Take Control of Your Retirement: How to Roll Over Your TSP into a Self-Directed IRA or Solo 401(k)

We recently posted an important assessment of the current volatility in the stock market, which if you didn't read already you should stop now and read HERE. In it, we discussed why regular "retail" investors like you and I routinely are the biggest losers when there is a recession or stock market crash: because we sell when the market goes down, locking in our losses. In fact, over the past 20 years while the S&P 500 has been rampaging and returning over 11% per year, investors like us have averaged only 4%, just because we panic and sell after a crash!

But the wealthy, the banks, the hedge funds and private equity managers, and big pensions are still getting juicy returns even in a down market. Why? How? The key is that they know that to truly protect your investment from risk, you can't just invest in stocks and bonds: you have to have defensive strategies that diversify your portfolio into things like real estate, gold, cash, derivatives (options), and other asset classes.

There's nothing stopping you from doing the same thing in your regular brokerage account -- but you are prevented from doing this in your Thrift Savings Plan (TSP). Now that doesn't sound fair at all! The reason is that the TSP is government-specific employer-sponsored account that is subject to the rules set by the Internal Revenue Service (IRS) in Code 401. (If you're wondering, the reason why 401(k)s are called 401(k)s is because they were created in paragraph (k) of this code!) Since the IRS gives you tax breaks for saving into the TSP (or 401(k) or IRA), of course they control what you can invest in so that it's in their best interest, too! They don't want you making too much tax-free money for retirement now, do they?

In reading our post on Protecting Your Investments, we said that there were still ways that you could protect your retirement savings by copying the ultra-wealthy and the big banks by diversifying into real estate, crypto, gold, cash, options, private lending, and more with your retirement accounts. The answer is to open your own retirement account! In fact, the "Solo 401(k)" retirement accounts are actually older than IRAs, 401(k)s, and the TSP. This little secret has been around for over 60 years having been created in 1962, twelve years before the IRA was born!

The Problem: Your Retirement is Too Exposed

If you have a TSP, employer-sponsored 401(k), or traditional IRA, your investment options are limited to mutual funds and ETFs that are approved by your employer. Next time you log into your TSP account take a look: you can get stocks (C, S, and I Funds), bonds (F and G Funds), or poorly mixed funds that combine stocks and bonds in highly inefficient allocations (the awful Lifecycle Fund Family). That's it. If we have a repeat of 2022 when stocks lost 18% and bonds lost 13%, you're guaranteed to lose. Big.

Most of us will leave our retirement savings in the TSP until we want to start withdrawing -- or maybe we'll move that money ("roll over") into a 401(k) at our next job after the military. But even then you're still limited in your options. That means you’re at the mercy of stock and bond market volatility, and if the markets crash—so does your retirement. You have no access to any of the defensive strategies that can protect you against losses.

Defense Wins Championships (Just ask the Chiefs!)
 

If you lose 25% in one bad year in the market, you have to gain 33% just to make up the loss. For example, if you have $100 in the C Fund and the market crashes in 2025, losing 25%, you have $75 remaining. To just get back to the $100 you have today, you'll need to earn $25 in investment returns ($25/$75 = 33%). In most years that means you'll have to wait 3+ years to get back to a breakeven.

If you have bonds at 40% of your portfolio (the "conventional wisdom" of Wall Street Financial Advisors and Retirement Planners), you may only lose 15-20% instead of 25%. If you're down 20% ($100 --> $80) you still need 25% returns to get back to $100 ($80 + $20 = $100, $20/$80 = 25%). But the problem is that your average returns are limited by the bonds to only about 8% instead of the 11% you get with a pure stock portfolio, so you still need 3+ years of solid gains to get back even.

The key is to diversify and reduce risk to your retirement savings by investing in "negative correlated" assets like real estate, cash, commodities like gold (and maybe Bitcoin?), and options. "Negative correlation" means that one tends to go up when the other goes down, so if stocks are crashing during a recession, gold usually goes up, cash maintains, etc. For a long time Wall Street has tried to tell us that bonds and stocks are negatively correlated, but it turns out they aren't. So instead of following bad advise and trying to diversify your retirement savings with bonds, you need to add these "alternatives" to your porftolio.

The bad news is retirement accounts don’t allow you to invest in these alternatives.

The Self-Directed Solution

On the other hand, the Solo-401(k) and Self-Directed IRA are allowed to invest in these alternatives. And more importantly, you're allowed to transfer, or "roll over", retirement savings between qualified accounts, including the TSP. When you "roll over" your TSP investments, you are able to do so with no tax or early withdrawal penalties, because these are qualified accounts. And these accounts let you take full control of your retirement money and invest in real estate, crypto, commodities, private equity, and more. You can build your own pension or hedge fund, stop taking massive losses when the market crashes, and enjoy higher annual average returns over the next 10, 20, or 40 years until you retire.

Alternatives allow you to do this because they are seen as "safe assets", like gold, or defensive strategies like an options risk-reversal. On top of that, real estate, gold, and commodities all gain value on pace with inflation as a baseline, because as more money is printed, their price naturally goes up. Stocks and bonds don't do that.

• Real Estate – Provides cash flow, tax advantages, and appreciation potential.
• Precious Metals & Commodities – Hedge against inflation and economic uncertainty.
• Cryptocurrency & Private Investments – Offer high-growth potential and diversification away from traditional assets.
• Derivatives & Hedging Strategies – Allow you to protect against downside risk.

What is a Self-Directed IRA or Solo 401(k)?

The Solo 401(k)
 

• For self-employed individuals or those with a side business
• Higher contribution limits: Up to $69,000 (2024 limit)
• Allows real estate, private equity, and crypto investments
• Can borrow against the account
• Best for: Active-duty service members with a side hustle, rental property, or small LLC.

Self-Directed IRA (SDIRA)
 

• For anyone with retirement savings
• Allows real estate, commodities, private lending, crypto, and more
• Can be Traditional (pre-tax) or Roth (tax-free withdrawals)
• Great for rolling over TSP or old employer 401(k) funds
• Best for: Those who want to move retirement savings into real estate or other alternative investments.
  
    

How to Rollover to a Self-Directed IRA or Solo 401(k)

Step 1: Choose the Right Account for You
 

• If you have a side business or rental property, a Solo 401(k) is ideal because of the higher contribution limits.
• If you’re leaving the military or switching jobs, an SDIRA is the best option for rolling over your TSP or employer 401(k).

Step 2: Open Your New Account with a Qualified Custodian
 

• Solo 401(k) Providers: Sense Financial, Fidelity, Charles Schwab, Rocket Dollar
• Self-Directed IRA Custodians: Sense Financial, Equity Trust, Kingdom Trust, IRA Financial

Step 3: Roll Over Your Funds (Without Tax Penalties!)
 

1. Request a direct rollover from your TSP, employer 401(k), or traditional IRA.
2. Move only what you need—you don’t have to roll over everything at once.
3. Make sure funds go directly into the new account to avoid taxes.

 Pro Tip: If you’re deployed in a tax-free combat zone (CZTE), convert your pre-tax TSP into a Roth IRA for tax-free withdrawals in retirement! No income earned during your deployment counts for income tax purposes, so the only thing taxable will be the converted Traditional amount. This can be totally offset by your Standard Deduction, leaving you with ZERO tax bill!

Step 4: Start Investing Like a Pro
Once your funds are in your new account, you can:
 

• Buy rental properties and collect tax-free rental income.
• Invest in crypto and blockchain projects.
• Own shares of private companies or start-ups.
• Trade options and hedge against market downturns.
  
   

Case Study: How an Active-Duty Service Member Used a Solo 401(k) to Invest in Real Estate

Rank: E-6, stationed in Texas
Side Business: Owns an LLC managing an Airbnb property
Challenge: Wanted to invest more for retirement but was frustrated by TSP’s limited choices.
Solution: Set up a Solo 401(k) under his LLC, rolled over $40,000 from the TSP (leaving some money behind in the TSP to take advantage of the C Fund's great performance and low cost), and used the funds to purchase a rental property inside his 401(k).
Result: Now earns $1,500/month in rental income, growing tax-free inside their retirement plan.


Final Thoughts: Don’t Let Your Retirement Be a Stock Market Victim

Most people stick with their default retirement plan options because they don’t know better. But now you do, and you can take action before it's too late. Don't wait for the stock market to drop 20% before investing in some Protective Puts and Covered Calls in your Solo 401(k). 

By rolling over your TSP, employer 401(k), or IRA into a Self-Directed IRA or Solo 401(k), you gain full control over your financial future, and will earn consistently higher returns than if you keep your money where it is because you'll be protected from all the bad years. Remember, one bad year can set you back 3-4 years in your savings journey: MONEY IS TIME and TIME IS MONEY!

Of course all investments come with risk, especially alternatives like derivatives and options. Be sure to do your research and complete your homework before jumping in. Crypto is such a new and unknown asset class that we have to expect continued volatility; a recession can be bad for everyone. So as always, be careful, especially with your retirement savings! The best and safest plan is once you are within 5 years of retiring, move 3-4 years worth of retirement income from your investment portfolio into a High Yield Savings Account (HYSA). You'll continue to earn 4-5% interest, have no downside risk because it isn't an investment, and you're protected against losses of up to $250,000 by the FDIC.

Want help setting up a Self-Directed IRA or Solo 401(k)?
 

We've done it, and we're ready to help walk you through the process, too. Schedule a Free Coaching Session with the Military Wealth Coach today, and learn how to roll over and invest beyond stocks & bonds.

Click here to schedule your session and start diversifying today!