How to Move Funds From a Thrift Savings Plan to an IRA

Anybody who has contributed to the Thrift Savings Plan, or TSP, must eventually decide how they wish to utilize their funds. Making this decision can be complex.

Consider consulting with a financial advisor when making your decisions. SmartAsset’s free tool connects you with vetted advisors in your area.

Direct rollovers

As soon as you leave federal employment, you have two options for managing your TSP funds: keep them where they are or move them to another retirement account. To minimize taxes and penalties when doing this transfer process, the easiest and tax-efficient option would be through direct rollover into an IRA (your TSP administrator can assist in this step or you can withdraw the funds and then direct rollover directly). Indirect transfers can become more complex with potential taxes and penalties accruing, so take great care in using direct transfer as the easiest and tax-efficient option when switching retirement accounts between employers or retirement accounts when changing employers or switching jobs between employers if applicable.

TSP accounts are divided into two pools of money: contributions and earnings. Contributions are tax-exempt at withdrawal; any earnings are subject to income tax. When moving your balance from TSP into an IRA, if done properly it moves only contributions portion into it while leaving earnings portion alone; this process is known as qualified rollover; otherwise the IRS could consider the distribution as non-qualified and apply an early withdrawal penalty of 10% as soon as 10 days have passed since withdrawing it from TSP.

Rollover of funds from your TSP to an IRA is an easy process. Your TSP administrator may send the funds directly into your new IRA, or you can take care of it yourself by accessing the website and following an online withdrawal procedure. Your TSP administrator or website can assist in this process step-by-step.

Consider fees and expenses when considering whether to move your TSP money to an IRA. TSP fees are among the lowest in the industry, but any new plan or IRA may incur investment-related charges that eat into returns quickly. Make sure your new IRA manager informs you about this before agreeing to do the rollover.

If you choose a direct rollover, the IRS won’t withhold any money for taxes from the transfer. With indirect transfers, however, the IRA or plan that sends money will withhold 20% for federal taxes before giving it back to you – you must then contribute additional funds if you intend to maintain tax-deferred growth within your new IRA.

Can You Convert Your TSP to a Roth IRA?

Converting from Traditional to Roth IRA is generally seen by the IRS as creating an immediate tax liability since funds moved from an account that offered tax breaks are now in an account which offers tax-free withdrawals.

If you are a service member who built up tax-exempt TSP money while deployed overseas, protecting its future growth from unduly taxed could be important to you. Rollovers to Roth IRAs indirectly from your TSP may be feasible but may require upfront payment of taxes due; as TSP customer service representatives may not know how to handle such requests appropriately it’s wiser to consult a financial professional first before considering this approach – they will help guide the rollover and ensure its accuracy and completeness.

Raymond Banks Administrator
Raymond Banks is a published author in the commodity world. He has written extensively about gold and silver investments, and his work has been featured in some of the most respected financial journals in the industry. Raymond\\\'s expertise in the commodities market is highly sought-after, and he regularly delivers presentations on behalf of various investment firms. He is also a regular guest on financial news programmes, where he offers his expert insights into the latest commodity trends.

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