Highlights
- The Thrift Savings Plan (TSP) is a retirement plan for federal employees, similar to a 401(k).
- In 2024, TSP contributions can go up to $23,000, with a $7,500 catch-up for those 50+.
- TSP offers traditional (pre-tax) and Roth (after-tax) accounts, each with tax implications for retirement.
- Qualified TSP withdrawals start at 59½; required minimum distributions begin at 73.
- Rolling TSP funds into a Roth IRA can be done via direct or indirect rollover, with the direct option being simpler.
Public sector employees with a Thrift Savings Plan (TSP) might consider moving their retirement savings to another account after leaving federal service. TSPs can be beneficial while employed, but they may lose their appeal once you’re no longer a federal worker.
One common choice is transferring your savings into an individual retirement account (IRA). However, this process might be difficult for you if you’re new.
In this article, we’ll guide you through rolling money from a TSP to Roth IRA and highlight key points to help you switch.
What Is the Thrift Savings Plan?
The Thrift Savings Plan (TSP) is a retirement savings plan for federal employees and military members, similar to a 401(k) in the private sector.
In 2024, eligible participants can contribute up to $23,000 to a TSP account (an increase from $22,500 in 2023). If you’re 50 or older, you can contribute an extra $7,500 as a catch-up contribution. Contributions are deducted from your paycheck, and some employers offer matching contributions.
Qualified withdrawals from a TSP can start at age 59½. If you withdraw funds earlier, you may face a 10% penalty. At age 73, you must begin taking the required minimum distributions (RMDs) from your TSP.
You can choose either a traditional TSP or a Roth TSP. With a traditional TSP, contributions are made pre-tax, so withdrawals in retirement are taxed as income. In a Roth TSP, contributions are made with after-tax dollars, allowing for tax-free withdrawals in retirement. Both traditional and Roth TSPs require RMDs once you reach the minimum age.
How to Move Roth TSP Funds into a Roth IRA?
For rolling money from a TSP to Roth IRA, you’ll need to choose between two methods: a direct rollover or an indirect rollover.
- Direct Rollover
In a direct rollover, the TSP administrator sends the funds directly to your Roth IRA without you handling them. To do this, log in to your TSP account, go to “Withdrawals and Changes to Installment Payments,” and follow the online steps. You’ll need to enter the amount you wish to transfer and provide details for your Roth IRA. The TSP administrators will handle the rest.
- Indirect Rollover
An indirect rollover is more hands-on. You withdraw the funds from your TSP and deposit them into your Roth IRA. Although this might sound easy, it’s risky and may cost more due to taxes and penalties. For example:
- If your distribution isn’t “qualified,” TSP will withhold 20% of the earnings portion for federal taxes.
- The earnings portion of a “non-qualified” distribution could be taxed and incur a 10% penalty if you don’t roll over the full balance withdrawn.
Many financial experts recommend the direct rollover due to these complexities. It’s usually simpler and avoids extra taxes and penalties.
How Much Can I Contribute Monthly to My Roth IRA?
In 2024, the IRS allows up to $7,000 annually in contributions to a Roth IRA or traditional IRA (up from $6,500 in 2023). If you’re 50 or older, you can contribute up to $8,000 with a catch-up amount. Dividing these yearly limits by 12 gives your maximum monthly contribution.
To contribute to a Roth IRA, your income is below certain limits for the tax year.
Do TSP Contributions Affect Roth IRA Contribution Limits?
No, Roth TSP contributions don’t impact your Roth IRA contribution limits. Each account has its own separate limit.
The IRS annual contribution limit for regular TSP contributions is $23,000 in 2024. If you’re 50 or older (or will turn 50 in 2024), you can add up to $7,500 in Catch-up contributions. In 2023, the limits were $22,500 for a TSP (or $30,000 if age 50 or older) and $6,500 for a Roth IRA (or $7,500 if age 50 or older).
At Blackstone Community Group, we provide expert assistance on rolling over your Thrift Savings Plan (TSP) into an IRA, helping you secure your retirement with the best gold IRA and precious metals investments.
Summary
The Thrift Savings Plan (TSP) is a powerful retirement tool for federal employees and military members, offering flexible saving options and tax advantages similar to private-sector 401(k) plans. For those interested in rolling money from a TSP to Roth IRA accounts, understanding the available rollover methods is essential to avoid unnecessary taxes or penalties.
Disclaimer
The content provided on this blog is for informational and educational purposes only and does not constitute financial or investment advice. While we strive to provide accurate and up-to-date information, you should not rely on this content as a substitute for professional financial advice. Any financial decisions you make are done so at your own risk. We encourage you to consult a licensed financial advisor before making investment decisions.
The views and opinions expressed in this blog are solely those of the authors and do not necessarily reflect the views of any affiliated entities. The information presented here is not intended as a solicitation or recommendation to buy, sell, or hold any financial product.
