Can TSP Be Rolled Over to an IRA?
IRS expects to collect taxes when you transfer funds from a pretax retirement account like TSP into an aftertax IRA account, such as an IRA rollover. Financial professionals or banks that handle IRA rollovers may even earn commissions on this money.
SmartAsset provides a free tool to connect you with independent financial advisors in your area that can assist in making this decision.
Direct rollovers
If you’re ready to transition your TSP into an IRA, the process should be relatively easy. First, select an IRA custodian whom you trust; secondly, search for an account which best meets your needs (traditional vs Roth) while being compliant with IRS regulations; thirdly, allow seven days for TSP transfers directly into your new IRA, thus avoiding mandatory tax withholding.
Indirect rollovers offer another method for moving funds from TSP into an IRA account, though this process takes more time. You must request a distribution from TSP which will then be forwarded directly to your new IRA custodian; in order to avoid tax withholding requirements by the IRS and maintain tax transparency, any funds sent this way must meet specific IRS criteria in order for proper investment decisions to take place once in their new home.
Before making any decisions regarding a TSP rollover, be sure to seek advice from an experienced financial professional. They can assist with understanding the rules and benefits associated with doing a rollover as well as help select suitable investments for your retirement plan.
TSP typically has low fees, making them appealing to many investors; however, if fees are eating into your retirement nest egg too quickly then an IRA might be more suitable.
IRAs offer more choices of investments, including alternative assets. Furthermore, self-directed investing gives investors more control over their retirement planning – an especially useful benefit for people concerned about TSP funds’ performance over recent years.
IRAs also allow retirees to make contributions with either pre-tax or post-tax dollars, an invaluable feature for retirees expecting to move up in tax bracket in their later years. It can be tricky managing taxes in a retirement account alone; therefore it is wiser to work with an experienced advisor in this matter.
With so many advantages of an IRA, it is understandable why people would want to convert their TSP into one; however, there may be several factors preventing this option being appropriate for everyone.
If your tax-exempt combat pay or special compensation funds are held within an TSP, moving it directly into an IRA may have unexpected tax ramifications. A direct transfer would combine all accounts proportionally and leave you vulnerable to incurring significant taxes; Roth IRA may be a better solution in these instances.
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