401kcalculator.org

Let It Be, Roll It Over, Move It or Cash It Out

Assessing your options for what to do with your retirement fund when you change jobs.

There is no question that today’s federal workforce is more flexible and less likely to stay with the government for 30 years or more. According to Office of Personnel Management statistics, the average length of federal service is slightly over 13 years, with 25 percent of the workforce having fewer than 6 years of service and another 25 percent having 20 or more years. According to the Bureau of Labor Statistics, 410,000 federal employees separated from federal service in 2018. 

Two common questions I get from federal employees are “What should I do with my Thrift Savings Plan when I leave government?” and, “What should I do with a retirement account from a former employer when I enter federal service?”

According to Ted Benna, known as the father of the 401(k), it’s very important to consider the impact on your retirement savings plan when you change jobs. The options for your 401(k) plan or your TSP account are to leave it with your old employer, roll it over to your new employer’s 401(k) or TSP, roll it over into an individual retirement account or simply cash it out. Let’s look at each potential choice.

Option 1: Leave Your Funds With Your Old Employer

If you’re leaving federal service, you can keep your money in the TSP if your account balance is $200 or more. You'll be able to:

  • Enjoy the TSP's low administrative expenses. If your old plan has a higher fee, this move will allow you to keep more of your money. 
  • Move money into your account from an IRA or eligible employer plan.
  • Change your investment mix with interfund transfers.
  • Leave your money in the TSP until you reach age 70½.
  • Avoid paying current federal income taxes on any taxable amounts (and possibly penalties).

If you’re leaving a private sector job to join a federal agency, you usually have the option of leaving your money with your old employer’s plan. Here’s why you might want to do that:

  • If you left your last employer at age 55 or later, you can take penalty-free withdrawals from that plan before you’re 59 ½. Once you reach that age, you can still take penalty-free withdrawals from the TSP while you are employed. 
  • Certain investment options in your old plan may not be available in the TSP. 
  • Your previous employer’s plan might offer professional investment guidance at a competitive fee. The TSP does not offer advice, just general financial education. 

Option 2: Roll Over Your Funds to Your New Employer’s Plan

If you’re leaving government for the private sector, it’s generally not recommended that you move your TSP funds to a new account. After all, you can keep your money in the TSP (as long as your balance is at least $200), and you can transfer money from traditional IRAs and retirement plans into the TSP even after you have separated from federal service.

You can continue to make interfund transfers after you have left government, but you won’t be able to make new contributions to the plan.

If you’re leaving the non-federal sector for a job with government, it frequently pays off to  transfer the money from your old employer plan into the TSP. The benefits of this move include:

  • Simplification by having fewer accounts to keep track of.
  • Low administrative expenses.
  • Easier money management via interfund transfers to invest in any of the TSP funds.

Option 3: Move Your Money to an IRA

At retirement, many feds consider moving their TSP into their own IRA. But before you make this move, beware of the potential for higher fees. According to this Forbes article, the average equity fund charges 1.3% in fees, and even low cost, do-it-yourself firms such as Vanguard and Fidelity charge .09% on some funds, which is still higher than the .03% per year administrative fees of the TSP. 

One of the advantages of an IRA over the TSP is the fact that there are about 13,000 investment options available at most discount brokers compared to the five core funds of the TSP.  According to a CNBC report, the average 401(k) plan now offers 25 investment choices. If you want more options, that may be the way to go.

Another consideration is that Roth IRAs don’t involve required minimum distributions. But with a Roth TSP account, you must begin taking withdrawals when you turn 70½. (Starting in September, you’ll be able to move only your Roth TSP money while leaving your traditional TSP balance untouched.) 

Also, the option of taking qualified charitable distributions to avoid paying taxes on your retirement savings withdrawals is available through an IRA, but not through the TSP directly. 

Option 4: Cash It Out

According to personal finance website The Balance, there are many more reasons to keep your money in a retirement savings plan rather than cashing out your investments when you leave a job.

Money in the TSP or a 401(k) plan is creditor-protected, and protected from bankruptcy. Your TSP account cannot be garnished to pay debts.

If you cash in your TSP or a 401(k) plan and you have not yet reached age 59 1/2, then the dollar amount you withdraw will be subject to ordinary income taxes and a 10% tax penalty. However, if you separate from your employment in the year you reach age 55 (or 50 if you’re a retired public safety officer), you can avoid the penalty.

There are pros and cons with each option, so it’s important to do your homework. By considering all the implications of each choice, you can wisely evaluate the impact that changing jobs will have on your retirement savings. 

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.