Can You Contribute to TSP After Separation?

The Thrift Savings Plan (TSP) functions as a defined-contribution retirement savings and investment plan designed for federal employees and uniformed service members, closely mirroring the structure of a 401(k) in the private sector. This plan is a significant component of the overall retirement benefits package for federal workers, enabling them to save for their future with potential tax advantages. This article clarifies the parameters for contributions and account management once you are no longer a federal employee.

Understanding Post-Separation Contributions

Regular payroll contributions to your Thrift Savings Plan cease immediately upon your separation from federal employment. This means that once you are no longer receiving a federal paycheck, you cannot make direct employee contributions to your TSP account through payroll deductions.

While direct payroll contributions are no longer an option, your TSP account remains open and continues to accrue earnings based on your chosen investments. It does not mean your TSP account becomes inaccessible or that you cannot add funds through alternative means.

Options for Adding Funds to Your TSP

Although direct payroll contributions end upon separation, you can still add funds to your TSP account through rollovers and transfers from other eligible retirement plans. This allows you to consolidate your retirement savings within the TSP’s low-cost investment structure. The TSP accepts rollovers from eligible employer-sponsored retirement plans, such as 401(k)s, 403(b)s, and governmental 457(b) plans.

You can also roll over funds from traditional IRAs into your TSP account. However, the TSP does not accept rollovers from Roth IRAs. To initiate a rollover or transfer, you begin the request process by logging into your My Account on the TSP website.

When performing a rollover, it is advised to execute a direct rollover, where funds are transferred directly from your old plan administrator to the TSP. An indirect rollover, where funds are first distributed to you, can have tax implications and a 60-day deadline for re-deposit to avoid taxes and penalties. Ensure any check for a rollover is made payable to the Thrift Savings Plan, including your name and TSP account number for proper identification.

Managing Your Existing TSP Account After Separation

After separating from federal service, your existing TSP account remains active, and you retain control over your invested funds. You can continue to manage your investment allocations among the available TSP funds, which include:
Government Securities Investment (G) Fund
Fixed-Income Index Investment (F) Fund
Common Stock Index Investment (C) Fund
Small-Capitalization Stock Index Investment (S) Fund
International Stock Index Investment (I) Fund
Lifecycle (L) Funds

You also have various options for withdrawing funds from your TSP account. These include:
Partial withdrawals
Full withdrawals as a single payment
A series of payments
The purchase of a life annuity

Partial distributions must be at least $1,000, and while there is no overall limit on the number of partial distributions, they are restricted to one every 30-day period.

It is important to keep your beneficiary designations updated after separation to ensure your account is distributed according to your wishes. If no beneficiary is designated, the TSP distributes funds according to a statutory order of precedence. Additionally, separated participants are subject to Required Minimum Distributions (RMDs) from their traditional TSP account once they reach a certain age, which is currently 73 if born between 1951 and 1959, and 75 if born in 1960 or later.

TSP Loans After Separation

Once you have separated from federal service, you are no longer eligible to take out new loans from your Thrift Savings Plan account. This restriction applies because you are no longer on the federal payroll, which is the primary mechanism for loan repayment. However, if you had an outstanding TSP loan at the time of your separation, you are still obligated to repay the balance.

You must make arrangements to repay your outstanding loan directly, through checks, money orders, or direct debit. If the loan is not repaid in full or payments are not initiated by the TSP’s specified deadline, the outstanding loan balance, including accrued interest, will be declared a taxable distribution.

A foreclosed loan amount is treated as ordinary income for tax purposes. Furthermore, if you are under age 59 ½ in the year the loan is foreclosed, the taxable distribution may also be subject to an additional 10% early withdrawal penalty imposed by the IRS. While a foreclosed loan cannot typically be repaid, you may be able to roll over the taxable amount into another eligible retirement plan or IRA by the tax filing deadline for that year to avoid these taxes and penalties.