For a smooth transition from your Thrift Savings Plan to an IRA without getting tangled in the financial jargon, follow five basic steps and continue building savings for your retirement.
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From Thrift Savings to IRA: Saving for Retirement After Military Separation

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Transitioning from military to civilian life can be challenging - but rolling over your Thrift Savings Plan into an Individual Retirement Account (IRA) after military separation doesn't have to be.

A prosperous military retirement may be one of the main goals of your Thrift Savings Plan. Use these tips to help transition from TCP to your civilian retirement plan, and enjoy the financially free retirement lifestyle you've been counting on.

IRA TAX DEFERRED INVESTING

Rolling over your retirement funds from the Thrift Savings Plan (TSP) to an Individual Retirement Account (IRA) allows you to continue to take advantage of tax-deferred investing. An IRA rollover also gives you the option of consolidating your retirement funds after military separation.

If you are eligible, you may choose to roll over from your Thrift Savings Plan into a Traditional IRA or a Roth IRA. With a Roth IRA, although you'll pay taxes now, you could be eligible for tax-free distributions when you retire.

If you are planning to have more income when you retire and thus find yourself in a higher income tax bracket, the Roth IRA could be the better choice. Additional income after retirement could come in the form of business ventures, or other income sources.

FIVE STEPS FROM THRIFT SAVINGS TO MILITARY RETIREMENT PROSPERITY

For a smooth transition from your Thrift Savings Plan to an IRA without getting tangled in the financial jargon, follow these five steps and continue building savings for your retirement:

  1. Start a rollover IRA account that accepts Thrift Savings Plan distributions. Your financial services provider or financial planner help you arrange it.
  2. You have an option to leave your money in the Thrift Savings Plan account until withdrawals begin, to combine funds in an employer's retirement plan, or to transfer your Thrift Savings Plan account to an IRA. A traditional IRA is more like the Thrift Savings Plan, in that your investment grows tax-deferred. A Roth IRA is taxed now, rather than being taxed at withdrawal.
  3. If you withdraw your Thrift Savings Plan funds before the age of 59 1/2, there will most likely be a 10% penalty. Avoid this penalty by doing a direct IRA rollover while your money grows tax-deferred.
  4. Even with contributions from your military pension, you may want to continue building your Thrift Savings Plan account for your retirement. You can arrange for consistent contributions by signing up for your new employer's retirement plan and setting up your IRA to automatically receive your monthly investments.
  5. As the economic climate changes, some investments become more volatile. If you want to avoid high risk, plan to check in on and rebalance your retirement assets regularly, so they don't become too heavily invested in any one of the riskier products such as stocks or bonds.



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