One of the most common questions military retirees face is what to do with their Thrift Savings Plan (TSP) after leaving active duty. For many, the assumption is that retirement means it’s time to move everything into an IRA or transfer assets to a new employer’s 401(k). While those options may make sense in certain situations, it’s important to recognize that the TSP remains one of the most competitive retirement plans available—even after you’ve hung up the uniform.
The TSP’s biggest advantage has traditionally been its low costs. Every dollar not spent on investment expenses stays invested and working for you. While investment costs across the industry have fallen significantly over the past two decades, the TSP still offers some of the lowest expense ratios available. For retirees who value simplicity and efficiency, that’s a meaningful benefit.
Another reason many retirees choose to keep funds in the TSP is the straightforward investment lineup. Rather than sorting through thousands of mutual funds and ETFs, participants can build a diversified portfolio using a handful of core funds or simply utilize the Lifecycle (L) Funds. For those who prefer not to spend their retirement years constantly tweaking investments, simplicity can be a feature rather than a limitation.
The TSP also offers access to the G Fund, a unique investment option that cannot be replicated elsewhere. The G Fund provides a government-backed return without the market risk associated with stocks or longer-term bonds. While it won’t generate eye-popping returns, it can serve as a valuable tool for retirees looking to balance growth and stability within their portfolio.
In 2026, the TSP began offering in-plan Roth Conversions, which many civilian plans do not offer. This can drastically lower the lifetime tax bill for many families and is a reason to consider rolling money INTO the TSP in retirement.
That said, keeping your money in the TSP is not automatically the best choice for everyone. Some retirees may benefit from rolling assets into an IRA if they want a broader range of investment options, more sophisticated tax planning strategies, or greater flexibility for beneficiaries. IRAs generally provide access to thousands of investment choices and may offer estate-planning advantages that are important for certain families.
Retirees who continue working after military service may also want to evaluate whether consolidating retirement accounts could simplify their financial lives. Over a career that includes military service, civilian employment, and perhaps a second career, it’s easy to accumulate multiple retirement accounts. In some cases, combining accounts can make investment management easier and reduce the chances of losing track of assets over time.
One of the most common reasons retirees consider moving their TSP assets is the belief that firms such as Vanguard or Schwab offer better investment options. While those firms certainly provide more choices, the reality is that many of their core index funds are remarkably similar to what is already available inside the TSP.
The TSP’s primary stock funds—the C Fund, S Fund, and I Fund—are built around broad market indexes and carry extremely low expense ratios. Comparable offerings at Vanguard and Schwab often track similar benchmarks and, in some cases, have slightly lower costs. However, the differences are generally measured in hundredths of a percent rather than whole percentages.
To give a comparison, the top TSP investments to their Schwab and Vanguard counterparts highlight distinct differences in cost, variety, and structure:
1. Large-Cap / S&P 500 Funds
- TSP (C Fund): Tracks the S&P 500 Index. It is an excellent core holding, but with total expense ratios historically around 0.035%.
- Vanguard Counterpart: Vanguard 500 Index Fund Admiral (VFIAX) or VOO ETF. Offers the same S&P 500 exposure at a 0.03% – 0.04% expense ratio.
- Schwab Counterpart: Schwab S&P 500 Index Fund (SWPPX) offers an even lower 0.02% expense ratio.
2. Extended Market / Mid-Small Cap Funds
- TSP (S Fund): Tracks the Dow Jones U.S. Completion Total Stock Market Index and has a total expense ratio around 0.051%.
- Vanguard Counterpart: Vanguard Extended Market Index Fund Admiral (VEXAX) or VXF ETF, which provide similar small-to-mid cap exposure at roughly 0.05%.
- Schwab Counterpart: Schwab Small-Cap Index Fund (SWSSX) comes in at around 0.04%.
3. International Stocks (NOTE: I Fund changed in 2024 to exclude China and Hong Kong, but there are not true proxies on the market at this time. Replicating the I-Fund will take a bit more approximation.)
- TSP (I Fund): Tracks the MSCI ACWI IMI ex USA ex China ex Hong Kong* has an expense ratio of 0.048%
- Vanguard Counterpart: Vanguard Total International Stock Index Fund (VTIAX) or VXUS ETF, which includes emerging markets like China for broader global coverage at a 0.09% expense ratio.
- Schwab Counterpart: Schwab International Index Fund (SWISX), which tracks the MSCI EAFE** Index, has an expense ratio of 0.06%.
- • * – MSCI ACWI is the All-Country World Index, with the TSP I Fund excluding the US, China, and Hong Kong markets
- ** – MSCI EAFE includes Europe, Australasia, and the Far East (excluding the US, Canada, and emerging markets).
4. Bonds and Safe Assets
- TSP (G Fund): Backed by the U.S. government, it yields Treasury interest without risk of principal loss. This fund is unique to the TSP.
- Vanguard & Schwab: Equivalent safe havens include Treasury bills or money market funds like Vanguard Federal Money Market Fund (VMFXX) or Schwab Government Money Fund (SNVXX). These yield market rates but have no principal guarantee.
To put expense ratios into perspective, a fund charging 0.02% would cost approximately $20 annually for every $100,000 invested. A fund charging 0.05% would cost about $50 annually for the same balance. While those differences can add up over time, they are relatively minor compared to factors such as asset allocation, savings rate, and investor behavior. For a $2 million portfolio, the annual difference between a 0.02% and 0.05% expense ratio would be roughly $600.
Because the costs are so similar, retirees should focus less on whether a fund is housed at TSP, Vanguard, or Schwab (or insert your preferred firm here) and more on what additional flexibility they gain—or give up—by moving their money.
You may gain access to more investment choices, Roth conversion flexibility, easier account consolidation, and specialized ETFs or mutual funds. On the other hand, you may lose access to the unique G Fund, the simplicity of the TSP structure, and one of the lowest-cost retirement plans available.
Perhaps the most important thing to remember is that transferring money out of the TSP isn’t automatically an upgrade. Too often, retirees are approached by financial firms eager to manage a newly available retirement account. While many advisors provide tremendous value, others are more interested in gathering assets than improving outcomes. Before making any move, understand exactly what you’re gaining, what you’re giving up, and what the costs will be.
The decision ultimately comes down to your goals, preferences, and overall financial plan. If you value low costs, simplicity, and access to the G Fund, leaving your money in the TSP may be an excellent option. If you need greater flexibility, advanced planning opportunities, or specialized investments, a rollover could make sense. The good news is that retirement doesn’t force you to make an immediate decision. You can leave your assets in the TSP and revisit the question later as your circumstances evolve.
For many military retirees, the solution is not an all-or-nothing decision. Keeping part of your portfolio in the TSP—especially if you value the G Fund or in-plan Roth Conversions—and rolling other accounts to Vanguard or Schwab often provides the best of both worlds.
Fight’s On!
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