Can You Move Funds From a TSP to an IRA?
When you roll over your TSP to an IRA, the TSP will withhold taxes from the amount that you transfer. If you want to avoid withholding, you should choose a direct rollover.
If you have both a traditional (pretax) TSP account and an after-tax Roth IRA, it is best to do the TSP-to-traditional-IRA direct rollover first. This will avoid creating a big upfront tax bill.
Taxes
The Thrift Savings Plan has some unique tax rules that apply when you roll over your assets. For example, you can’t transfer funds between Roth and traditional balances within your TSP account. However, this is not an issue when you change the amount of money invested in your TSP funds via an investment election, reallocation, or loan payments. These transactions combine a proportional share of the investments in your traditional and Roth balances.
When you move your TSP funds, remember to consider fees. The TSP has some of the lowest fees in the industry, but that doesn’t mean that your new investments won’t have fees.
Indirect rollovers also have the advantage of avoiding the 10% early withdrawal penalty that applies when you cash out your TSP balance. If you’re planning on entering a lower tax bracket in retirement, this option may save you thousands of dollars. In addition, direct rollovers make it easier to consolidate your retirement savings and determine whether you’re on track to meet your goals.
Investment options
There are several benefits to rolling over your TSP funds into an IRA, including lower fees and more investment options. However, it’s important to consider your financial situation before making the decision to do so. Talk to a qualified financial professional to find out what option is best for you.
TSP accounts offer a variety of investment options, including traditional and Roth funds. You can also make changes to your allocation by reallocating the percentage of your funds that are invested in each fund. The process is quick and simple, and your reallocations are usually processed before noon eastern time the day that you submit them.
Investing outside of a pretax retirement account can create a tax liability, so it’s important to consult with a qualified financial advisor before making any decisions. SmartAsset’s free tool matches you with vetted financial advisors who serve your area and can help you achieve your goals. Click here to get started.
Withdrawals
If you want to move your TSP funds, you have several withdrawal options. The most common is to do a direct transfer, which means the TSP administrator will take care of most of the work for you. The only thing you need to do is provide the name of your IRA and account details. This process should take less than 15 minutes.
You can also do an indirect rollover. In this case, the TSP will send you a check, and you will have to deposit it into your new retirement account. The TSP will withhold 20% for federal income taxes.
Before making a decision, consider fees and expenses. TSP funds have the lowest fees among any retirement plan or IRA. But low fees don’t mean a better investment, and you should always compare fees and expenses before moving your money to another plan or IRA. Leaving your TSP could make sense if you are happy with the current investment options and fee structure.
Fees
If you’re thinking about transferring your TSP funds to an IRA, be aware of the fees involved. It’s not a decision that should be taken lightly, and you should consult with a financial professional before making the switch. There are many benefits of a TSP rollover, but you need to consider your own personal circumstances and goals before deciding whether it’s right for you.
The TSP offers direct rollovers, which means your plan administrator will transfer your funds to a new account at your employer’s retirement plan or an IRA that you’ve opened at a brokerage. This is a better option than an indirect rollover, which requires you to receive the distribution check and deposit it into a new retirement account.
Indirect rollovers also require you to pay taxes on the amount that you withdraw from your TSP. This is because the pre-tax TSP accounts provide tax breaks on your contributions, while an IRA gives you tax benefits upon withdrawal.
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