The financial checklist for leaving the military that starts with the TSP gets the order wrong

Which forms are due first when I leave the military?

The DD 2656 SBP election comes first, because it must be completed before the retirement date and is fixed once retired pay starts. TRICARE enrollment follows within 90 days of the retirement date, and VGLI must be applied for within 240 days to skip health questions.

Here's the order in practice. Retirees complete the DD 2656 before the retirement date; there's no reopening it later. Enroll in TRICARE Prime or Select within 90 days of that date. SGLI ends 120 days after separation, so apply for VGLI inside 240 days to avoid the health questions (the final due date is 1 year and 120 days, but then you answer them). The TSP has no due date for moving money. The one TSP item with a clock is a contribution election from final pay or the leave payout, which has to be in before the last paycheck.

Find the DD 2656 row first; it's the only item here you can't reopen.

Order several certified copies of the DD 214 and keep the retirement orders with them. Add the DD 2656, a notarized DD 2656-1 if a spouse agrees to less than full coverage, an updated TSP-3 beneficiary form and the VGLI application. Paper gets lost in a move; a folder doesn't.

A married member who picks less than full spouse SBP coverage needs the spouse's notarized consent. A single member with a dependent parent can name that parent under insurable-interest coverage, at retirement only. That was Colleen's choice with her mother, and our Survivor Benefit Plan analysis page covers the math.

First moves, in order

Paperwork to hold

Spouse and heirs

What does the separation year do to my taxes?

The separation year stacks four kinds of pay on one return: final basic pay, taxed leave sell-back, retired pay and a civilian salary. In the hypothetical below they total $104K against a normal $96K year, which is enough to change the best TSP choice for the last paychecks.

Before First Premier Bank suggests traditional or Roth for those final checks, it adds up the separation-year income first. Here's the back-of-the-envelope version, with hypothetical round numbers; our calculator does the same sums with your own figures.

Compare that $104K with your last full W-2 year before you pick. Leave sell-back (capped at 60 days over a career) is taxed as wages. Traditional TSP contributions from final pay or the payout move the tax bill into retirement; they don't cancel it. Roth TSP pays the tax now.

Two thresholds matter. A spike year can push income toward the IRS Roth IRA phase-out for 2026, $153,000–$168,000 single; $242,000–$252,000 married filing jointly. And if military and civilian wages together pass the SSA wage base of $184,500, you claim back the excess Social Security tax withheld on your Form 1040, so check both W-2s when they arrive in January. Our tax planning for veterans page goes deeper, and the Roth TSP vs. traditional TSP article covers a pension that already fills brackets.

Step by step, one year

Thresholds it touches

• Basic pay: 6 months at $8K is $48K.
• Leave sell-back: 30 days adds $8K.
• Retired pay: 5 months at $4K is $20K.
• Civilian salary: 4 months at $7K is $28K.
• Total: $48K + $8K + $20K + $28K is $104K, against $96K in a normal year.

The TRICARE line that keeps paying

TRICARE coverage of any kind makes you ineligible to contribute to an HSA, because it isn't a high-deductible health plan. A retiree whose civilian employer offers an HDHP has to disenroll from TRICARE Select to use the HSA. That sounds like a loss. For some people it's the biggest tax cut in the whole separation file.

Hypothetical: Colleen, 54, is a retired Coast Guard commander and now a hospital emergency-management director earning $140K. Her mother lives with her. She's on TRICARE Select, and her hospital offers an HDHP with an HSA. Hold the IRS 2026 HSA limits flat for illustration: $4,400 self-only, plus a $1,000 catch-up from 55.

At 54 she contributes $4,400. From 55 to 64 she adds the catch-up, so 10 × $5,400 is $54,000. That's $58,400 over 11 years. Through payroll, at an assumed 24% federal rate plus 7.65% FICA (31.65% together), she skips about $1,393 in year 1 and $1,709 each year after.

Find the last row first: the 11-year total of about $18,484 of tax not paid.

The HSA really does lower the tax cost: money goes in pre-tax and comes out tax-free for medical bills. Traditional TSP deferral only moves the tax cost to later. Payroll HSA contributions also skip the 7.65% FICA; contributions made outside payroll don't.

The trade-off is real. The HDHP carries a higher deductible. Losing the employer coverage, or leaving the job, is a qualifying event with 90 days to re-enroll in TRICARE; otherwise she waits for open season. At 65, Medicare Part B is needed for TRICARE For Life, and HSA contributions end.

The switch only works with a qualified HDHP and a willingness to give up TRICARE Select. With heavy expected medical use, TRICARE often costs less overall. This page doesn't cover VA disability claims or state tax rules.

Colleen from 54 to 64

Where the HSA beats the TSP, and where it costs her

Which slips cost nothing now and plenty later?

Four slips cost $0 this year and show up later: skipping VGLI, declining SBP, leaving an old TSP-3 in place and missing the 90-day TRICARE window. Each saves a premium or a form today and costs a survivor, a policy or an emergency-room visit down the road.

A TSP to IRA rollover is a separate decision with no due date, so it never belongs on this list of clocks.

Four quiet slips

• VGLI: letting the 240-day window pass costs nothing this year, but a heart diagnosis at 50 can then mean no replacement for a $500K SGLI policy that a spouse or a dependent parent was counting on.
• SBP: declining saves the premium today, yet on a hypothetical $4,000-a-month base the 55% annuity is $2,200 a month the survivor never gets, and dropping SBP later is only allowed in the 25th to 36th month after retired pay starts.
• TSP-3: an old beneficiary form costs nothing until a death, and then it overrides the will, so an ex-spouse named on it can receive the whole balance.
• TRICARE: missing the 90-day window leaves you without coverage until open season, and a single emergency-room visit can cost more than years of enrollment fees.

What if my health or the tax rules change after I sign?

Leave yourself exits. Keep VGLI in force, since it can only be reduced later and not bought back, and know the TRICARE re-enrollment path after a qualifying event. Keep the TSP invested for the long run and hold emergency cash outside it, because markets can fall and take part of what you put in with them.

Contribution limits, tax rates and HSA rules can change by law, so First Premier Bank rechecks the roadmap each January, when the W-2, 1099-R and TSP year-end statement arrive.

The question to bring to First Premier Bank

Ask First Premier Bank which of your separation items has the earliest due date, and what the tax cost of each choice on it will be. Bring your retirement orders, your last LES and the TSP statement. With those three in hand, the first conversation can start from your real numbers: base pay, TSP balance and the date retired pay begins.