Federal Layoffs: What Your TSP Decision Could Cost (or Make) You
Your Federal Career Has Changed – What’s Next for Your TSP?
If you’ve recently been laid off from a government job, you’re not alone. The transition from federal service to the next phase of life—whether that’s private-sector work, self-employment, or retirement—comes with big financial decisions.
Your Thrift Savings Plan (TSP) is one of the most valuable benefits you’ve built over the years. But what happens to it now?
This is one of the most overlooked and under-discussed parts of leaving federal service. Many people assume their TSP will just “work itself out” or that keeping it where it is must be the safest choice.
The reality? The decision you make now will shape your financial future for decades.
The Hidden Shift in Your TSP
For years, your TSP was designed to work while you were actively employed—with automated contributions, a limited investment menu, and a structure built for federal workers, not retirees or those transitioning to a different career.
Now that you’ve left government service, your relationship with your TSP has changed—even if it doesn’t feel like it yet.
Some things remain the same:
✅ Your account stays open, and you can leave your money there indefinitely.
✅ Your investment choices are still the same five core funds.
✅ You still have access to low-cost fees.
But other key things change—things that could cost you growth, flexibility, and long-term security:
⚠️ You can no longer contribute to your TSP.
⚠️ You don’t have access to personalized investment guidance.
⚠️ Your portfolio may become imbalanced over time, increasing risk without you realizing it.
If you’ve never thought about what happens when the market shifts, how taxes will affect your withdrawals, or how to turn your TSP into a sustainable source of retirement income, now is the time.
The good news? You have options.
Your Four TSP Options After Leaving Federal Service
💼 Option 1: Leave Your Money in the TSP
This is the easiest path, which is why many former federal employees take it. But easy doesn’t always mean best.
You’re still limited to five core investment options.
Your portfolio won’t adjust as your life and the markets change.
You may miss opportunities for greater diversification, tax optimization, and risk management.
📊 Option 2: Move Your TSP to an IRA or Professionally Managed Account
This option gives you more control over your investments while keeping your retirement savings tax-advantaged.
You gain access to thousands of investment options instead of just five.
Your portfolio can be customized to align with your long-term goals.
You can create a withdrawal strategy designed to minimize taxes and maximize retirement income.
You have someone actively managing your investments instead of hoping the TSP’s static options work in your favor.
💰 Option 3: Withdraw Everything at Once
While it may be tempting to cash out, this is one of the costliest choices you can make.
Immediate tax hit: A large lump-sum withdrawal could trigger a significant tax bill.
Potential penalties: If you’re under 59½, you could owe an additional 10% early withdrawal penalty.
Long-term impact: You may lose tens or even hundreds of thousands in lost investment growth over time.
🔄 Option 4: Set Up Regular TSP Payments
This option allows you to receive withdrawals on a schedule, but your money remains in the TSP’s limited investment menu.
You may miss out on greater portfolio growth over time.
Your investments aren’t actively adjusted to changing market conditions.
So, What’s the Best Choice for You?
There’s no one-size-fits-all answer. The right decision depends on:
Your career plans – Are you retiring or moving to another job?
Your investment goals – Do you need your money to grow, or are you looking for stability?
Your tax situation – How will your withdrawals impact your long-term financial security?
Here’s what we know: The most successful investors don’t leave their future to chance. They take proactive steps to ensure their money is working as hard for them as they worked to earn it.
If you’re not sure what to do with your TSP, it’s worth talking to someone who can walk you through the opportunities, risks, and long-term impact of each choice.
The Next Step: Getting Clarity on Your TSP
Transitioning out of government service is a major life change—and your financial strategy should reflect that.
Whether you decide to keep your TSP where it is or transition to a more flexible, actively managed portfolio, the most important thing is to make an informed choice rather than defaulting to inaction.
We’ve helped many former federal employees navigate this transition, and we’d love to help you do the same.
📅 Schedule a no-obligation conversation to walk through your options—so you can feel confident about your financial future.
It’s not about selling. It’s about clarity. Let’s make sure your next step is the right one.
Disclosure: This content is for informational purposes only and should not be considered investment, tax, or legal advice. The decision to keep your assets in the Thrift Savings Plan (TSP) or transfer them to an IRA or other investment account depends on your unique financial situation, risk tolerance, and long-term goals. Investment decisions should be made based on an individual’s specific objectives and circumstances.