How to Manage Your TSP During Major Life Events

We get a lot of questions from Feds about how to manage their Thrift Savings Plan (TSP). That makes sense, as a well-funded TSP can be instrumental in ensuring financial stability during retirement.

But to really enjoy long-term financial stability, you’ll need to make some important decisions about your TSP along the way. Major life events- such as marriage, divorce, and job changes – can all impact your TSP in different ways. 

In this article, we’ll detail some of the key things you need to do to ensure you’re protecting your TSP nest egg during life’s ups and downs. 

Managing Your TSP During Marriage

It’s common for couples to combine financial accounts during marriage – think joint checking and savings accounts, for example. But that’s not the case with a TSP account. Even if both spouses are Feds, they cannot combine or hold jointly their accounts. Nor can a Fed with a TSP account combine their account with a spouse’s retirement account, such as a 401(k) or IRA. 

The reason for this is that a TSP is an individual retirement savings plan, which means a single account holder owns and manages it. Still, you do have some options for managing your retirement savings as a couple through beneficiary designation and joint retirement planning.

Beneficiary Designation

You can designate your spouse as the beneficiary of your TSP account. This ensures your spouse will receive the account balance if you die.

That being said, there is more than one strategy for designating a beneficiary, a topic we encourage you to learn about in our article, Maximizing Wealth Transfer: Smart Strategies for Designating Beneficiaries.

Joint Retirement Planning

Once you’re married, you may find your financial priorities and goals have shifted. Because of this, you might consider adjusting your TSP contributions and investment choices. It’s often a good idea to review the available TSP funds with your spouse and determine which mix of investments aligns best with your combined risk tolerance and time horizon.

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Managing Your TSP During Divorce

It’s important for Feds to understand that their TSP is part of their marital property. As such, it may be subject to division during a divorce. Should the court issue a Retirement Benefits Court Order (RBCO) to divide your account, your current (or former) spouse or your dependents could receive a portion of your TSP account.

The exact percentage of your TSP given to your ex-spouse or dependents is something you can negotiate before the court issues the RBCO. The court may issue a percentage anywhere from 0% to 100%. If you are under the Federal Employee Retirement System (FERS), your ex-spouse will receive their share of the TSP funds in the form of a low-interest annuity.

Of course, this just scratches the surface of what you need to know as a Federal Employee going through a divorce. For more information, read Ed Zurndorfer’s Complete Divorce Guide for Federal Employees.  

Impact on Retirement Savings and Future Contributions

The impact your divorce will have on your TSP depends on the percentage you give up per the RBCO. A high percentage means you’ll have a lot of ground to make up to get your TSP back to where it was pre-divorce. 

So, you’ll want to reassess your retirement plan and adjust future contributions accordingly. To make up for any shortfall in your retirement savings, you may decide to increase your TSP contributions and/or change your fund allocations.

Managing Your TSP During Job Changes

You have quite a few options regarding your TSP should you leave federal government employment. 

1. Keep Your TSP Account Open: If your account balance has at least $200, you can leave your money in your TSP. While you can’t make additional contributions, you can still benefit from your account’s low costs, and you can change your investment selections. As an added bonus, your account will keep accruing earnings.
2. Roll Over to Your New Employer’s Plan: Does your new employer offer a 401(k) or another eligible plan? If so, you might want to consider consolidating your TSP funds into your employer’s plan. Drawbacks could include higher fees in the new plan along with less attractive investment options. 
3. Roll Over to an IRA: You could transfer your TSP funds to an Individual Retirement Account (IRA). But again, you’ll want to consider the plan fees and investment options.
4. Withdraw Your Funds: You could choose to make a full withdrawal or (under certain circumstances) a one-time partial withdrawal of your TSP funds. But be aware, you could incur taxes and/or penalties with these options.
5. Buy an Annuity: You could use all or part of your TSP balance to purchase a life annuity, providing you a guaranteed monthly payment for life.  

Learn More About TSPs

After decades of working with federal employees, we’ve found TSPs to be one of the best retirement and wealth-building vehicles around. But we simply can’t cover it all in one article. That’s why we offer a complimentary monthly TSP planning webinar, which you can register for here. You can also reach out to the team at Serving Those Who Serve at [email protected].

The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers  and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **

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