How to Rollover TSP to IRA: Your Complete Guide

Deciding whether to roll your Thrift Savings Plan (TSP) over to an Individual Retirement Account (IRA) is a major fork in the road for your retirement savings. It’s a move that can open up a world of new investment choices and make managing your money a whole lot simpler. The actual process is fairly straightforward: you'll open an IRA, request a direct transfer from the TSP, and make sure the funds land in the right place to keep their tax-deferred status.

Is a TSP to IRA Rollover the Right Move for You?

When you leave federal service, this is one of the first big financial questions you'll face. It's not just about filling out forms; you're fundamentally shifting how your retirement nest egg will be managed. The main draw is trading the government's curated, limited plan for the wide-open investment universe of an IRA.

This infographic lays out the key things to think about when you're weighing the pros and cons of keeping your money in the TSP versus moving it to an IRA.

As the scale in the image suggests, there's no single "right" answer here. The best choice is the one that fits your personal retirement goals and how hands-on you want to be with your money.

To help you compare, here's a quick look at how the two accounts stack up.

TSP vs IRA At a Glance

FeatureThrift Savings Plan (TSP)Individual Retirement Account (IRA)Investment ChoicesLimited to 5 core funds (G, F, C, S, I) and Lifecycle (L) Funds.Virtually unlimited; can include stocks, bonds, ETFs, mutual funds, REITs, etc.FeesExtremely low administrative expense ratios.Varies widely by provider and investment; can be higher but also offers low-cost options.Loan OptionsAllows for general purpose and residential loans while employed.Loans are not permitted from IRAs.Withdrawal RulesRules can be more rigid, especially for partial withdrawals.Generally offers more flexibility for withdrawals after age 59½.Creditor ProtectionStrong federal protection from creditors under ERISA.Protection varies by state law.

This table gives you a snapshot, but the real decision often comes down to your priorities—the TSP's simplicity and low costs versus the IRA's flexibility and control.

Expanding Your Investment Horizons

One of the biggest reasons people make the switch is for the sheer number of investment options. The TSP is designed for simplicity with its core G, F, C, S, and I funds, plus the target-date Lifecycle funds. While that's great for getting started, it can feel restrictive if you have specific investment goals or a different appetite for risk.

An IRA, on the other hand, throws the doors wide open. You can invest in:

• Individual Stocks: Pick and choose the specific companies you want to own.

• Thousands of Mutual Funds and ETFs: Go far beyond the TSP's basic index funds.

• Bonds: Create a custom fixed-income strategy for your retirement years.

• Alternative Investments: Explore things like real estate investment trusts (REITs) to further diversify.

This level of flexibility lets you build a portfolio that’s truly tailored to you, something the one-size-fits-all TSP model just can't offer.

Simplifying Your Financial Life

If you've had a few jobs over your career, you might be juggling several different 401(k)s and retirement accounts. Rolling your TSP into an IRA where you've already consolidated other accounts can be a huge relief. Instead of trying to track different statements, logins, and investment performances, everything is in one place.

A direct rollover is the cleanest and safest way to make this happen. The money goes straight from the TSP to your new IRA custodian, which means you never touch it. This helps you sidestep mandatory tax withholding and any potential penalties.

When you do a direct rollover, the TSP sends a U.S. Treasury check made out directly to your new financial institution. This keeps the tax status of your money intact—Traditional TSP funds go into a Traditional IRA, and Roth TSP funds go into a Roth IRA.

Crucially, this avoids the 20% mandatory federal income tax withholding that happens with indirect rollovers (where the check is sent to you first). You can find more details on the TSP's rollover process on their official site.

Navigating the Rollover From Start to Finish

So, you've weighed the pros and cons and decided that moving your Thrift Savings Plan funds into an IRA is the right move for your retirement. Great. Now comes the practical part: actually getting it done. Knowing how to correctly roll over your TSP is absolutely essential to make sure the transition is smooth and, most importantly, free of any costly tax penalties.

We'll break down exactly what you need to do, from picking the right new home for your money to making sure it all gets there safe and sound.

Don't let the paperwork and jargon intimidate you. This part of your financial journey is more straightforward than it seems, especially with a clear plan. Let's walk through it with a real-world perspective.

Choosing Your New IRA and Provider

Before you even touch your TSP account, you have to know where the money is going. Honestly, this is probably the biggest decision you'll make in this whole process. You’re not just opening an account; you're picking a financial partner for the rest of your retirement.

Think about what really matters to you. Is it rock-bottom fees? An enormous buffet of investment choices? Or maybe you just want fantastic customer service and powerful research tools. Big names like Fidelity, Charles Schwab, and Vanguard are popular for a reason, but don’t overlook smaller firms or a local advisor who might give you a more personal touch.

Next, you have to decide on the type of IRA, and this choice has immediate tax consequences.

• Traditional IRA: If your TSP money is all in the Traditional (pre-tax) balance, rolling it into a Traditional IRA is a simple, non-taxable event. The money just moves from one pre-tax bucket to another. No taxes due.

• Roth IRA: Likewise, if you have a Roth TSP, moving it into a Roth IRA is also tax-free. Your after-tax money is just finding a new after-tax home.

• Roth Conversion: Here’s where it gets interesting. Moving a Traditional TSP into a Roth IRA is a taxable event called a Roth conversion. You'll owe ordinary income tax on the entire amount in the year you make the move. This can be a brilliant long-term strategy for tax-free growth, but it demands careful planning.

Most federal employees I've worked with have a mix of both Traditional and Roth money in their TSP. The cleanest way to handle this is to open both a Traditional IRA and a Roth IRA at your chosen firm and direct the corresponding funds to each.

Initiating the Rollover Request with the TSP

Years ago, this meant wrestling with paper forms like the TSP-60. Thankfully, things have gotten much simpler. The entire request can now be handled online through your TSP account portal.

Once you log in, find the section for withdrawals and rollovers. The online wizard is pretty good at guiding you through the steps, but it will ask for specific details about your new IRA. This is where you need to have your homework done.

You’ll need to provide:

• The name of your new financial institution (e.g., "Fidelity Brokerage Services").

• The full mailing address they use for incoming rollover checks.

• Your shiny new IRA account number.

Pro Tip: Before you click "submit" on the TSP site, call your new IRA provider. Ask them for the exact payee name and mailing address they require for a direct rollover check from a government retirement plan. Getting this detail perfect from the start can save you weeks of headaches and delays.

The goal here is what’s called a direct rollover. This is crucial. It means the TSP cuts a check made payable directly to your new financial institution for the benefit of your IRA. This simple step lets you sidestep the mandatory 20% federal tax withholding that applies if the check is made out to you personally (an indirect rollover).

Let's look at an example. Sarah, a newly retired federal employee, has $500,000 in her Traditional TSP. She opens a Traditional IRA at a major brokerage, calls them to confirm the rollover details, then logs into her TSP account to start the process. She carefully enters the exact payee name and address. The TSP processes her request, and the check goes straight to her new provider. The whole thing is seamless, and not a dime is withheld for taxes.

The Waiting Game and Confirmation

Once you’ve submitted your request, it’s time to be patient. This isn’t like a Zelle transfer; it’s not instant. The TSP has to liquidate your funds based on the closing share prices for that day and then mail a physical U.S. Treasury check.

This process usually takes somewhere between two and four weeks. It's important to know that during this transit time, your money is completely out of the market. You won't benefit from any upswings, but you also won't suffer from any downturns. It's just a normal, if slightly nerve-wracking, part of the process.

Your TSP account will show you when the check has been mailed. I always recommend calling your new IRA provider about a week after the TSP says the check is in the mail. Just a quick check-in to make sure they’ve received it and it’s being processed.

When the funds finally appear in your new IRA, you have one last, critical step. The money will almost certainly land in a default cash or money market "settlement fund." It’s up to you to actually invest that cash according to your retirement strategy and start taking advantage of all the new options your IRA offers.

Direct vs. Indirect Rollovers and What It Means for Your Money

When you’re ready to roll your TSP into an IRA, you'll come to a critical fork in the road. You can choose a direct rollover or an indirect one, and this decision has immediate and serious consequences for your retirement funds. Getting this right isn’t just about paperwork; it's about protecting your hard-earned savings from a major tax hit.

The cleanest, safest, and most recommended path is the direct rollover. Think of it as a trustee-to-trustee transfer where you never touch the money. The TSP sends your funds straight to your new IRA provider, making the check payable to the financial institution, not you.

It's a straightforward process that keeps your retirement plan fully intact and avoids nearly all the potential headaches.

The Simplicity of a Direct Rollover

By choosing a direct rollover, you sidestep the biggest tax traps. Since the money moves from one qualified retirement account to another, the IRS doesn't see it as a distribution. It’s just your money changing its address. No taxes are due, and no penalties apply.

This is the method financial professionals will point to every single time. It gives you peace of mind and keeps your retirement funds working for you without a chunk being siphoned off by the government before it even gets to its new home.

A direct rollover is your best defense against accidental tax bills and penalties. By keeping the money out of your hands, you ensure the transfer is clean and compliant with IRS rules, preserving the tax-deferred status of your savings.

For almost every federal employee learning how to rollover TSP to IRA funds, the direct rollover is simply the smarter and safer play.

The Pitfalls of an Indirect Rollover

Now, let's walk down the other path—the indirect rollover. This route is filled with potential traps. With an indirect rollover, the TSP cuts a check made out to you personally. While having the money in your hands might sound empowering, it immediately triggers a series of unforgiving IRS rules.

The moment you go this route, the TSP is legally required to withhold 20% of your taxable balance for federal income taxes. This isn't a suggestion; it's an automatic deduction.

This is where the trouble really starts. If you roll over a $50,000 traditional TSP balance indirectly, you’ll only receive a check for $40,000. The other $10,000 is sent straight to the IRS. To complete the rollover without paying taxes and penalties on that withheld amount, you must deposit the full $50,000 into your new IRA. That means you have to come up with that missing $10,000 from your own pocket. You can learn more about these critical tax rules from these insights on govexec.com.

And that’s just the first hurdle.

The Strict 60-Day Deadline

The IRS gives you exactly 60 days from the day you receive the funds to get the entire original amount deposited into a new IRA. Miss that deadline by a single day, and the whole thing unravels. The IRS will treat the entire distribution as a taxable withdrawal.

Here’s a real-world cautionary tale that shows just how punishing this can be:

• John's Situation: A recently separated federal employee decides to do an indirect rollover of his $100,000 Traditional TSP.

• The Check: The TSP sends him a check for $80,000, withholding the mandatory $20,000 for taxes.

• The Mistake: Life gets in the way. John gets busy and completely forgets about the deadline. He finally deposits the $80,000 into his new IRA on day 65.

• The Consequences: Because he missed the deadline, the entire $100,000 is now considered a taxable distribution. He owes income tax on the full amount, and since he was under 59½, he’s also hit with a 10% early withdrawal penalty.

John’s simple oversight ended up costing him thousands in unexpected taxes and penalties, dealing a significant blow to his retirement savings. His story is a powerful reminder of why the direct rollover is almost always the superior choice. It removes the risk of human error and keeps your nest egg safe.

Common Rollover Mistakes and How to Avoid Them

You’ve done the research and are ready to roll over your TSP to an IRA. That's a great step, but a few common missteps can easily turn this smooth transition into a major headache. Even with the best intentions, a small oversight can have some pretty big financial consequences.

Let's walk through the most frequent errors I see people make and, more importantly, how you can sidestep them completely.

One of the most frustratingly simple pitfalls is incomplete or inaccurate paperwork. It sounds basic, but a single wrong digit in an account number or a forgotten signature can cause weeks of delays while your request gets rejected and sent back. Before you hit "submit" on anything, triple-check every detail with your new IRA provider to make sure it's perfect.

Choosing the Wrong Type of IRA

This is a big one. Mismatching your TSP funds with the wrong type of IRA can create an unexpected and often painful tax bill. This typically happens when someone moves a Traditional TSP balance into a Roth IRA without fully grasping what that means for their taxes.

Here’s the deal: a Traditional TSP holds pre-tax dollars. When you move that money into a Roth IRA, which holds after-tax dollars, the IRS considers the entire move a Roth conversion. That means the full rollover amount gets added to your taxable income for the year.

• Real-world scenario: A recently retired federal employee rolls over $200,000 from their Traditional TSP into a new Roth IRA, thinking it's a simple transfer.

• The tax shock: Come April, they discover they owe income taxes on an extra $200,000 for that year. This can easily bump them into a much higher tax bracket, creating a massive, unplanned tax liability.

• How to get it right: The cleanest, simplest path is to roll Traditional TSP funds into a Traditional IRA and Roth TSP funds into a Roth IRA. If converting to a Roth is your long-term goal, that's fine—but you need to plan for it with a tax professional to manage the financial hit.

The rule of thumb is simple: keep like with like. Moving pre-tax money to a pre-tax account (Traditional to Traditional) or after-tax to after-tax (Roth to Roth) is a non-taxable event. Mixing them requires careful tax planning, not a surprise.

Mishandling an Outstanding TSP Loan

Another major trap involves an outstanding TSP loan. If you leave federal service with a loan still on the books, you can't just roll the loan over. If you don't pay it back in full before starting the rollover, the TSP will treat the entire outstanding loan balance as a taxable distribution.

This is called a "loan offset," and it's a double whammy. Not only will you owe ordinary income tax on that amount, but if you're under age 59½, you’ll also get hit with a 10% early withdrawal penalty. This can be a devastating blow to your retirement savings.

Imagine you leave your job with a $30,000 TSP loan you haven't repaid. That $30,000 instantly becomes taxable income, plus you could be looking at a $3,000 penalty on top of it. Your only way out is to come up with $30,000 from another source and deposit it into your new IRA within 60 days of the offset—not an easy task for most people.

The best practice here is crystal clear: pay off your TSP loan in full before you separate from service or start any rollover paperwork.

Underestimating Rollover Fees and Costs

The TSP is famous for its rock-bottom administrative fees, but the world of IRAs is a completely different ballgame. A mistake I see all too often is someone rolling their funds into an IRA with high fees that quietly drain their returns year after year. Sometimes, advisors don't fully explain just how different the new fee structure will be.

For perspective, the TSP's core funds have expense ratios as low as 0.048%. That’s incredibly cheap. In contrast, an advisor-managed IRA might charge a 1% management fee on top of underlying fund fees, easily bringing the total cost to 1.5% to 2% per year.

To avoid this, always insist on a full, written breakdown of every potential fee in a new IRA. Be sure to ask about:

• Annual account maintenance fees

• Advisory or management fees

• Trading commissions or transaction costs

• The expense ratios of the specific mutual funds or ETFs you'll be invested in

Your goal is to make sure the benefits of the new IRA—like more investment options and personal guidance—are actually worth any increase in cost. A clear-eyed view of the fee structure is non-negotiable before you commit.

Unlocking Your Investment Potential After the Rollover

You’ve successfully navigated the paperwork, and the funds from your Thrift Savings Plan have landed in your new IRA. Now the fun begins. Moving from the TSP to an IRA isn't just an administrative change; it's like going from a set menu to an all-you-can-eat buffet of investment choices. Your financial world just got a whole lot bigger.

The TSP is fantastic for its simplicity and rock-bottom costs, built around five core funds (the G, F, C, S, and I Funds) and the target-date L Funds. That straightforward approach is a great starting point, but it can feel a bit restrictive if you're looking to build a portfolio that’s truly tailored to your personal goals and risk tolerance. With an IRA, that curated menu is gone, and you’ve got an all-access pass.

From Five Funds to a World of Choice

Your new IRA throws the investment doors wide open. Instead of being limited to a handful of broad index funds, you now have the freedom to invest in a massive array of assets. This gives you a level of precision and control that the TSP just can’t match.

So, what’s actually on the table now?

• Individual Stocks: Have you always wanted to own a piece of a company you believe in? Now you can buy shares of Apple, Tesla, or that up-and-coming biotech firm you’ve been following.

• Thousands of ETFs and Mutual Funds: You can dive deep into specific market sectors like technology or healthcare, or focus on strategies like dividend income or emerging international markets. The options are virtually endless.

• Bonds and Fixed Income: Go way beyond the TSP's F Fund. You can build a custom bond ladder, or invest directly in corporate, municipal, or even international bonds to create a steady income stream.

• Alternative Investments: Want to diversify even further? An IRA gives you access to things like Real Estate Investment Trusts (REITs) or commodities funds—asset classes completely unavailable in the TSP.

This newfound flexibility is exactly why so many federal employees and service members eventually opt for a rollover. It’s your chance to go from being a passive saver to the active architect of your retirement.

This shift toward greater control and diversification is a major trend. As of the early 2020s, about 54 million Americans held IRAs, with total assets surpassing those in employer-sponsored plans like the TSP. By moving your funds, you gain access to a much broader spectrum of investment choices, which can be critical for building a resilient and diversified portfolio for retirement.

Investment Options TSP vs IRA

The difference in investment choice between the TSP and an IRA is stark. While the TSP offers a simple, effective, and low-cost set of core funds, an IRA provides access to nearly the entire publicly traded market. This table breaks down the typical options available in each.

Investment TypeAvailable in TSP?Available in IRA?Broad U.S. Stock Index FundsYesYesInternational Stock Index FundsYesYesU.S. Bond Index FundYesYesGovernment Securities FundYesNo (but similar options exist)Individual StocksNoYesSector-Specific ETFsNoYesIndividual Bonds (Corporate, Muni)NoYesReal Estate Investment Trusts (REITs)NoYesCommodities FundsNoYesActively Managed Mutual FundsNoYes

As you can see, the IRA gives you the tools to build a portfolio with far more nuance, targeting specific areas for growth or income that align precisely with your financial strategy.

Crafting Your New Investment Strategy

With a universe of options at your fingertips, it’s easy to feel a bit overwhelmed. Don’t be. The key is to start with a clear, simple strategy built around your personal situation. Your age, retirement timeline, and how you feel about market swings should be the foundation for every decision you make.

Start by thinking about asset allocation—that’s just a fancy term for how you split your money between different types of investments, like stocks and bonds. A classic rule of thumb for someone near retirement might be a 60/40 split: 60% in stocks for continued growth and 40% in bonds for stability and income. Your personal mix might look completely different, and that's perfectly okay.

Once you’ve set that initial allocation, the job isn’t done. It's crucial to rebalance your portfolio at least once a year. For example, if a great year for stocks pushes your portfolio to a 70/30 split, you’d sell some stocks and buy bonds to get back to your target. This forces you to sell high and buy low, keeping your risk level exactly where you want it.

This is where an IRA truly shines. It gives you the tools to manage and adapt your portfolio as your life—and the markets—inevitably change. Now that you know how to rollover TSP to IRA funds, you can finally take full command of your financial future.

Answering Your TSP Rollover Questions

When you're thinking about a big financial move like rolling over your TSP, it's completely normal to have a lot of questions. In fact, it's smart. Getting the details right can mean the difference between a smooth transfer and a frustrating, expensive headache.

Let's walk through some of the most common questions I hear from federal employees about the TSP rollover process.

Can I Roll Over Just a Portion of My TSP?

Yes, you absolutely can. This is called a partial rollover, and it's a great strategy if you want to explore what an IRA has to offer without completely severing ties with the TSP. For instance, you might want to move some money to an IRA to invest in a specific stock or fund, while leaving the rest in the TSP's super-low-cost G Fund.

The main requirement is that you must be separated from federal service to do a partial rollover. If you're still working, you have to be at least 59½ years old. When you go online to request the rollover, you'll just specify the exact dollar amount you want to move instead of checking the box for your entire balance.

Think of it as getting the best of both worlds—you can tap into the wider investment universe of an IRA while still enjoying the simplicity and rock-bottom fees of the TSP for a portion of your retirement savings.

What Happens to My TSP Loan If I Roll Over My Account?

This is a big one, and it trips a lot of people up. An outstanding TSP loan can seriously complicate a rollover. If you leave federal service with a loan on the books and don't pay it back, the TSP is required to treat the entire remaining balance as a taxable distribution.

This is what's known as a "loan offset." Suddenly, that unpaid loan amount becomes taxable income for the year. Even worse, if you're under 59½, you'll also get hit with a 10% early withdrawal penalty on top of the taxes.

The smartest thing you can do is pay off any TSP loan in full before you separate from service. If you can't, just be prepared for a significant tax bill. You can't roll the loan itself over.

There is a way around the taxes and penalties, but it's tricky. You would need to come up with the loan amount from another source (like your personal savings) and deposit it into your new IRA within 60 days. This is a high-stakes move that needs careful planning.

How Long Does the Rollover Process Actually Take?

You'll need a bit of patience here. A direct rollover from the TSP isn't an instantaneous digital transfer. The process involves the TSP selling your fund shares and then mailing a physical U.S. Treasury check to your new IRA provider.

From the day you hit "submit" on your request to the day the funds are actually available to invest in your new IRA, the whole thing usually takes between two and four weeks.

It's important to remember that during this window, your money is out of the market. You won't benefit from any market gains, but you also won't be hurt by any losses. It's a good idea to check in with both the TSP and your new brokerage firm to keep tabs on the check's progress.

Are There Fees for Rolling Over My TSP?

The Thrift Savings Plan itself doesn't charge you a dime to process a rollover, which is a fantastic feature. But that's only one side of the coin.

The new IRA provider you choose will have its own fee structure, and you need to understand it completely before you make a move. Be on the lookout for things like:

• Annual account fees: A flat charge just for keeping the account open.

• Advisory or management fees: Usually a percentage of your balance if you have someone managing the money for you.

• Trading commissions: Fees to buy or sell stocks and ETFs.

• Fund expense ratios: These are the built-in operating costs of any mutual funds or ETFs you invest in.

Always ask for a complete, written fee schedule from any potential IRA provider. The TSP's fees are incredibly low, so make sure any new costs you'll be paying are justified by the services or investment options you're getting in return.

Understanding your federal benefits is the first step toward a secure retirement. At Federal Benefits Sherpa, we simplify the complexities of your TSP, FERS, and other benefits to create a clear path forward. Book your free 15-minute benefit review today and take control of your financial future.