According to the Bureau of Labor Statistics February 2026 Employment Situation report, federal government employment has fallen by 330,000 positions, representing an 11 percent decline since its peak in October 2024. An additional 10,000 federal jobs were lost in February alone.

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According to the Bureau of Labor Statistics February 2026 Employment Situation report, federal government employment has fallen by 330,000 positions, representing an 11 percent decline since its peak in October 2024. An additional 10,000 federal jobs were lost in February alone.

President Donald Trump has spoken positively about these reductions. In his January 2026 remarks, he noted that his administration had slashed tremendous numbers of people off the federal payroll and suggested that many of those workers were moving into private-sector positions that sometimes paid significantly more. “I don’t want to cut people, but when you cut them and they go out and get a better job, I like to cut them,” said Trump, as reported by Federal News Network.

For the many federal employees now entering private industry, whether voluntarily or through workforce adjustments, this career move can certainly bring higher earning potential along with new considerations for retirement planning. The transition from the Federal Employees Retirement System and Thrift Savings Plan to private-sector 401(k) arrangements involves meaningful differences in structure, costs, investment choices, and employer support. Understanding these differences is key in making informed retirement planning decisions.

Federal workers have traditionally benefited from a combination of a defined-benefit FERS annuity, the low-cost Thrift Savings Plan, and Social Security. In contrast, private-sector retirement offerings generally center on defined-contribution 401(k) plans that feature variable employer matching and, in many cases, higher administrative costs. While private employment may provide opportunities for increased contributions due to higher salaries, the absence of the pension element means many transitioning workers may need to evaluate whether they should increase their personal savings rate to help maintain their retirement progress.

Options For Your Thrift Savings Plan

One approach many people in this situation consider is leaving their existing TSP balance in place. As long as the account meets minimum balance requirements, former federal employees can keep their funds in the plan. Although they will no longer receive agency contributions, they can continue to benefit from the plan’s notably low expense ratios and adjust their investment allocations as desired.

Other individuals evaluate rolling their TSP assets into their new employer’s 401(k) plan, which can simplify account management if the private plan offers favorable terms and accepts incoming rollovers. Comparing plan fees, investment menus, and other features beforehand can provide helpful context for this decision.

A third possibility that often receives consideration involves executing a direct rollover from the TSP into an Individual Retirement Account. This route can offer greater flexibility in investment selections and may make it easier to consolidate multiple retirement accounts over time. It is important to ensure that any such transfer is completed as a direct rollover to help avoid mandatory withholding and potential tax complications.

Cash distributions are generally viewed as the least favorable choice in most circumstances, particularly for those under age 59 and a half, due to immediate tax obligations and the loss of future tax-deferred growth potential. Repaying any outstanding TSP loans prior to separation is another factor that many review to prevent those balances from being treated as taxable distributions.

Preserving FERS Annuity Benefits

Workers who have completed at least five years of creditable federal service typically remain vested in their FERS annuity. This benefit can continue to provide a source of guaranteed retirement income later in life, even after moving to private employment. The annuity is generally separate from any new 401(k) savings and may become payable at different ages depending on years of service.

Many transitioning employees find it valuable to request a formal benefit estimate from the Office of Personnel Management to better understand how this piece fits into their overall retirement picture. In most cases, accepting a lump-sum refund of contributions is not considered the optimal path, as it usually results in forfeiting future annuity payments.

Adjusting To A Private-Sector 401(k)

Upon joining a new employer, many individuals focus on participating in the company’s 401(k) plan as soon as they are eligible. Capturing any available employer matching contributions is often seen as an important priority since those funds represent additional retirement savings at no extra personal cost. It can also be helpful to review the plan’s fee structure and available investment options, as many private plans carry higher costs than the TSP.

Selecting lower-cost index funds or target-date funds when available may help manage expenses over the long term. Some people also assess whether they should increase their overall savings rate to help offset the pension benefit they are no longer accruing.

Important Considerations During The Transition

There are several steps that many transitioning employees find useful to review in a timely manner. Confirming total years of federal service and obtaining a pension projection from the Office of Personnel Management can provide clarity on future benefits. Comparing the total costs, investment selections, and features of the TSP, new 401(k), and any existing IRAs may support better decision-making around potential rollovers. Completing transfers as direct rollovers rather than indirect distributions is one method many use to minimize immediate tax withholding.

Updating beneficiary designations across all accounts and reassessing overall asset allocation are additional areas that warrant attention. It may also be prudent to consider how changes in income will interact with Social Security benefits and to explore options for maintaining health coverage if needed.

Because individual circumstances vary widely, many people in this situation choose to consult with a qualified financial professional who understands both federal and private-sector retirement systems. Such guidance can help develop a personalized strategy and avoid unintended tax or penalty consequences.

The current wave of federal workforce adjustments is creating new career pathways in the private sector for many Americans. While these transitions can bring fresh opportunities, they also call for careful attention to retirement account management. By thoughtfully evaluating options for TSP assets, preserving vested FERS benefits where possible, and making strategic use of new 401(k) plans, individuals may be able to help protect and strengthen their long-term financial security.

Securities offered through Kestra Investment Services, LLC, (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC, (Kestra AS) an affiliate of Kestra IS. Beacon Financial Services is not affiliated with Kestra IS or Kestra AS. Beacon Financial Services does not provide legal or tax advice. https://www.kestrafinancial.com/disclosures