Should You Roll Over Your Thrift Savings Plan to an IRA?

Thrift Savings Plan (TSP) is the government-sponsored alternative to 401(k). Participants can make pre-tax contributions and defer taxation of earnings until withdrawing funds from their TSP account.

After leaving Federal service, participants have two options for managing their retirement savings – cashing out or rolling it over into an IRA or new employer’s retirement plan.


If you are considering moving your TSP funds to an IRA, be mindful of any taxes due and whether the chosen IRA meets your retirement goals and length of savings needed to reach them. Speak with an independent financial advisor before making a final decision.

Direct rollover is typically defined as the transfer of assets directly between trustees in order to move assets from TSP into an IRA or employer plan owned by a participant, without liquidation of underlying assets and with minimal participation required from plan participants.

On the other hand, indirect rollovers involve moving TSP funds from one plan to another without using direct rollovers first. Unfortunately, indirect rollovers may incur taxes; TSP withholds 20 percent of any roll-over amount to ensure taxes are paid upon distribution. It is crucial that when considering indirect rollovers you speak with a tax professional first before proceeding as they could potentially prove more beneficial depending on your personal situation than indirect ones.


Rolling over funds from a TSP to an IRA involves several fees that must be paid, including investment-related expenses and plan/account fees. When considering moving funds between accounts, investors should carefully evaluate all relevant fees; while IRAs tend to have lower fees than TSPs but may lack low-cost investment options as easily. Many offer professional money management, which may be advantageous for those who prefer not managing their own portfolio.

Direct rollovers are generally the preferred method for moving TSP funds to an IRA or another employer-sponsored retirement plan, involving a trustee-to-trustee transfer that does not necessitate liquidating assets. Conversely, indirect rollovers require depositing your underlying assets into your new account within 60 days; failing this, taxed distributions could incur taxation as well as possible 10% penalties if under age 59 1/2.

Investment options

No matter if you convert your TSP into an IRA or keep it within its plan, you will have to decide how you wish to invest it. Hiring an advisor that works in your best interest without charging excessive fees could save money in the long run and reduce the number of retirement accounts that must be monitored by you.

If you opt for direct rollover, your TSP funds will be directly transferred into an IRA account without incurring taxes or penalties; however, keep in mind that with traditional withdrawal, 20% will be withheld as federal income tax due.

Direct rollover is another advantage of TSP investment funds due to their lower expense ratios. TSP index funds currently boast some of the lowest expense ratios available compared with publicly traded index funds, helping you maximize returns while publicly traded index funds typically have much higher expense ratios.

Lifecycle funds

TSP Lifecycle Funds offer an effective and cost-efficient way of investing your money for a more secure retirement. Each fund comes equipped with its own risk level so you can reach your retirement goals faster and reduce exposure to market volatility; during market declines more conservative investments can help minimize your exposure. Plus they have lower fees than traditional options which could save money long term!

If your investment options and fees satisfy you, leaving your Thrift Savings Plan account where it is may make the most sense. On the other hand, an Individual Retirement Account offers greater portability and lower-cost investment options – for instance allowing individual stock trading as well as access to low-cost exchange-traded funds (ETFs). Furthermore, TSP funds may be transferred directly into an IRA from another custodian but must be redeposited within 60 days to avoid a tax penalty.

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