Can TSP Be Rolled Over to an IRA?
If you cash out a traditional TSP account before age 59 1/2, a 10 percent penalty on earnings withdrawn must be paid. An IRA may have lower fees and expenses compared to TSP but may not include its services such as investment advice, planning tools and telephone helplines.
Direct rollovers
Many are persuaded by online hype and advertising to convert their TSP funds to an IRA, even though there may be advantages to doing so. Before taking this significant step, however, individuals must ensure they thoroughly understand all rules and implications associated with doing so.
There are two kinds of rollovers: direct and indirect. When making a direct rollover, money moves directly from a TSP into an IRA or retirement account sponsored by your new employer; with indirect rollovers you receive a distribution from TSP and redeposit it into another retirement plan or IRA (requiring that TSP withhold 20% for taxes; which you then have to pay back when redepositing), with this particular type of rollover requiring TSP to withhold 20% from each distribution so it must be paid when redepositing). Indirect rollovers require that TSP withhold 20% for taxes when redepositing.
Direct and indirect rollovers each have their own set of advantages and disadvantages, so before making a decision about whether to roll over your TSP it’s wise to consult a financial professional so you understand all of its ramifications. Also be wary of anyone advocating IRA rollovers as an easy or obvious solution as they often earn commission on transactions they facilitate, potentially altering their advice.
Can I Transfer an IRA to My TSP? Only certain amounts qualify as eligible for direct rollover; that means all traditional and Roth balances, plus deferrals from employer contributions that qualify. Any money in rollover IRAs from other retirement accounts or an inherited IRA cannot be transferred directly into a TSP; and, like with an IRA, only up to $100,000 annually per calendar year can be moved between accounts.
What Are the Steps of Doing a Direct Rollover? In order to conduct a direct rollover, it’s necessary to fill out and submit paperwork from your TSP with details regarding the IRA you want to roll into, along with its address and contact information. Before beginning this process it would also be advisable to consult your tax advisor first.
Once all the required paperwork has been submitted, the TSP will send a U.S. Treasury check directly to your new IRA provider. However, this process can take some time as it involves communicating back-and-forth between providers in order to verify all pertinent details have been provided by both parties.
Notably, the TSP does not provide for an indirect rollover feature and so when moving money from your TSP into another account you will be responsible for handling taxes yourself. This is particularly important for service members who have amassed tax-exempt dollars in their TSP through contributions made while serving abroad – it is vital that these remain tax-free funds as they continue to accumulate over time.
While in some instances it may make sense to transfer assets out of a TSP into an IRA account, most people should leave them where they are and take advantage of tax-deferred growth and the many investment options provided by a TSP account. One benefit of staying within your TSP account may also include low fees and the convenience of being able to access all your retirement savings at once.
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