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TSP and IRA Rollover explained

IRAs are not employer sponsored plans. This is in contrast to 401k and TSP accounts. Rather, a single person can open an IRA for retirement savings (so long they are earning income). This means that IRAs can be funded entirely with your own contributions. Unlike defined-contribution plans which are guaranteed by an employer contribution, IRAs can be funded entirely with your own contributions.

Talk to the TSP and they will explain that a transfer is when money is transferred directly from your TSP into your IRA account. Rollover is when they send money directly from your TSP to your IRA account. You are responsible for depositing the money in your IRA within 60 calendar days.

The TSP has very low expense ratios but limited investment options. You can only choose five individual funds or several life cycle funds from your TSP account. These funds automatically rebalance your portfolio when you reach retirement age. Investors who want to invest in individual stocks, exchange-traded fund, or other common options can’t do so in a TSP.

TSP Rollover after Retirement

You have more control over where and how you invest your money by transferring your funds from the TSP. This has many benefits, including account aggregation, investment options, and which we will list next.

You can avoid the annual contribution limits for IRAs by converting from traditional to Roth or traditional to traditional rollover. These annual limits cannot be exceeded if you make direct contributions to your IRA.

Thrift Savings Plan Rollover to an IRA

There is a good chance that you still have a Thrift Savings Plan account (TSP) even if you have been out of government or military service. Consolidating financial accounts is a great way to simplify financial planning and management. The TSP is a great investment option, as it has one of the lowest expense ratios. The TSP is a good option for your assets.

IRAs offer a lot of the same retirement benefits as TSPs, aside from the contribution difference. These accounts can be used as tax-advantaged retirement savings instruments. You will still receive the present tax benefit if you open a traditional IRA. This means that you can lower your taxable income for every dollar contributed up to a maximum annual amount. However, this benefit is phased out at certain income levels. You can also open a Roth IRA to receive a deferred benefit that allows you to withdraw funds tax-free in retirement, up to age 59 1/2.

Converting your traditional TSP into a Roth IRA

This strategy could be a sound one depending on your particular situation. As we have discussed, Roth contributions are exempt from tax while traditional TSP contributions are subject to pre-tax. If you transfer funds from a traditional TSP to a Roth IRA you will need to pay taxes on the entire amount.