A Thrift Savings Plan (TSP) transfer or rollover allows federal employees and uniformed service members to move retirement funds between the TSP and other eligible retirement accounts. This process helps individuals consolidate their retirement savings, maintain tax advantages, and avoid penalties.
TSP Transfers vs. Rollovers
- Transfers: A direct transfer moves money from one retirement account to another without the account holder taking possession of the funds. This method helps avoid taxes and penalties.
- Rollovers: A rollover involves withdrawing funds from a retirement account and redepositing them into another eligible account within 60 days. If not completed within this timeframe, the withdrawal may be taxed, and penalties may apply.
Types of TSP Transfers and Rollovers
1. Into the TSP:
Eligible funds from a traditional 401(k), 403(b), or other pre-tax retirement plans can be transferred into the TSP Traditional account.
Roth 401(k) funds can be rolled into the TSP Roth account, but Roth IRAs are not allowed.
2. Out of the TSP:
After leaving federal service, individuals can transfer their TSP funds to a traditional or Roth IRA, or another employer-sponsored plan.
Roth TSP funds can only be rolled into a Roth IRA or another Roth employer plan.
Tax Implications
- Direct transfers avoid mandatory 20% tax withholding.
- Indirect rollovers may incur penalties if not completed within 60 days.
Understanding the rules for TSP rollovers and transfers is crucial for effective retirement planning. Federal employees should consult financial advisors to optimize their retirement savings strategy.