Featured February 19, 2025 How recent changes to the civil service affect federal employee benefits Back to Blog Financial retirement options for federal employees: What you need to know Date February 23, 2026 Authors Tadeb Shakur Tags Workforce We spoke recently with Sarah Adam, a financial advisor with Edward Jones who has been helping former and transitioning federal employees understand their options for their Thrift Savings Plan. The TSP is a tax-advantaged retirement savings plan for federal employees and members of the uniformed services that is similar to a 401(k) and is administered by the Federal Retirement Thrift Investment Board. Below is some important information for those wrestling with how to handle their federal savings. This blog post is part of our FedSupport series, bringing you tailored information from experts on an array of topics impacting federal employees—from policy analysis to career and benefits support. We partner with experts to provide a range of broad perspectives; as such, our materials are not designed to target personalized circumstances. You are in control of your retirement funds The most important issue for former employees to understand is that they have significant control over what happens to their retirement savings. When leaving federal service, most people face a few common options to manage their retirement savings, each with advantages and drawbacks. Taking time to understand the options and respective tradeoffs can help reduce pressure during what can be a stressful transition. It is important to understand the tradeoffs between the retirement management options • Maintaining savings in the TSP or another employer sponsored retirement plan The benefits of a TSP or another employer sponsored retirement plan include having lower fees when saving for retirement, which may support long-term growth and offer stronger protections from creditors. In addition, these funds in some cases can be accessed earlier than private plans, at age 55, without any tax penalty. However, there are risks to early retrieval. A careful assessment should be undertaken to determine if early withdrawal of funds will be beneficial for long term retirement coverage. Sarah noted that some of the challenges of an employee retirement plan include less control over how funds are invested and potentially less access to expert resource and planning support. • Rolling your retirement funds into an Individual Retirement Account An IRA serves as a standalone, tax advantaged saving account that is not connected to an employer. When leaving a government role, individuals may consider keeping their funds in their employer retirement account or moving their funds into an IRA, which can be done without triggering taxes if handled properly. Sarah said there are advantages and drawbacks of IRAs. She said an IRA may offer more control, investment options and financial planning resources. She also noted that the annual contribution limit for employees who contribute to a TSP or IRA are different. For example, an IRA allows an individual to contribute $7,500 annually if under the age of 50 or $8,600 for those over 50. In contrast, an individual can contribute a maximum of $24,500 of their overall salary to a TSP. While contribution levels are slightly different, individuals can contribute to an IRA regardless of their employment status and once employed could contribute to both. This may be helpful when folks want to catch up on IRA savings if they have been out of work for a while. In addition, IRAs often come with higher fees than TSPs, and in most cases, these funds cannot be accessed without tax penalties until age 59 and a half. In addition, unlike a TSP and other employer funds, IRAs generally offer less protection from creditors. • Cashing out your retirement funds is always an option but make sure you understand the implications While cashing out retirement funds is an option available to everyone, it is typically only appropriate for a small set of people because it can carry significant consequences. Cashing out means liquidating a retirement fund and giving up retirement savings in exchange for immediate cash. For individuals under age 55, early withdrawals still incur ordinary income taxes on the amount withdrawn and typically also trigger a 10% penalty. Altogether, this can mean that nearly one-third of your retirement savings goes directly to the IRS if withdrawn early. Beyond the immediate cost, there is also the long-term opportunity cost of potential savings growth. Retirement savings are far harder to replace later in life when working is no longer an option. Sarah believes that exploring every alternative before cashing out can go a long way in protecting long-term financial security, although early withdrawal may be the right choice for come individuals. Dialing back contributions does not mean failure There may be instances when personal circumstances temporarily change and contributing to retirement savings may become difficult. Sarah said individual priorities, responsibilities and financial objectives fluctuate over time. Pausing retirement contributions to meet immediate needs does not mean abandoning long-term financial planning and it may serve as a strategic move for you and your loved ones. Sarah suggests that individuals view a pause or dip in retirement contributions as a temporary strategy while prioritizing the resumption of retirement contributions as soon as it becomes feasible. Everyone deserves peace of mind when it comes to their finances Navigating retirement for many can feel overwhelming and getting information you trust can feel even more challenging. Understanding the available options and where to look for guidance can lighten the burden. For some, having expert support may make a difference during periods of transition and can help minimize disruption to financial stability without necessarily requiring a significant cost. Interested in learning more? FedSupport features an array of retirement focused resources and webinars. You can learn more about the services Sarah offers through the Edward Jones website.
