Can TSP Be Rolled Over to an IRA?
If you’re considering rolling over your TSP, be sure to speak with a Certified Federal Employee Benefits Consultant first. They can assess your circumstances and help determine if this is indeed the best course of action for you.
The Thrift Savings Plan (TSP) can offer low fees and hands off investing, yet may lack certain investment options. Therefore, it may be wise to consider rolling over TSP funds into an IRA instead.
If you leave federal employment, one option available to you is transferring your TSP directly into an IRA via direct rollover. A direct rollover involves moving assets directly between trustees without liquidating assets first; your TSP administrator writes a check payable directly to either your IRA custodian or employer-sponsored retirement plan custodian in this process.
At present, you may only make direct rollovers to pre-tax contribution accounts (traditional IRA or traditional employer-sponsored retirement plan). A direct transfer may only occur to an after-tax contribution account such as Roth IRAs as after-tax contributions will incur taxes upon receipt; earnings withdrawn from traditional IRAs also incur taxes upon withdrawal.
Though many messages encourage IRA rollovers, TSP participants have the option of keeping their funds within the plan instead. This may be beneficial due to TSP’s lower fees – particularly index funds – and being able to consolidate investments from different retirement plans into one account, saving both time and money in administration costs.
TSP participants looking to move their retirement funds should use direct rollover when doing so, with their original account custodian writing a check or wire transfer directly to the new account custodian. Otherwise, any withdrawal would be treated as an ordinary distribution and taxed accordingly; additionally if they’re under age 59 1/2 a 10% penalty may also apply – with one exception for Roth contributions which cannot be rolled over.
Before moving your TSP funds to an IRA, take into account its investment options and fees at your new institution. Many financial advisors charge an entrance fee to manage an IRA; you may also owe taxes or penalties if withdrawing the money prior to age 59 1/2; TSP funds typically have lower fees compared to most IRAs.
If you are pleased with the investments available through your TSP, it may make more sense to leave them as is. But if you would like more options before RMDs kick in at age 72, rolling over may make sense for you. However, an indirect rollover may require 20% withheld for federal income tax withholding purposes.
TSP accounts can provide many advantages, including tax-deferred growth. But retirees may wish to transfer their assets into an IRA in order to take advantage of more investment options and potential. An IRA provides greater freedom and greater choice.
If you choose a direct rollover, TSP will send the funds directly to either your new employer’s plan or an IRA account without liquidation and can help avoid taxes or an early withdrawal penalty (if under age 59 1/2).
If you decide to rollover your TSP funds into an IRA, make sure you consider its fees and expenses carefully before choosing one – some IRAs have higher or lower costs associated with them.
No matter if you are changing jobs, retiring early, or simply planning for retirement – when withdrawing TSP funds it can have significant tax repercussions. Most likely you will pay taxes of 10 percent or higher depending on your age and whether or not early distributions were taken out. When withdrawing TSP funds there are four withdrawal options: you could either keep the money within its old employer plan; roll it over into another retirement account; transfer to an IRA account or cash out the balance altogether.
Direct Rollover involves transferring funds directly from trustee to trustee without liquidating assets, yet within 60 days or they will be considered withdrawals and taxed accordingly at ordinary income rates.
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