The TSP – Take It or Leave It?

Over the past few months, we’ve covered two major TSP topics: what to consider when leaving federal service, and the future of the G Fund. Both raised an important underlying question: what happens to your TSP once you leave the federal workforce?

Once you’re outside the system, does it still make sense to keep your money there? Or are you better off moving it? The answer isn’t as automatic as it might seem and it depends on understanding exactly how the TSP changes once you separate.

Your TSP After Separation: What’s Different

The first key change is simple but critical: you can no longer contribute to the TSP once you separate from federal service. Your account still exists, and it can still grow or decline based on your investment choices, but no new money can go in.

Equally important (and often overlooked) is that you lose the ability to take a TSP loan. TSP loans are available only while you are actively employed by the federal government. Once you leave, the option to borrow against your balance disappears entirely.  However, if you have an outstanding TSP loan when you leave, you must arrange to repay it directly (not via payroll), or the remaining balance will be treated as a taxable distribution if not repaid by the deadline.

Vesting is another detail to keep in mind. If you left before meeting the required service time for your agency’s automatic contributions (typically three years), you may forfeit some of the government’s contributions. However, all of your own contributions and earnings are fully vested immediately, regardless of your length of service.

In short, once you separate, your TSP becomes a static pot of money. You can still manage your investment allocations, request withdrawals, or roll funds over, but you’re no longer actively building it through payroll deductions or loans.

Why Some Stay

Despite these limitations, there are valid reasons why many former federal employees leave their money in the TSP, at least for a while.

First, the TSP offers extremely low-cost investment options. Management fees in the TSP are a fraction of what you would typically pay in many retirement accounts. However, the fee advantage is no longer as absolute as it once was. Providers like Vanguard, Fidelity, and Schwab now offer index funds with expense ratios that rival – and in some cases, undercut – the TSP’s. So while the TSP remains cost-effective, it may no longer be uniquely so.

Second, the TSP’s G Fund remains a distinctive offering. It provides principal protection and yields based on a special formula tied to the weighted average of long-term Treasury rates, offering steady returns without market volatility. That said, it’s important to understand what the G Fund is: a tool that benefits both federal participants and the U.S. government. It effectively functions as a cheap borrowing mechanism for the government, and its rate is determined by legislation, not market forces. While no changes are currently proposed, the G Fund’s setup has been scrutinized before – particularly during debt ceiling standoffs, when Treasury has delayed reinvestments to free up cash. If broader budget pressures mount, the method of calculating the G Fund’s rate could become a target, especially if it’s perceived as overly generous relative to private sector alternatives.

Lastly, some participants stay simply out of comfort or inertia. The TSP is familiar, relatively simple, and can feel easier to leave untouched, especially when you’re not sure what comes next.

Why Some Move

At the same time, leaving your TSP untouched isn’t always the best long-term move.

Once you’re outside the federal workforce, the flexibility of the TSP can feel limited. Withdrawals follow structured rules. The investment menu is narrow. And there’s no built-in option for Roth conversions or advanced retirement planning techniques like qualified charitable distributions (QCDs) or backdoor Roths. Private sector IRAs offer a broader set of tools that some investors may want to take advantage of. One note – Roth conversions are not yet available in the TSP but are scheduled to be introduced in 2026.

There’s also the question of user experience. While there’s no indication that the TSP is currently experiencing service delays, some participants may be concerned by broader slowdowns across federal agencies like the IRS and SSA. If rapid access, live support, or tech-forward account features matter to you, private custodians may offer a smoother ride.

And finally, there’s the long-term investment question. While the G Fund is stable and protective, it’s not a growth engine. Over decades, being overly concentrated in the G Fund can mean falling short of the returns needed to outpace inflation and fund a full retirement. Diversification matters and so does flexibility.

Final Thought: Know What Game You’re Playing

Just because you’ve left federal service doesn’t mean you must immediately move your TSP  but it does mean you need to rethink it.

The TSP was designed for active federal employees contributing steadily throughout their careers. Once you separate, that structure changes – and so does the landscape around fees, access, and even legislative pressures. What once made sense without a second thought now deserves a closer look.

The longer your money sits in the TSP, the more important it becomes to know exactly what you’re gaining and exactly what you might be giving up.