For federal government employees transitioning into a new job, retiring, or separating from service, one of the biggest financial decisions involves handling their Thrift Savings Plan (TSP). A TSP rollover is an option that allows you to transfer your retirement savings into another qualified retirement account—without facing penalties or taxes.
But should you roll over your TSP? If so, what’s the best way to do it? Let’s break down your options and the key steps to making an informed decision.
Understanding Your TSP Rollover Options
If you’re leaving federal service, you generally have four options for handling your TSP funds:
1. Leave Your Money in the TSP
You can keep your retirement savings in the TSP, where you’ll continue benefiting from low fees and tax-deferred growth. This is a great option if:
✔ You like the TSP’s low-cost investment options.
✔ You don’t need access to your money immediately.
✔ You plan to return to federal service and contribute again.
Important Note: If your balance is less than $200, the TSP will automatically send you a check, and you cannot keep your funds in the account.
2. Roll Over Your TSP to an IRA (Individual Retirement Account)
If you want more investment options and flexibility, rolling your TSP into an IRA might be a smart move. An IRA provides:
✔ A wider range of investment choices (stocks, bonds, ETFs, mutual funds).
✔ More control over withdrawals (especially in retirement).
✔ Potential tax benefits, depending on the type of IRA.
👉 Traditional TSP → Traditional IRA (Tax-free rollover, taxes due on withdrawals)
👉 Roth TSP → Roth IRA (Tax-free growth, no taxes on withdrawals if qualified)
3. Roll Over Your TSP to a New Employer’s 401(k) or 403(b)
If you’re moving to a private-sector or state job with a 401(k) or 403(b) plan, you may be able to roll your TSP into your new employer’s plan. Benefits include:
✔ Keeping all your retirement savings in one account.
✔ Continuing to defer taxes until retirement.
✔ Avoiding early withdrawal penalties if you retire between ages 55-59½ and plan to access funds early.
4. Cash Out Your TSP (Not Recommended!)
While you technically can withdraw your TSP balance in a lump sum, it’s usually a bad financial move.
❌ 20% federal tax withholding is automatically applied.
❌ Additional 10% early withdrawal penalty if you’re under 59½.
❌ Lost future growth potential, hurting your retirement savings.
If you need cash, consider partial withdrawals instead of cashing out the full balance.
How to Roll Over Your TSP: Step-by-Step Guide
Step 1: Decide Where You Want to Move Your Money
- IRA (Traditional or Roth)
- New Employer’s Retirement Plan (401(k)/403(b))
- Leave it in the TSP (no action needed)
Key Consideration: Check the fees, investment options, and tax implications before making a decision.
Step 2: Contact the TSP and Your New Financial Institution
- Log in to your TSP account at www.tsp.gov.
- Call the TSP ThriftLine (1-877-968-3778) to discuss your rollover options.
- If rolling into an IRA or new employer’s plan, contact the receiving financial institution for their rollover instructions.
Pro Tip: Ensure your new account is set up before initiating the transfer to avoid delays.
Step 3: Complete the TSP Rollover Forms
To start your rollover, you’ll need to fill out TSP Form TSP-70 (Request for Full Withdrawal) or TSP-77 (Request for Partial Withdrawal) if keeping part of your funds in the TSP.
- If rolling into an IRA, provide the IRA provider’s details on the form.
- If rolling into an employer-sponsored 401(k), confirm that your new employer accepts rollovers from TSP accounts.
Step 4: Choose a Direct or Indirect Rollover
✔ Direct Rollover (Recommended)
- The TSP transfers funds directly to your IRA or new employer’s plan.
- No taxes withheld; funds remain tax-deferred.
❌ Indirect Rollover (Risky Option)
- The TSP sends a check to you, and you must deposit it into your new account within 60 days.
- 20% withholding applies, and you must replace it out of pocket to avoid penalties.
Step 5: Confirm the Transfer and Update Beneficiaries
Once the rollover is complete:
✅ Check your new account to confirm funds arrived.
✅ Update your beneficiary designations (especially if you’re newly married or divorced).
Pros and Cons of Rolling Over Your TSP
| Option | Pros | Cons |
|---|---|---|
| Leave in TSP | Low fees, simple management | Limited investment choices, withdrawal restrictions |
| Roll to IRA | More investment options, tax benefits | Higher fees, required minimum distributions (RMDs) at 73 |
| Roll to 401(k) | Keeps all savings in one place | New plan may have high fees, limited investment choices |
| Cash Out | Immediate access to cash | High taxes & penalties, loss of retirement growth |
Final Thoughts: Should You Roll Over Your TSP?
A TSP rollover can be a smart financial move if you want more control over your retirement savings and investment options. However, leaving funds in the TSP may be the best choice if you value low fees and simplicity.
👉 Before making a decision, speak with a financial advisor to ensure the best strategy for your long-term retirement goals.
Need help with your TSP rollover strategy? Contact us today for a free consultation to explore your options!
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