TSP Options After Leaving Federal Service

With federal employees facing growing job uncertainty amid daily reports of workforce reduction efforts, understanding your benefits has never been more critical—especially what happens to your Thrift Savings Plan (TSP) when you exit federal service. Let’s break down your TSP options post-separation.

Vesting Rules  

For FERS employees, vesting in the Agency Automatic (1%) TSP contribution requires a minimum service period. Most need three years to lock it in, though congressional staff and certain non-career roles vest after two. If you depart before vesting, you forfeit that 1% contribution and its earnings. Your own contributions, the agency match, and their gains, however, are yours from day one.

Minimum Balance Threshold  

To keep your TSP account active after separation, you need a vested balance of at least $200. If your balance dips below this when your agency logs your exit, the TSP will issue a lump-sum payout—so ensure your address is current. Once paid out, you can’t stay in the TSP. If you value its simplicity and low costs, consider boosting your contributions beforehand to hit that $200 mark, accounting for market swings.

Adding Funds After Separation  

If you’re not taking monthly TSP payouts post-separation, you can roll funds into it from a traditional IRA or a qualifying employer plan. This opens the door to leaving federal service, joining a tax-advantaged private-sector retirement plan, and later merging that into your TSP.

Withdrawal Options  

You’re allowed one partial withdrawal of $1,000 or more, leaving the remainder in your TSP—unless you took an age-based withdrawal (age 59½ or older) while still working, which disqualifies you from this option.

For a full withdrawal, you can opt for a single lump sum or monthly disbursements. Monthly payments can follow IRS life expectancy tables or be a fixed amount you choose (at least $25), continuing until your funds run dry.  

Another route: the TSP can buy a life annuity with a $3,500 minimum, managed through MetLife.  

Not sure what fits? You can mix and match these options to suit your goals.

Moving Your TSP 

Your TSP is a portable asset. A new employer’s plan might accept it, or you can shift it into an IRA for more flexibility.

Still weighing your next steps? A Federal Retirement Consultant® can guide you through a tailored strategy that fits your needs.