
When you separate, your TSP stays yours. If the balance is $200 or more you can leave it invested as long as you want. You just can't add new contributions from civilian pay. You can also roll it to an IRA or a new employer's plan, usually with no tax bill if it is a direct rollover, which means the TSP sends the money straight to a new account so there is no tax now. Or you can cash it out, which for a 24-year-old typically means ordinary income tax, an early-withdrawal penalty, and the loss of decades of compounding.
This walks through the options so you can pick one.
At separation your TSP does not disappear. You have three real choices, and the right one depends on your numbers, not on whoever is rushing you to decide.
What stays yours
Your account, your call: Your TSP stays yours after separation. You keep your contributions, the match, the automatic 1%, and all earnings. Update your address and email at tsp.gov, since myPay stops being your link.
This explains the options. It does not pick one for you.
Source: TSP.gov · IRS
Nothing, automatically, and that is the point. The account keeps sitting in whatever funds you chose, growing or shrinking with the market. You keep your own contributions, the government matching money, the automatic 1% if you served at least two years, and all earnings. After separation you can still move money between funds, change beneficiaries, and start withdrawals when the rules allow. You just can't contribute from a civilian paycheck, and any outstanding TSP loan comes due.
One admin task matters immediately: update your address and personal email at tsp.gov, because myPay stops being your link to the account.
If your balance is at least $200, you can leave the account in place for as long as you want. Why would anyone do that? Costs, mainly. TSP administrative expenses are very low, a fraction of what many civilian funds charge, and low costs add up in your favor the same way returns do. The TSP also keeps certain withdrawal rules tied to separating from federal service that don't carry over to an IRA. The trade-off is a smaller fund menu compared with an IRA's open universe. Balances under $200 get paid out to you automatically.
A rollover moves the money into an Individual Retirement Account or a civilian 401(k) without taking it as income. The clean way is a direct rollover: the TSP sends the money straight to the new account and you never touch it, so no tax is withheld and nothing is taxable now. Traditional TSP money goes to a traditional IRA or a pre-tax 401(k). Roth TSP money goes to a Roth account. The short version of traditional versus Roth is pre-tax money versus after-tax money.
If a payment is made to you personally instead, 20% federal tax is withheld up front, and you have 60 days to deposit the full amount, including the withheld 20% out of your own pocket, into the new account, or the shortfall counts as a withdrawal.
People roll over for more investment choices, to combine accounts, or to keep contributing in one place. People stay for the costs and rules above. Both are legitimate. The wrong move is letting a salesperson rush you. For how the account works day to day, see our TSP basics article, and for traditional versus Roth and how rollovers land, see our IRA article.
You can take some or all of the money as cash after separation. Here is the bill for traditional TSP money. First, the withdrawal is ordinary taxable income. Second, the TSP withholds 20% for federal tax up front on most payments made directly to you. Third, if you are under 59 and a half, the IRS generally adds a 10% early-withdrawal penalty, which is a 10% IRS charge before age 59 and a half, unless an exception applies, such as separating from service in or after the year you turn 55. A separating E-4 does not meet that age exception.
The tax bill is the part you can see. The quieter cost is the decades of compounding you trade away when you treat the TSP like a separation bonus.
Hypothetical, illustration only: A 24-year-old cashes out $10,000 (traditional). In a 22% bracket, about $2,200 goes to income tax and $1,000 to the 10% penalty, so roughly $6,800 in hand. Not a projection.
The quieter cost
Money left invested for decades has decades to compound. Compare all three before deciding.
Source: IRS · TSP.gov
Cashing out is not automatically wrong. People facing genuine hardship sometimes choose it with full knowledge of the cost. The mistake is doing it casually, or because the paperwork to roll it over looked annoying that week.
It comes due. If you don't repay or roll the outstanding balance within the allowed window, the TSP treats it as a taxable distribution, which means income tax and, if you are under the age thresholds, the 10% penalty on the unpaid amount. If you are carrying a loan and an ETS date at the same time, build the payoff into your separation budget early.
What happens to my TSP when I get out?
It stays invested and stays yours. You can't make new contributions, but you can manage the funds, roll it over, or withdraw under the rules. Balances under $200 are paid out automatically.
Should I cash out my TSP?
That is your call to make with full information. For most people under 59 and a half, cashing out means income tax plus a 10% penalty plus lost growth. Compare all three options, and talk to a free installation financial counselor or a tax professional before deciding.
Can I keep my TSP after the military?
Yes, for as long as you want, as long as the balance is $200 or more. Many veterans keep it for the low costs.
How do I roll my TSP into an IRA?
Open the IRA first, then request a direct rollover through your account at tsp.gov so the money moves institution to institution. Direct rollovers avoid the 20% withholding that hits payments made to you personally.
What if I have a TSP loan when I separate?
The balance comes due. Unrepaid amounts become a taxable distribution, with the 10% penalty on top if you are under the age exceptions.
When can I take TSP money without a penalty?
Generally at 59 and a half, or if you separate from federal service in or after the year you turn 55 (earlier for certain special categories). Other narrow IRS exceptions exist. Income tax still applies to traditional money either way.
