The Government Buyout and Your TSP Thrift Savings Plan

Key Takeaways

• You’ve Earned This
  You gave years, maybe decades, to your job. Now it’s time to make a thoughtful choice about your retirement money.
• Understand Your Options
  Your Thrift Savings Plan (TSP) is a significant asset. It’s crucial to understand all of your choices, especially after a major career change like the government buyout.
• The Freedom of Choice
  A rollover from your TSP or 401(k) to an IRA can open up a world of new options, giving you more control over your financial future.
• Find the Right Guide
  Partner with a fiduciary advisor who operates with a commitment to integrity and your best interests, helping you build a solid long-term plan.

You gave years, maybe decades, to your job. You showed up, worked hard, and planned for retirement. But now, the company’s changed. Or maybe you’ve taken a buyout or been forced into early retirement. So… what happens next?

This is a crossroads many people face, and it can feel overwhelming. But it’s also an opportunity to take a fresh look at your financial life. We’ll walk you through some key considerations for your retirement savings, specifically focusing on the government buyout and your Thrift Savings Plan (TSP), so you can feel confident and secure in your next chapter.

What Does The Government Buyout Mean for You?

A government buyout, often referred to as a Voluntary Separation Incentive Payment (VSIP), is an offer from a federal agency to incentivize employees to leave their position. As explained by the U.S. Office of Personnel Management (OPM), it’s a way for the government to manage its workforce. For you, it’s a major career change and a turning point for your financial plans. A critical part of navigating this change is deciding what to do with your TSP.

Your Thrift Savings Plan: A Look at Your Options

Your TSP has been a reliable part of your federal employee retirement plan. It’s a powerful savings tool, but like any workplace plan, it has limitations. The money is invested in a limited number of funds, including the G, C, S, F, and I Funds as well as Lifecycle Funds, which follow specific indexes. As you transition into a new phase of life, you have a chance to explore a wider world of possibilities.

Understanding the G, F, C, S, and I Funds

• The Government Securities Investment Fund (G Fund) invests in specially issued short-term U.S. Treasury securities unique to TSP and offers low but stable returns. Both principal and interest is guaranteed by the US government, effectively eliminating market risk.
• The Common Stock Index Investment Fund (C Fund) tracks the S&P 500 Index by investing in a broad basket of large-cap U.S. companies. This one is more volatile than the G Fund but has posted proportionally higher returns over time.
• The Small Capitalization Stock Index Investment Fund (S Fund) invests in stocks of small-to-medium U.S. companies not included in the S&P 500 Index. This is the most volatile of the three but has the highest growth potential.
• The Fixed Income Index Investment Fund (F Fund) invests in a mix of U.S. government, corporate, and mortgage-backed bonds to earn interest and provide steady returns. They can earn higher rates of return over the long term with relatively lower risk in comparison to certain other fixed income investments (F Funds only include investment-grade securities).
• The International Stock Index Investment Fund (I Fund) owns shares of large companies outside the U.S., mainly in Europe, Australia, and parts of Asia. This fund provides global diversification, but international markets are known to be more unpredictable than domestic markets. The fund returns rise or fall as the value of the U.S. dollar decrease or increases relative to the value of the currencies of the countries represented in the fund.
• Lifecycle funds (L Funds) are a diversified mix of the five individual funds. The goal is to invest in a single fund that will hopefully return the best expected return for the amount of expected risk that is appropriate for you. Each of these funds is designed to provide income for individuals who will begin taking distributions within a few years of a target date.

Here are your main options after the government buyout:

1. Leave your money in the TSP
   You can keep your account as-is, but you will still be bound by the plan’s rules and limited investment options. For some, this is the easiest path, but for others, it’s a missed opportunity for a more personalized strategy.
2. Cash out your account
   While possible, this option is generally not recommended. Taking a lump-sum withdrawal before age 59½ can trigger several costly tax consequences. First, the entire amount is taxed as ordinary income in the year you take it out. Second, you may owe a 10% early withdrawal penalty on any taxable portion that is not rolled over, unless you qualify for an exception, such as receiving annuity payments, being a public safety employee, retiring at age 55 or older (for most federal civilian employees and armed service members), or payments made due to death. Finally, cashing out means you permanently lose the power of tax-deferred compounding, reducing your long-term retirement growth.
3. Perform a TSP rollover to an IRA
   This can be one of the most strategic and empowering choices. A TSP rollover allows you to move your retirement funds into an Individual Retirement Arrangement (IRA). This flexibility allows for personalized strategies tailored to your goals, risk tolerance, and time horizon. (See the following section for a detailed comparison of the expanded investment opportunities available in an IRA versus the TSP.)

Greater Investment Opportunities: IRA vs. TSP

As previously mentioned, the TSP offers a simple, low-cost way to invest, but its menu is limited to the five core funds (G, F, C, S, I) and a set of Lifecycle Funds. While these cover broad market exposure, they restrict you to pre-set index-based strategies.

An IRA opens the door to a much wider range of choices, including:

• Individual stocks and bonds – Pick specific companies or issuers that match your outlook.
• Actively managed mutual funds – Access funds run by professional managers with targeted strategies.
• Exchange-Traded Funds (ETFs) – Invest in specialized sectors, themes, or alternative asset classes.
• Real estate investment trusts (REITs) – Add exposure to commercial and residential property markets.
• Alternative investments – Depending on the IRA custodian, options like commodities, private equity, or structured products may be available.

This broader universe allows for more customized portfolio construction, blending growth, income, and diversification strategies beyond what the TSP offers. For investors seeking to align their portfolio with specific goals, risk profiles, or market opportunities, an IRA can be a more flexible and strategic choice.

The Value of Trust: Fiduciaries and Veteran Values
When it’s time to consider a TSP rollover, you don’t have to go it alone. You need a trusted guide who has your best interests at heart. This is where the importance of working with a fiduciary advisor comes in. A fiduciary is someone who is ethically bound to act in your best interest.

At Trajan Wealth LLC, we believe that trust is earned through action. We operate on Veteran Values: service, trust, and a commitment to doing what’s right. That’s our promise to you, built on the highest level of integrity. Our team helps people just like you roll over their retirement accounts, guiding them with smart strategies to build a resilient financial plan. We’re here to help you navigate this transition, not just as advisors, but as partners dedicated to your success.

Summary: Your Next Chapter Starts Now

The government buyout marks a new beginning. The decision you make about your TSP is one of the most important steps you’ll take toward securing your financial future. By considering a TSP rollover to an IRA and working with a trustworthy fiduciary advisor, you can gain greater flexibility and a more personalized strategy for the retirement you deserve. You’ve worked hard, and now it’s time to make your money work hard for you.