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

Author's Note: The rollover strategy below is available to those who have separated from active duty. While on active duty, rolling funds out of the TSP into an outside account is not permitted. However, in-plan conversions are now available starting January 2026 — for more, read Part 2 of our BRS Breakdown series.

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 a 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 or the brokerage. (Note: IRAs almost always have more options than the TSP or a 401(k), but are still limited.) 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

If you lose 25% in one bad year in the market, you have to gain 33% just to make up the loss next year. 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 cases that means you'll have to wait 3+ years to get back to a breakeven from just one crash.

If you have bonds at 40% of your portfolio (the "conventional wisdom" of Wall Street Financial Advisors and Retirement Planners says to build a 60:40 stocks:bonds portfolio), 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 "negatively 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 advice and trying to diversify your retirement savings with bonds, you need to add these "alternatives" to your portfolio.

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 once you've separated. 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: Separated veterans 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 after separation
• 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've separated from the military or are 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!)

• Request a direct rollover from your TSP, employer 401(k), or traditional IRA.
• Move only what you need—you don't have to roll over everything at once.
• 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 a Separated Veteran Used a Solo 401(k) to Invest in Real Estate

Rank: Retired E-6, based in Texas
Side Business: Owns an LLC managing an Airbnb property
Challenge: Wanted to invest more for retirement but was frustrated by the TSP's limited choices.
Solution: Set up a Solo 401(k) under his LLC, and as a solo-preneur contributes to the Solo 401(k) with net profits from the rental portfolio.
Result: Now earns $1,500/month in rental income, growing tax-free inside his 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).

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.

Run your own numbers. See your TSP inside your whole portfolio rather than on its own. The Whole-Portfolio TSP Optimizer is free and needs no signup. Open the Whole-Portfolio TSP Optimizer.