The TSP annuity and a rollover sit at opposite ends of the same decision, and every term below was verified on 10 September 2026 against the plan’s own withdrawal pages. One converts a balance into guaranteed income you cannot undo, whereas the other keeps every option open while guaranteeing nothing at all.
Most coverage of this choice is written for a private-sector reader with a 401(k) and no pension. A federal retiree is in a materially different position, and it changes the answer.
What the TSP annuity actually is
The plan buys a life annuity for you from an outside vendor, paying monthly for the rest of your life, or for 2 lives if you choose a joint annuity. The payment is calculated from the amount you commit, your age, the annuity type, and the annuity interest rate index at the moment of purchase.
Two features are worth stating plainly because they pull in opposite directions. You pay no commission when you buy an annuity through the TSP, which is unusual and genuinely valuable, since retail annuities routinely carry one. And the purchase is permanent, with tsp.gov stating that you give up your money and control of it, and that once bought it cannot be changed or cancelled.
Minimum purchase, traditional and Roth separately
Commission paid on a TSP annuity
What leaving the balance invested costs a year
When an annuity is the right answer
An annuity is insurance against living a long time, and like any insurance it pays off precisely when you needed it. Somebody who reaches 95 with an annuity has made a very good decision, and somebody who dies at 70 with a single life annuity has not.
The case is strongest for a reader with a large balance, no other guaranteed income, and a family history suggesting a long life. For that person, converting part of the balance removes the risk that no investment strategy addresses, which is the risk of the money running out while they are still here.
If the balance is going to move instead, what a custodian will accept and charge decides whether that is worth doing.
See which custodians take a TSPWhy the federal case is weaker
Here is where the standard advice stops applying. A FERS retiree with 30 years of service on a $100,000 high-3 already receives roughly $30,000 a year from the basic annuity, indexed and paid for life, with Social Security on top of it. A military retiree under either system has retired pay doing the same job.
So a federal retiree buying a TSP annuity is adding a third guaranteed lifetime income stream to 2 they already hold. That is not diversification, it is concentration. Every dollar committed is a dollar that stops being available for anything else, in a portfolio where the guaranteed-income slot is already filled twice over.
The private-sector reader most annuity advice is written for has 1 such stream at most, usually just Social Security, and often none beyond it. The advice is sound for them and it transfers badly to this audience.
The rollover is the opposite extreme
Moving the balance into a self-directed IRA holding metal takes the other end of the same spectrum. There is no guaranteed income, no coupon, no dividend, and the entire return has to come from the price. A direct rollover moves the money with no tax withheld, while an indirect rollover pays you first, withholding applies, and the full amount has to be redeposited inside 60 days out of your own pocket.
The costs are ongoing rather than one-off. The purity rules of section 408(m) decide what bullion qualifies, it has to sit at an approved depository rather than at home, and a custodian fee plus a storage fee commonly run several hundred dollars a year regardless of balance, with the premium over spot on the first purchase on top.
Against 0.034% to 0.051% inside the plan, that is the comparison, and it is a different question from the annuity one rather than the opposite answer to it.
The question underneath both
For a federal retiree the interesting decision is usually neither of these. With a pension and Social Security covering a floor, the real question is how much market exposure the TSP balance should carry on top of that floor, and the answer is generally more rather than less, because the floor is already doing the job an annuity would do.
That points at allocation inside the plan rather than at a product outside it. What the 5 funds returned after inflation ranged from 0.43% a year in the G Fund to 8.51% in the C Fund, and that spread is worth more attention than either the annuity or a rollover usually gets.
If the rollover end of that spectrum is the one you are weighing, what may actually be held is on TSP to gold IRA.
Our read
The TSP annuity is an honestly priced product and we are not going to pretend otherwise, because a commission-free annuity from a government plan is a better deal than most people will ever be offered privately. For a reader with no pension it deserves serious consideration.
For a federal or military retiree it usually does not, and the reason is the pension rather than anything wrong with the annuity. Both of the decisions on this page are permanent in different ways, and permanence is worth paying attention to when 2 income streams already cover the floor and the remaining balance is the only flexible money you have.