Can TSP Be Rolled Over to an IRA?

IRAs provide more investment options than TSPs do. Specifically, an IRA enables you to hire an investment professional to manage their funds; providing peace of mind when managing investments professionally.

Alternatively, direct rollover allows the administrator to send you money directly into your new account without withholding 20% for federal income tax purposes.

Taxes

When considering a rollover to an IRA, it is essential to understand its tax implications. Unlike traditional TSP accounts that require you to pay tax when withdrawing funds, IRAs do not levy a penalty when moving money out.

When moving a TSP account into an IRA, be aware of how much of each distribution must be withheld by the IRS; this could add up over time if one or more of your tax brackets apply.

Fees associated with both TSPs and IRAs should also be taken into consideration, which can include expenses related to investments, plan fees and account fees. It’s wise to seek guidance from an investment professional in understanding these fees; the TSP stands out as having some of the lowest costs on the market.

ERISA

TSP is a retirement account specifically tailored for federal employees that offers five funds that vary in terms of risk and return. Fees are relatively low, enabling you to create an investment portfolio tailored specifically to your goals for retirement.

Rollovers to IRAs may be completed either directly or indirectly. With a direct transfer, the TSP administrator writes a check directly to your IRA custodian; this method does not involve liquidating assets and can even be done online.

An indirect rollover occurs when your TSP sends a distribution check directly to you, and then you transfer it directly into an IRA account. The TSP withholds any taxes from this distribution.

Your choice to convert from TSP to an IRA should depend solely on your circumstances and needs. Consult a Certified Federal Employee Benefit Consultant (CFEBC) to evaluate your circumstances and assess if this would be in your best interests.

Fees

Indirect rollovers involve receiving funds from TSP and then depositing them directly into an IRA themselves, with this process sometimes having tax consequences, including incurring the 10% early withdrawal penalty if you’re under 59 1/2.

Traditional TSP holders can only do direct rollovers to pre-tax accounts like an employer plan or an IRA without incurring tax liability; any rollover to after-tax accounts (like Roth employer-sponsored plans or Roth IRAs ) requires payment of taxes due, with distributions considered taxable income for that year.

As TSP investments typically offer lower fees compared to IRA investments, many people decide to remain invested there. Others may opt for an indirect rollover in order to take advantage of professional money management offered by an IRA custodian; this option typically incurs fees that range between 0.5%-1.5% of assets managed.

Choices

The TSP provides its investors with various investment options, from short-term U.S. Treasury securities and index funds that specialize in domestic and international stocks and bonds to Lifecycle or target date funds that automatically switch their portfolio towards more conservative positions as they get older, depending on when their retirement dates are.

Rolling TSP assets to an IRA can be accomplished either directly or indirectly. Direct rollover allows your funds to go straight from the TSP into your new employer plan or IRA without you needing to coordinate distribution yourself; however, 20% must still be withheld as taxes for that method of rollover.

Making the decision whether to roll over a TSP into an IRA should be part of an organized financial plan that takes your goals and risk tolerance into consideration. SmartAsset’s free tool connects you with pre-screened advisors who can help craft an approach tailored specifically for you.


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