Can You Move Funds From a TSP to an IRA?

There are various benefits associated with moving funds from your TSP (Thrift Savings Plan) into an IRA account, including:

Increased portability. IRAs enable you to switch custodians while typically keeping all existing investments intact.

Lower fees. IRAs tend to offer lower investment management fees than TSP plans.

Tax-Free Withdrawals in Retirement. Roth TSP withdrawals become tax-free once you reach age 59 1/2.

Direct rollovers

Thrift Savings Plan (TSP), administered by the federal government, serves as its version of a 401(k). Once they leave their jobs, former federal employees need to decide what will become of their TSP balance – whether to leave it in place or roll it over directly into an individual retirement account (IRA). A direct rollover involves moving assets directly from one custodian to another without selling or liquidating investments underlying an account, with two main methods for doing this being trustee-to-trustee transfers and in-kind transfers being the two primary ways.

Keep it or Roll Over

If your TSP meets all your investment choices and fees comfortably, keeping the funds where they are might be the better choice. But if you prefer an IRA because it provides greater options or has lower costs, rolling your TSP funds may be worthwhile.

TSP and IRA Fees There are various fees associated with both the TSP and an IRA, so make sure to fully comprehend them before making your decision. Both accounts include investment-related costs such as sales loads and commissions, expenses related to mutual fund investments made up of your assets, investment advisory fees as well as administrative costs such as account maintenance, setup, custody fees or account maintenance and setup charges.

How to Move the Money

In order to avoid an early withdrawal penalty if you are under age 59 1/2, any TSP distribution must be transferred into an IRA or tax-advantaged account within 60 days of receiving it. It may be wiser if a financial adviser were available who knew exactly how best to proceed in making sure this transfer runs smoothly and efficiently.

Other Options

Your other options for keeping TSP funds include keeping them and transferring them to another employer’s plan if permitted by its administrator, or withdrawing them without incurring penalties as long as you haven’t turned 59 1/2 yet (though this usually isn’t advised).

TSP and IRA Taxes Before rolling over your TSP balance into an IRA, it is important to remember that the IRS considers this an income distribution and may impose an early withdrawal penalty of 10% if you’re under age 59 1/2. Alternatively, direct rollover allows the TSP to withhold 20% for federal taxes before giving you up to 60 days to deposit it elsewhere without penalties being assessed; make sure you consult a tax professional first!

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