Rollover of Thrift Savings Plan to an IRA
Thrift Savings Plan (TSP) is a retirement account available exclusively to federal employees. Participants have 16 funds from which to select for investment – five individual funds and 11 lifecycle funds which provide professional diversification over time.
TSP fund expenses are among the lowest on the market, yet moving your TSP account over to an IRA may not always be easy.
What is a rollover?
The TSP accepts both direct and indirect rollovers of tax-deferred money from traditional IRAs, SIMPLE IRAs, and eligible employer plans. Direct rollovers allow your TSP administrator to move funds directly into your new account without you touching them directly, while indirect rollovers involve taking an initial distribution from an old plan or IRA before handling transactions on your own.
As each funding option has unique tax ramifications, it’s wise to carefully weigh all your options before making your choice. Furthermore, keep in mind that financial professionals may receive commissions or other forms of compensation for recommending rollovers.
However, leaving your money where it is can also have its advantages. These include TSP’s relatively low fees and expenses when compared with other investment vehicles as well as tax-deferred growth which continues unabated for now. Plus, advisors say this specific retirement savings account stands out among others by offering unique features which help set it apart from others.
Do I need to roll over my TSP to an IRA?
The TSP is one of the easiest and most efficient ways to consolidate retirement savings into one account. It provides access to low-cost funds that tend to be less costly than those found in employer sponsored plans and makes assessing whether you are on track with reaching your retirement goals straightforward.
Transferring money into your TSP from other eligible retirement plans or IRAs is easy. While there is no annual maximum limit to rollover money into it, financial or tax professionals should be consulted as to whether moving large sums at once will negatively affect long-term goals.
No matter your choice, it is essential that you consider its impact on your credit rating. Converting from TSP to an IRA could result in less protection from creditors; you could also lose access to TSP’s investment advice services; therefore it is wise to carefully weigh all options prior to making a final decision.
Do I need to roll over my TSP to a Roth IRA?
Rollover funds from any eligible retirement plan (such as Roth IRAs ) into your TSP account, or transfer money from another traditional IRA or employer-provided retirement account.
Before withdrawing earnings tax-free from a new IRA, five years should pass since opening it and before funds may be withdrawn without incurring a 10% early withdrawal penalty.
There is no limit on how often you can move your TSP into a Roth IRA, though TSP regulations do stipulate that any distributions you make must meet qualification standards; that means any earnings must equal or surpass what was contributed.
For anyone seeking professional guidance for their TSP, SmartAsset’s free tool connects them with pre-screened financial advisors in their area – plus free initial calls can help determine whether or not they’re the ideal match.
Do I need to roll over my TSP to a Traditional IRA?
Rolling over your TSP depends on a range of factors, including your current and future financial situations. Your options for transfer include either keeping them invested in place and moving them over to a new employer’s plan (if allowed) or shifting them over to an IRA – with latter often being preferred among younger members who could incur a 10 percent tax penalty if their assets are cashed-out before age 59 1/2.
Rolling over your TSP into a Traditional IRA won’t incur additional tax liabilities as your pre-tax contributions to both accounts remain tax deferred until withdrawal; however, after-tax agency and service matching contributions and automatic contributions will still be subject to taxes upon withdrawal.
Rolling over to an IRA has numerous advantages, including consolidation of retirement savings into one account and evaluation of whether they’re meeting your goals through TSP’s low-cost funds. Unfortunately, direct rollover requires you to pay 20 percent in federal income taxes first before receiving your remaining funds.
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