How to Rollover Your TSP to a 401K or IRA

How to Rollover Your TSP to a 401K or IRA

IRAs hold more retirement savings than employer-sponsored plans like the Thrift Savings Plan (TSP). The largest source of IRA contributions comes from individuals who move money from their 401(k) or 403(b) plans when they leave their jobs.

Rollovers are called that, and you’ve probably seen ads or heard messages encouraging you to roll your TSP account into an IRA. Suppose you are considering rolling over money from your Thrift Savings Plan (TSP) into an IRA. In that case, you should investigate your options; if you have another retirement account, you can transfer money into your TSP.

Can You Rollover Your TSP to Another Investment?

Thrift Savings Plans, or TSPs, are retirement accounts available to service members who leave the military. 

The veterans can also place their retirement funds in Individual Retirement Accounts, which provide some key advantages. As a result, we will explain how to rollover TSP earnings into an IRA – a Roth or traditional IRA.

Pros and Cons of Rollover TSP

TSP rollovers provide complete investment control, multiple investment options, portability, and professional money management.

Pros: No administrative fee, no creditors protection, no RMD until you retire from your federal job.

Cons: Higher costs and expenses, transferring an old 401(k) or IRA into TSP, typically higher fees and expenses.

The government’s equivalent of the 401(k) plans that we see in the private sector. Choosing whether to transfer the money to an IRA or Individual Retirement Account is one of the most significant decisions facing TSP owners.

Related Article: The Complete Guide to Investments and Financial Planning for Veterans

Pros of a TSP Rollover

  1. Investment control: You have more control over your investments with an IRA. You can only invest in the five TSP funds and combine them. When you are inexperienced in investing, this can be problematic, and you may end up worse off with a broader selection.
  2. Availability of more low-cost investment options: The TSP has limited investment options. Mutual funds and individual stocks cannot be traded in the TSP. A REIT is a mutual fund that invests in commercial real estate, and TSP doesn’t have any REITs. Typically, they are found in most managed portfolios. As well as commodities and gold, there are no alternative investments.
  3. There is greater portability with IRAs. It is possible to switch custodians and typically keep your existing investments. In a TSP, the funds are available only in the plan, so you have to sell the funds and reinvest them in the new IRA when you roll over.
  4. Investment management by a professional: Transferring TSP funds directly to an IRA offers the benefit of direct investment management. Some people may benefit from this if they don’t want to mess with investing and value investment management advice.

However, you should note that this can come at a high price, upwards of 1% of the AUM (assets under management). You may have to pay $10,000 per year in fees for transferring a million dollars to an IRA! Your money is not included in the expense ratios of the funds where it is invested. Many people find this unreasonable. Some individuals value professional money management, and they are willing to pay for it.

Cons of a TSP Rollover

  1. Index funds typically have higher expense ratios: The TSP has the lowest expense ratio of any index fund, around 0.04%. The majority of index funds have higher expense ratios, and these ratios are rapidly decreasing due to fee compression and increased competition. Although the TSP is very low compared with other low-cost providers, this will hurt the long-term growth of your investments.
  2. Transfer old 401(k)’s and IRAs: You may transfer old 401(k)’s and IRAs into TSP. Combining your investments into one account will allow you to manage them more efficiently. 401(k) older plans do not usually receive as much TLC. Therefore, consolidation could help maximize your return.
  3. If you leave your money in the TSP after leaving the government, you will not incur any administrative fees. There are some account-change fees. The TSP, however, receives complaints about slow withdrawals and paperwork. However, those complaints aren’t familiar.

There may be a reason for this, as it is a large and diverse fund. The government is expected to do this.

  1. A TSP provides more protection than an IRA from creditors: The protection from creditors is an important consideration, with an IRA providing less protection.

This type of 401(k) plan offers more protections, which one should seriously consider.

  1. Keep working as a federal employee. RMD (required minimum distributions) is not required at 72. Imagine you are still working for the federal government. Your money in the TSP will not have to be taken as RMD. RMDs are required minimum distributions from a tax-sheltered account.

According to the law, the government wants to set a date when it starts taking money out of the report to collect taxes owed. There are no required minimum distributions for Roth versions of TSPs as the cash is after-tax.

It could be a difficult task to decide whether to roll over your TSP into an IRA or not. It is recommended that you should consult with a financial planner for guidance decisions for your circumstances.

Are There Tax Consequences to a Rollover TSP to IRA

Your TSP balance would likely be tax-exempt if you contributed to your TSP while serving in a combat zone. You will never pay taxes on these funds, and you must be careful not to roll these funds into a traditional IRA unintentionally.

A box will appear on the TSP withdrawal wizard when you select the box stating: Check this box if tax-exempt balances are accepted for the account.

  • You do not check this box if you are transferring from a traditional TSP to a traditional IRA.
  • Check this box to convert a conventional TSP to a Roth IRA rollover.

As soon as you separate and complete a total withdrawal from your TSP, you can pocket those tax-exempt funds.

You gain a double tax benefit if you contribute to a Roth IRA:

1) You don’t pay taxes on the initial contribution;

2) When you withdraw the earnings, you don’t have to pay taxes.

Related Article: Are Savings Bonds Good Investments?

Should I Rollover to an IRA or a 401K?

Generally, the money from the old 401(k) has to be deposited into the new IRA within 60 days in order to roll it over to an IRA.

Here’s how to start and finish a 401(k) IRA rollover in 4 steps:

  1. Open the appropriate IRA account.
  • Compared to your old 401(k), an IRA may offer you more investment choices and lower fees.
  • Rollovers to Roth IRAs are taxed on the rolled amount.
  • Taxes are deferred when you roll over to a traditional IRA.
  • You won’t have to pay a rollover tax if you move from a Roth 401(k) to a Roth IRA.
  1. Open your new IRA account.

There are generally two options for getting an IRA: online brokers or Robo-advisors.

  1. You can choose to have your investments managed by someone else or do it yourself, depending on your preference.
  • A Robo-advisor can do all the work for you if you don’t want to pick individual investments.
  1. Robot advisors build customized portfolios based on your preferences and rebalance them over time to ensure that you stay on track. They do all this for far less than a conventional investment manager.
  • An online broker lets you buy and sell investments yourself to build and manage your portfolio. Providers should offer low-cost investments, offer no account fees, and have an excellent reputation for customer service.

401(k) plans may offer direct rollovers, or you can use the 60-day rule.


You can save for your retirement with a tax-deferred individual retirement account (IRA). The four most popular kinds of IRAs are traditional, Roth, SEP, and SIMPLE, which all offer savings tax benefits.

Contributions to an IRA are tax-deductible, or withdrawals are tax-free when money is withdrawn from an IRA through banks, Robo-advisors, or brokers.

IRA is not the same as the Irish Republican Army.

Roth IRA

The entire account must be treated as income immediately to convert your Roth IRA. On this amount, you will pay tax (federal and state, if applicable). As a result, you may have to pay estimated taxes or increase withholding to cover the tax.

The after-tax contribution and earnings are tax-free if you maintain the Roth IRA for at least five years and meet other requirements.

Roth IRAs do not require lifetime distributions, so the funds can grow tax-free while remaining in the account. This tax-free nest egg can also be left to your heirs.

Generally, you would have to pay taxes on the rollover to a Roth IRA. However, converting a traditional 401(k) to a Roth IRA requires two steps. To restore the IRA money into a Roth IRA, you must first roll it over into an IRA.

Related Article: How to Invest Your VA Disability Money?


The 401k benefits plan is a retirement savings plan offered by many American employers that provides tax advantages to savers. The section was named after a part of the United States’ IRC.

When employees sign up for a 401(k), they agree to have a percentage of each paycheck deposited directly into an investment account. Typically, several investment options are available to the employee, such as mutual funds.

How to Request a Rollover

An employer’s 401(k) plan will be rolled over with little difficulty. IRAs are opened with a financial institution, such as a bank, brokerage, or online investing platform. It would be best to inform your 401(k) plan administrator where you have opened the account.

Direct rollovers and indirect rollovers are the two types of rollovers.

Direct vs. Indirect Rollovers

A direct rollover occurs when your money is transferred from one account to another electronically, or the administrator may cut you a check made out to your account, which you deposit. Taking this approach is usually the most efficient.

A direct rollover occurs when the funds come to you for re-depositing. You also have only 60 days to deposit the funds into a new plan if you take the cash instead of transferring it directly to the account. If you miss the deadline, you will hold taxes and penalties from your payment.

It is strongly recommended that direct rollovers be made because of this deadline. Assets can often be transferred directly from one custodian to another without selling anything.

Trustees-to-trustee transfers or in-kind transfers are examples of this.

If you receive a check from a former employer, the IRS will withhold 20% of the amount. Note that the examination will be taxed if you have it made out to you directly, and you will need to roll over the distribution in full within 60 days if the check is made out directly to you.

Other Things to Know About Rollovers

The following three factors should be considered when deciding whether to roll over your 401(k) when leaving a job:

  1. Fees
  2. Your 401(k)’s investment options and quality in comparison to your IRA’s
  3. Your old or new employer’s 401(k) plan rules

These types of rollovers have different rules, so it is important to remember that. Usually, a rollover won’t trigger taxes or cause complications as long as you stay within the same tax category.

You should check your 401(k) balance and decide what you want to do when you leave your job. In the case that your former employer sends you a check that you did not reinvest in time, you may be left with a trail of retirement accounts at different employers – or even nasty taxes.

Transfer Money Directly Into the TSP

Transfers or “direct rollovers” occur when the eligible plan sends your money to the TSP.

Tax-deferred amounts should be transferred into the TSP using TSP rollover Form TSP-60, Request for a Transfer Into the TSP. You can transfer Roth money into the TSP by completing Form TSP-60-R, Request for a Roth Transfer.

Roll Over Traditional Money Into the TSP

Rollovers are when you receive money directly from your traditional IRA or retirement plan and later transfer it to your TSP account.

Roth money cannot be rolled over into TSP, and you must complete your rollover within 60 days of receipt of your funds. To roll over eligible traditional money into the TSP, use Form TSP-60, Request for a Transfer.

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