What Happens to Your TSP When You Leave Federal Service

Most federal employees assume that leaving before retirement means losing out on their TSP — it doesn't. But there are three things that really do change: a vesting rule that can cost you real money if you leave too soon, a Rule of 55 trap that most career-changers discover too late, and four account options with meaningfully different long-term consequences.

What's yours the moment you leave

Three pools of money make up your TSP balance:

1. Your own contributions — every dollar you contributed, plus their earnings, is permanently and immediately vested. You own it the day it's deposited.
2. Agency matching contributions — the 1-for-1 match on your 3rd and 4th percent, and the 50-cent match on your 5th percent, also vest immediately.¹ The minute the matching contribution posts to your account, it's yours.
3. Agency automatic 1% contribution — this is the only piece with a vesting requirement. See below.

The 3-year rule: agency automatic 1% contributions

Your agency deposits 1% of your base pay into your TSP each pay period regardless of whether you contribute anything. This 1% automatic contribution is subject to a vesting schedule:

• Most FERS employees: fully vested after 3 years of creditable service
• Congressional employees: fully vested after 2 years

If you leave before hitting the 3-year mark, you forfeit the unvested automatic contributions and their earnings — they return to the TSP.

TSP-SCD: this clock may differ from your HR service computation date

Vesting is calculated using your TSP Service Computation Date (TSP-SCD) — which may differ from the service computation date your HR office uses for leave accrual and retirement eligibility. The TSP-SCD counts certain periods of non-federal service (Peace Corps, AmeriCorps) and can include military service periods that HR's SCD doesn't.²

If you're within 90 days of the 3-year mark, verify your TSP-SCD with your agency's payroll office or directly on TSP.gov under "My Account." Don't assume it matches your HR SCD.

Vesting calculator: how much of your automatic 1% is yours?

Your four options after you leave

Option 1: Leave your TSP account open (often the right default)

You don't have to do anything. TSP accounts remain open indefinitely after separation. You can't make new contributions (those stop the pay period after your separation), but your balance continues to grow tax-deferred, you can change your fund allocation, make withdrawals, and — as of January 28, 2026 — do in-plan Roth conversions.³

Why this is often the right default: TSP's expense ratios (0.034–0.054%) are the lowest of any retirement plan in America. The G Fund is irreplaceable. And leaving money in TSP preserves your Rule of 55 access if you later need income before 59½ — which is the single most important thing a mid-career leaver can protect.

Option 2: Roll to an IRA

You can roll your traditional TSP balance to a traditional IRA and your Roth TSP balance to a Roth IRA at any time after separation. This gives you access to a broader investment menu, greater flexibility in beneficiary designations, and the ability to do Roth conversions on your own schedule.

The Rule of 55 warning — read this before you roll: If you roll your TSP to an IRA before age 59½, you permanently lose penalty-free access to those dollars under the Rule of 55. The IRA has its own rules: you must wait until 59½ or use 72(t) SEPP payments. See the full Rule of 55 section below.

Option 3: Roll to a new employer's 401(k)

If your new employer's 401(k) plan accepts incoming rollovers (most do), you can consolidate your TSP there. Verify the plan document allows it and that the new plan's funds and fees are comparable to TSP. This almost never makes financial sense if the new employer's plan has higher-cost funds — and you lose the G Fund permanently.

Option 4: Cash out (almost always the wrong choice)

You can take a lump-sum distribution of your entire TSP balance. The TSP will withhold 20% for federal income taxes, and you'll owe ordinary income tax on the full amount. If you're under 59½, you'll also owe a 10% early withdrawal penalty on the taxable portion (with limited exceptions for ages 55+). On a $200,000 TSP balance, a cash-out under age 59½ could mean a $70,000–$80,000 tax bill depending on your bracket.

There are very few scenarios where cashing out beats keeping the money in a tax-advantaged account.

The Rule of 55 trap — the most expensive mistake mid-career leavers make

If you separate from federal service in or after the calendar year you turn 55 (age 50 for law enforcement officers, firefighters, and air traffic controllers with 20+ years of qualifying service), you can withdraw from your TSP without the 10% early withdrawal penalty — before age 59½.⁴

This is one of TSP's most valuable features. The trap: it applies only to money that stays in TSP.

The moment you roll those funds to an IRA, the IRA's rules apply — and the IRA has no Rule of 55. IRA distributions before 59½ are subject to the 10% penalty (except for specific exceptions: death, disability, SEPPs under 72(t), unreimbursed medical, etc.).

The partial-rollover strategy: You don't have to choose one or the other. Many federal employees who separate at 55+ keep their TSP open for income they expect to need before 59½, while rolling a portion to a Roth IRA for long-term Roth conversion planning. See: TSP Stay vs. Rollover: The Complete Decision Guide.

Post-separation Roth conversions — new in 2026

TSP launched in-plan Roth conversions on January 28, 2026.³ This feature is available to separated participants — you don't need to be actively employed to convert traditional TSP to Roth TSP within the account.

Why this matters for career changers and early leavers:

• If you leave federal service and your income drops significantly (no longer at GS-14/15 salary), you may be in a lower tax bracket — making conversions cheap.
• You can convert inside TSP without triggering the Rule of 55 trap. The Roth TSP balance you create stays in TSP, remains under Rule of 55 protection, and continues at TSP's low expense ratios.
• You're not forced to roll to an IRA to get Roth treatment — you can do it without ever leaving the TSP system.

Conversion rules: minimum $500 per conversion, up to 26 times per year, irrevocable once processed. IRMAA lookback applies: a large conversion in a lower-income year can still spike your Medicare premiums two years later. For the full mechanics: TSP In-Plan Roth Conversion Guide.

Your FERS pension after separation

If you leave federal service with at least 5 years of FERS creditable service and you're not yet retirement-eligible, your pension rights survive — they're just deferred until age 62. You don't receive any pension benefit during the waiting period, you lose FEHB coverage (subject to temporary continuation provisions), and the pension you eventually receive is frozen at the High-3 and service years as of your separation date.

The contribution refund trap: OPM will offer you a refund of your FERS contributions. Taking the refund eliminates your pension rights permanently. The refund is typically a few thousand dollars — far less than the lifetime value of even a small deferred annuity. Don't take it.

For the full analysis: FERS Deferred Retirement: What Happens to Your Pension When You Leave Early.

Decision framework by separation age

1. Agency matching contributions vest immediately upon deposit for FERS employees — there is no minimum service period for agency matching (up to 4%): TSP.gov — Contribution Types; myfederalretirement.com — TSP Vesting and Service Computation Date.
2. TSP Service Computation Date (TSP-SCD) used for vesting may differ from HR service computation date; may include Peace Corps and other creditable service: TSP Publication FS-29 — Information for TSP Participants Leaving Federal Employment.
3. TSP in-plan Roth conversion feature launched January 28, 2026, available to both active and separated participants; minimum $500, up to 26 conversions per year, irrevocable: TSP Bulletin 25-4 — Launch of Roth In-Plan Conversion Feature.
4. Rule of 55 penalty exception for TSP (and qualifying 401k plans) under IRC §72(t)(4): separation from service in or after the calendar year the employee turns 55. Rule of 50 for qualifying public safety employees (LEO, firefighters, ATC) under IRC §72(t)(10)(B): TSP Bulletin 15-4 — Public Safety Employees' Early Withdrawal Exemption.

Values verified as of June 2026. TSP rules can change; confirm at tsp.gov and with OPM before acting on separation decisions.