Can TSP Be Rolled Over to an IRA?
The TSP provides various rollover options, with direct rollover being one of the more popular choices. This type of transfer involves trustee-to-trustee transfers that prevent liquidating assets.
If you opt for this route, be careful with your “Federal Withholding” sum; any amount above zero could result in taxes and penalties later.
Direct rollovers
Direct rollover is a method for moving retirement funds between accounts without incurring tax liabilities or early withdrawal penalties, such as from traditional TSP to an IRA or Roth TSP to an IRA. TSP participants usually instruct their plan administrator to conduct this transfer, which involves liquidating assets within their TSP but transferring the funds directly to a custodian instead of returning them directly back to them as per usual.
Indirect rollovers may not be as frequently utilized, but they can still provide significant assistance for certain individuals. They’re most frequently seen when TSP participants wish to transfer assets out into Roth IRAs or another retirement account but the TSP can’t accommodate that request; then these TSP participants are given the option of withdrawing their funds using indirect rollover.
TSP’s front-line customer service may misguide a retiree trying to do a direct transfer from their traditional TSP into either a Roth IRA or employer’s IRA, with front line representatives often giving wrong information and telling them that TSP does not permit such rollover because you must split money evenly between C and G Funds (for instance if one fund has outshone another over time, so perhaps some should go into your IRA).
However, the TSP customer service rep was incorrect in both respects: 1) the TSP does allow direct transfers of tax-exempt money earned as a service member into Roth IRAs or qualified plans and 2) there is a separate fund dedicated to tax-exempt contributions which you can transfer into your IRA (but they won’t do a direct rollover as these don’t technically qualify as traditional TSPs).
Mistaking “rollover” for “transfer” can also lead to miscalculation when trying to rollover TSP funds, since TSP will not transfer your funds unless sent directly to you as a check, making you subject to income taxes and potentially penalties. You can avoid this dilemma by requesting a TSP transfer instead, and making sure they reach your IRA within 60 days.
Federal employees need to consider all aspects when making their decision about rolling over their TSP, including all potential consequences and advantages. If they’re uncertain, seeking advice from a Certified Federal Employee Benefits Consultant – an expert trained in government employee benefits who specializes in their unique complexities – is wise. A ChFEBC can help determine whether it would be in your best interest to do a rollover, guide the process along with handling forms on behalf of the client.
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