TSP Rollover to IRA

Escape the TSP's Over-Diversified Funds







This Page is About Knowing It's Possible

You can roll over your TSP funds into an IRA account, but only after retirement or otherwise leaving federal or military service. We recommend contacting a representative of one of the major brokerage or fund management companies, such as Fidelity, Vanguard, T.Rowe Price and others, who can provide detailed advice about what is possible and who can answer questions specific to your situation. We recommend selecting one of them on the basis of the funds, ETFs, or stocks associated with investment strategies that suit your interest and investment style. See Example Strategies here.

Why Consider a Rollover to an IRA?

In real estate they ask "what are the three most important factors in determining value?" The answer is: location, location, and location. Similarly, the answer to this paragraph's title question is: returns, returns, and risk. They will totally determine your retirement lifestyle. To address both risk and return optimally, you have to escape from the TSP's over-diversified funds which inherently return potential. If you've not yet clicked each of the "Control", "Returns" and "Safety" topics above (in the slider) and read them and viewed their short videos that crystallize their points, then now is the time to do so.

Article Snippets and Links

The helpful article snippets below are provided with their source references as a resource for you in determining what to do.


From: My Federal Retirement   http://www.myfederalretirement.com/public/367.cfm

Guide to Thrift Savings Plan and Individual Retirement Accounts

Can I move money from my TSP account into my IRA?

Generally, yes. However, you can move your money only from the TSP into a "traditional IRA" or from a traditional IRA into the TSP. A traditional IRA is an individual retirement account described in § 408(a) of the I.R.C. or an individual retirement annuity described in I.R.C. § 408(b). It does not include a Roth IRA, a SIMPLE IRA, or a Coverdell Education Savings Account (formerly known as an education IRA). There are two ways to move your money between the TSP and a traditional IRA. You can transfer your payment by asking that it be made directly from your traditional IRA into the TSP (or directly from the TSP into your traditional IRA). You may also roll over your payment, in which case the payment is made to you from the TSP (or your traditional IRA) and you will have to deposit it yourself into the traditional IRA (or the TSP). Note: Rollovers and transfers are governed by different tax rules.

How do I transfer or roll over money between my traditional IRA and my TSP account?

If you have left federal service or the uniformed services and elect to withdraw your TSP account balance in a single payment (or monthly payments over a period of less than 10 years), you can ask the TSP to transfer all or any portion of your payment(s) directly to a traditional IRA. You can do this by noting your request on your withdrawal form. You can also roll over all or any portion of amounts that are paid to you. Similarly, you can either transfer or roll over an age-based in-service withdrawal into a traditional IRA.

If you transfer or roll over a tax-exempt balance into a traditional IRA, it is your responsibility to keep track of the amount of these contributions and report that amount to the IRS on the appropriate form so that the nontaxable amount of any future distribution(s) can be determined. If you ask the TSP to transfer a payment from your account which includes a tax-exempt balance and the IRA does not accept tax-exempt balances, the tax-exempt portion of the intended transfer will be removed from the amount that is being transferred and will be paid directly to you.

What are the tax consequences if I transfer or roll over money from the TSP to a traditional IRA?

If you request a transfer of your money, you do not pay taxes (or an early withdrawal tax penalty, if you are under 59 ½ years old) until you withdraw the money from the IRA. However, if you receive the money directly, the TSP must withhold 20 percent for federal income taxes even if you then decide to roll it over to your IRA (which you can do within 60 days of receiving it).

If you decide to roll over your withdrawal after you receive it, you can deposit personal funds into your IRA equal to the amount withheld for taxes.  Otherwise, the amount withheld will itself be subject to taxes (and the early withdrawal tax penalty, if applicable). These rules are the same if you decide to transfer or roll over money from a traditional IRA to the TSP.

For more information about mandatory tax withholding, see the tax notice "Important Tax Information About Payments From Your TSP Account," which is available from the TSP Web site (www.tsp.gov) or from your agency or service.

Can I transfer my TSP account to the IRA of my spouse?

Generally, no. Your spouse's IRA is not eligible to receive your TSP account. However, a spouse can transfer to his or her IRA amounts received from the TSP upon the death of a participant or pursuant to a qualifying court order.

From: The Military Wallet  http://themilitarywallet.com/thrift-savings-plan-tsp-ira-rollover/

Should You Rollover Your TSP Account Into an IRA?

If you have left government or military service in recent years, then there is a good chance you still have a Thrift Savings Plan (TSP) account in your name. Personally, I'm a big fan of consolidating financial accounts to make financial planning and management easier to deal with. But the TSP is in it's own category of financial accounts due to several factors that separate it from other investment options, namely some of the lowest expense ratios you will ever find. So keeping your assets in the TSP may not be a bad option. But sometimes it's best to simplify things and roll your investments into fewer accounts.
The first thing you will need to do is determine if your assets are eligible for distribution. The TSP has certain criteria, so contact customer service through the ThriftLine if in doubt.

Deciding to rollover TSP assets into an IRA

Once you determine your funds are eligible for distribution, you need to decide what to do with those funds. We previously discussed options for the TSP when you leave the service in this article: what should you do with your TSP when you leave the military?

This article covers the main options, such as leaving your funds within your TSP account, rolling it into an IRA, roll your assets into a 401k plan at your new employer, withdraw your funds (watch out for early withdrawal penalties), and roll your funds into a qualified annuity.
The TSP has many similar features to a 401k plan, so this article may also be helpful: should you rollover a 401k into an IRA? Let's look at the pros and cons of rolling over your Thrift Savings Plan funds into an IRA.

Pros and cons of doing an IRA rollover

The TSP has some of the lowest expense ratios in the investment industry and you will be hard pressed to find mutual funds with expense ratios that low. You almost certainly won't be able to find them in a 401k plan, as most 401k plans have funds with relatively high expense ratios.

An IRA, on the other hand, gives you better control over your investment options, including the ability to invest in a wide variety of stocks, bonds, funds, and other investments that you can't use with the Thrift Savings Plan or a 401k plan. You can also open an IRA at many locations, including banks, online discount brokers, mutual fund houses, etc.

Advantages of rolling your TSP into an IRA:

• Full control of investments

• More investment options

• Ability to control fees

• Portability

Advantages of leaving your funds in the TSP:
There are two main advantages to leaving your funds in the TSP: the low expense ratios, and the possibility of tax free withdrawals if you made contributions with tax free funds. This last advantage could apply if you contributed to your TSP plan while you were in a tax free combat zone.

To see if you have any tax exempt money in your TSP, look at the bottom of you balance sheet: you will see "Tax Exempt Balance — $xxxx.xx." You may wish to keep your TSP if you have a large amount of tax free contributions because those contributions would have been made without being taxed and that percentage of your withdrawals would also be tax free – which is virtually impossible to achieve in the civilian world!

Additional benefits to leaving your assets in the TSP
You won't be charged any additional fees to leave your funds in the Thrift Savings Plan (plan expenses still apply), and it won't affect any of your other investments, or ability to open other retirement accounts.

Rolling over a TSP Account into an IRA

If you decide to roll your Thrift Savings Plan assets into an IRA, then you have a few options to consider. The first thing you will need to do is open an IRA if you don't already have one. Here is a list of what to look for when opening an IRA and some of the best brokerages to open an IRA to help you.

Which option is the best?

There is no right or wrong option. If you prefer a hands off approach with low fees, or if you have a large amount of tax free contributions, then you may wish to keep your funds in the Thrift Savings Plan. If, however, you have a hands on investing approach, or simply wish for more investment options, then rolling your TSP assets into an IRA may be a better option for you. Be sure to investigate your options thoroughly and make the best decision based on your investment needs and risk tolerance. Best of luck!