By Stang Gappa
Updated on March 21, 2025
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If you’re a federal employee or military service member, then you’re probably familiar with the Thrift Savings Plan (TSP). The TSP is a retirement savings program that functions similarly to a 401(k), offering tax-advantaged savings and employer contributions. The TSP is known for its low fees and simple investment options, making it an attractive choice for long-term retirement planning.
While the TSP offers solid benefits, keeping your money in the TSP may not be the best option if you’re retiring or changing jobs. Rolling over your TSP into an IRA or another retirement account can provide:
If you’re looking to transfer your TSP retirement savings, this step-by-step guide to rolling over a TSP into an IRA will help you get started. You’ll learn how to start the rollover process, choose a provider and how to avoid some common mistakes.
The TSP operates much like a 401(k) but is exclusive to federal employees and military personnel. The TSP is known for its low fees and simple investment options, making it an attractive choice for long-term retirement planning. Key features include:
The TSP offers straightforward investment options through six main funds. These funds consist of:
There are a few key benefits of participating in the TSP. For example, TSPs typically offer low administrative fees compared to many private retirement plans. They also allow for employer matching contributions, and offer fairly diverse investment options with passive management. As with most employer-sponsored accounts, the TSP also offers tax benefits through either traditional or Roth contributions.
Despite its advantages, some individuals may choose to roll over their TSP into an IRA to:
There are some other pros and cons of a TSP rollover you may want to consider. Let’s break down the step-by-step process of rolling over you TSP.
Before rolling over your TSP, evaluate your retirement goals, risk tolerance, and whether an IRA aligns with your overall financial strategy. You’ll also want to research IRA provider options to find one that best meets your needs.
Rolling over your TSP can simplify your retirement savings strategy by consolidating your savings into one account. If you’re unfamiliar with the process, consider working with an expert service like Capitalize that can manage the entire rollover process for you.
Make sure to have your TSP account information handy. You’ll want to have your account number and tax status (either traditional or Roth) before you begin.
Many TSP savers who choose to roll over their accounts end up transferring their funds to an individual retirement account (IRA). IRAs are popular choices since you get to pick the provider and can typically choose between a self-managed or an automated investment strategy. You’ll also want to compare the IRA account fees between providers.
When evaluating the tax status, have two primary IRA options:
Traditional IRA: A traditional IRA maintains the tax-deferred status of your savings if you roll over a traditional TSP balance. That means you won’t owe taxes until you withdraw funds in retirement.
Roth IRA: A Roth IRA requires you to pay taxes on the amount you roll over, unless you’re rolling over funds from a Roth TSP, but it allows tax-free withdrawals in retirement. This may be a good choice if you anticipate higher tax rates in the future.
Once you’ve selected an IRA provider, you’ll want to open an IRA with them (e.g., Fidelity, Vanguard, Schwab). Make sure you open an IRA account with the same tax status as your TSP account to avoid any unintended tax consequences.
Next, you’ll want to request a direct rollover from your TSP. After logging into your account, there should be a navigation tab that says “Withdrawals and Rollovers” in the top menu. Select the account you want to roll over. If you want to roll over your entire balance (a “full” rollover), you’ll select “all of the amount available” on the next screen. If you only want to roll over a portion of your savings balance (a “partial” rollover), you can also enter the specific amount you’ll want to roll over.
You’ll be prompted to review a notice of rights before being asked to choose the destination for your rollover. To complete a direct rollover, choose “Rollover Mailed to Institution 1” to instruct your TSP to be sent directly to your IRA provider. More on direct rollovers later.
Next, you’ll enter the IRA details to ensure a smooth transfer, including the receiving institution’s name, address and account number. Be sure to verify the address of your new IRA provider when you set up your new account.
If you are married, your spouse will likely have to sign a consent form authorizing the transfer of your funds. The timeline for a TSP rollover can vary, but it generally takes a few weeks.
Processing Time: The rollover typically takes 2-4 weeks.
Fees: The TSP does not charge rollover fees, but your IRA provider may have account fees.
Avoiding Tax Withholding: Choosing an indirect rollover means the check will first be sent to you to forward on to your new IRA provider. The TSP is required to withhold 20% of your balance for federal taxes if you go with an indirect rollover. Failing to deposit the check within 60 days can subject you to taxes and penalties. Opting for a direct rollover avoids the 20% tax withholding requirement.
Let’s cover a few common mistakes you’ll want to avoid to make sure your rollover goes smoothly.
If you end up rolling over a traditional TSP to a Roth IRA, be prepared to pay taxes on the transferred amount. This is considered a “Roth conversion” since you’re changing the tax status during the transfer.
You’ll want to avoid indirect rollovers if you can, since you’ll face a 60-day deadline to deposit them into an IRA, and the TSP will withhold 20% for taxes.
IRAs provide a wide range of investment choices, but it’s essential to align your selections with your risk tolerance and retirement timeline.
Consider working with a financial advisor to create a retirement strategy that best fits your goals.
It’s not uncommon to forget to make investment allocations after your savings is deposited in your new account. Failing to do so means your savings won’t be growing through compounding, so make sure to allocate your savings into specific investments.
A TSP rollover can provide greater control over your retirement savings, more investment choices, and flexible withdrawal options. However, it’s essential to understand tax implications and ensure you choose the right IRA for your needs.
Planning ahead can help you maximize your retirement savings and avoid costly mistakes. Whether you decide to roll over your TSP now or later, staying informed is key.
By following this step-by-step guide, you can confidently roll over your TSP into an IRA while minimizing fees, tax consequences, and administrative headaches. If you’re uncertain, consider working with Capitalize to seamlessly transfer your TSP rollover and any other employer-sponsored retirement plans you may want to transfer.
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