A TSP rollover to an IRA moves your Thrift Savings Plan balance into an individual retirement account after you separate from federal service, giving you wider investment choice while keeping the tax character of the money intact. This guide walks through direct versus indirect rollovers, the 20% withholding trap shown with real math, keeping Traditional and Roth TSP balances separate, and the rollover-then-Roth-conversion path for federal separees.
To roll a TSP to an IRA, request a direct (trustee-to-trustee) transfer after separating from federal service: Traditional TSP moves to a Traditional IRA and Roth TSP to a Roth IRA, with no 20% withholding and no current tax. An indirect rollover instead pays you the cash, withholds 20% of the taxable amount, and starts a 60-day clock to redeposit the full pre-withholding amount.
Can you roll your TSP into an IRA?
You can roll your TSP into an IRA once you separate from federal service. The TSP permits partial rollovers, so you may move part of the balance and leave the rest, provided at least $200 stays in the account to keep it open. There is no dollar cap on a rollover, and a direct rollover of eligible amounts is not a taxable event.
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Separation is the key eligibility trigger. While you are still an active federal employee or member of the uniformed services, the TSP generally does not let you move your money to an outside IRA, aside from limited age-based in-service withdrawals at 59½ and older.
Many federal retirees roll over the bulk of the balance while leaving a small amount behind, since keeping the account open preserves access to the low-cost fund lineup later. This decision often pairs with a broader retirement tax planning review before any money moves.
Direct vs. indirect rollover: which one avoids the tax hit?
A direct (trustee-to-trustee) rollover sends your TSP money straight to the IRA custodian, with no 20% withholding and no tax. An indirect rollover pays the cash to you, withholds 20% of the taxable portion, and requires you to redeposit the full pre-withholding amount within 60 days. For almost every federal separee, the direct route avoids the tax hit.
| Feature | Direct rollover (trustee-to-trustee) | Indirect (60-day) rollover |
|---|---|---|
| Who receives the money | The new IRA custodian, directly | You, by check or transfer |
| 20% federal withholding | None | Mandatory on taxable amounts (IRC 3405(c)) |
| Deadline to complete | No 60-day clock | 60 calendar days to redeposit |
| Risk of accidental tax | Very low | High if you cannot replace the withheld 20% |
| Typical fit | Common default for most separees | Rarely the right choice |
Direct (trustee-to-trustee) rollover: the no-withholding default
In a direct rollover, you never take possession of the funds. The TSP pays the money straight to your IRA provider, so the mandatory 20% withholding under IRC 3405(c) does not apply and no 60-day deadline exists. This is the path most federal retirees use, and it keeps a Traditional-to-Traditional or Roth-to-Roth move free of current tax at the time of transfer.
Indirect (60-day) rollover: and why it rarely fits
In an indirect rollover, the TSP sends the money to you and withholds 20% of the taxable portion for federal taxes. You then have 60 calendar days to deposit it into an IRA. The trap is that you must redeposit the full amount distributed before withholding, not just the cash received, or the shortfall becomes a taxable distribution that year.
The 20% withholding trap, with the actual math
The 20% withholding trap works like this: the TSP withholds 20% of the taxable amount on an indirect rollover, but to complete a tax-free rollover you must redeposit the full pre-withholding amount within 60 days. That means covering the withheld 20% out of other savings. Any amount you fail to replace is taxed as ordinary income, plus a possible 10% early-withdrawal penalty if you are under 59½.
Worked example: what a $500,000 indirect rollover really costs
Suppose you request a $500,000 indirect rollover from your Traditional TSP. The TSP withholds 20%, or $100,000, and sends you $400,000. To roll the entire balance and owe no current tax, you must deposit the full $500,000 into your IRA within 60 days, which means finding the missing $100,000 from other funds. The table below breaks down each figure.
| Step | Amount |
|---|---|
| Amount you request | $500,000 |
| 20% federal withholding | $100,000 |
| Cash actually paid to you | $400,000 |
| Amount you must redeposit within 60 days | $500,000 |
| Out-of-pocket you must add from savings | $100,000 |
| If you redeposit only the $400,000 you received | $100,000 taxed as ordinary income, plus a possible 10% penalty if under 59½ |
How to make yourself whole inside the 60-day window
To complete the rollover free of tax, you replace the withheld 20% from separate cash and deposit the full pre-withholding total into the IRA before day 60. You then recover the withheld amount when you file your tax return, since it was credited as federal tax paid. If you cannot cover the 20% gap, that portion is treated as a taxable distribution.
How to roll over your TSP to an IRA, step by step
To roll over your TSP to an IRA, open the matching IRA type, request a direct rollover from the TSP using Form TSP-60 for Traditional balances and Form TSP-60-R for Roth balances, keep the two tax buckets separate, and confirm the funds arrive with the correct tax character. Following the direct route in order avoids withholding and preserves your tax treatment.
- Open the right IRA first. Traditional TSP money belongs in a Traditional IRA; Roth TSP money belongs in a Roth IRA. Set up the receiving account before you file the rollover request so the custodian details are ready.
- Request a direct rollover from the TSP. Use Form TSP-60 to roll a Traditional balance and Form TSP-60-R to roll a Roth balance, and elect the trustee-to-trustee (direct) method so no 20% withholding applies.
- Keep your Traditional and Roth TSP balances separate. Submit a coordinated request that sends each side to its matching IRA, so pre-tax and Roth dollars never mix.
- Confirm the funds land with the right tax character. Verify with the IRA custodian that Traditional dollars posted to the Traditional IRA and Roth dollars to the Roth IRA before you take any further action.
Step 1: open the right IRA (Traditional for pre-tax, Roth for Roth TSP)
Match the tax character before anything moves. Pre-tax Traditional TSP dollars roll into a Traditional IRA and stay tax-deferred. Roth TSP dollars, which include after-tax contributions and their growth, roll into a Roth IRA and stay tax-free once the account is qualified. Opening both accounts up front lets you route each bucket cleanly to its matching destination.
Step 2: request a direct rollover from TSP (Form TSP-60 / TSP-60-R)
Form TSP-60 handles a Traditional balance rollover and Form TSP-60-R handles a Roth balance rollover. On each form, choose the direct trustee-to-trustee option so the money goes straight to your IRA custodian and the mandatory 20% withholding never triggers. Submitting the correct form for each bucket also keeps your pre-tax and Roth dollars from crossing into the wrong account type.
Step 3: keep your Traditional and Roth TSP balances separate
Route each bucket to its own IRA: Traditional to Traditional, and Roth to Roth. Letting Roth money land in a Traditional IRA creates recordkeeping and tax problems that are hard to unwind later, so a single coordinated dual request is the clean approach. Sending both sides at once also prevents the proportional-distribution rule from mixing your pre-tax and Roth dollars.
Step 4: confirm the funds land with the right tax character
Once the transfers settle, check both account statements carefully. Confirm the Traditional IRA shows the pre-tax amount and the Roth IRA shows the Roth amount, matching what each side held in the TSP, before you consider any Roth conversion from the Traditional IRA. Catching a misposted transfer early is far easier than unwinding it after a conversion has been made.
Why you must keep Traditional and Roth TSP apart (the proportional-distribution rule)
If you hold both Traditional and Roth TSP, the TSP pays partial distributions and rollovers proportionally from both balances. You cannot cherry-pick one side. To keep a clean rollover, send each bucket to its matching IRA in one coordinated request, then convert only from the Traditional IRA later, so Roth dollars are never accidentally taxed or mixed with pre-tax money.
The proportional rule removes your ability to pull only pre-tax or only Roth money, since a partial payout comes out pro-rata from each balance you hold. If you plan a future Roth conversion, you want the Traditional dollars isolated in a Traditional IRA first, so the conversion draws only from pre-tax money. The practical fix is a single coordinated instruction: roll Traditional TSP to a Traditional IRA and Roth TSP to a Roth IRA at the same time. This mirrors the clean-separation logic behind a rollover IRA.
Should you convert to a Roth after the rollover?
Whether to convert after the rollover depends on your tax bracket now versus later. Many separees first roll Traditional TSP to a Traditional IRA, then convert to a Roth IRA in measured increments across several years to control the tax bill. A Roth conversion of pre-tax dollars is taxable ordinary income in the conversion year and is irreversible, so the timing and amount matter.
The rollover-then-convert path: roll to a Traditional IRA, then convert in increments
The usual sequence for a federal separee is roll first, convert second. You move Traditional TSP into a Traditional IRA free of current tax, then convert portions to a Roth IRA over multiple years, filling your current bracket without spilling into the next one. Spreading the conversion helps manage the tax cost, and our guide on how much to convert to Roth walks through the tradeoffs.
Because each conversion adds to your taxable income, large conversions can raise your Medicare premiums two years later through IRMAA and can interact with the net investment income tax. Watch the calendar too, since a conversion must be completed by December 31 to count for that tax year.
How this differs from an in-plan TSP Roth conversion
This is a different move from an in-plan TSP Roth conversion. An in-plan conversion keeps the money inside the TSP and shifts Traditional TSP into Roth TSP, and it is covered separately in what federal employees need to know about TSP Roth conversions. The rollover-then-convert path here first exits the TSP into IRAs, which gives you more control over conversion timing and investment choice.
The two 5-year clocks on a Roth TSP to Roth IRA rollover
Two separate 5-year clocks apply, and they do not always transfer. Your Roth TSP had its own 5-year holding period, but rolling Roth TSP money into a Roth IRA can start a fresh 5-year clock for that Roth IRA if it is your first one. Tax-free access to earnings generally requires being 59½ and satisfying the applicable 5-year period, so confirm both clocks first.
What you give up by leaving the TSP vs. what you gain
Leaving the TSP means giving up its very low 0.055% expense ratio and the unique G Fund, a government-securities fund with no true outside equivalent. In exchange, an IRA offers a far wider menu of investments and more flexible withdrawal and conversion control. The right choice depends on whether low cost and the G Fund matter more than investment breadth and planning flexibility.
| Consideration | Keep money in the TSP | Roll to an IRA |
|---|---|---|
| Cost | About 0.055% expense ratio | Varies by custodian and funds chosen |
| Investment menu | Limited core funds plus a mutual fund window | Broad choice of funds, ETFs, and more |
| G Fund | Available, no outside equivalent | Not available; you give it up permanently |
| Roth conversion control | In-plan only | Convert from a Traditional IRA on your schedule |
The G Fund is the sticking point for many federal retirees. It offers principal stability with a return tied to government securities, and no IRA product replicates it. If that fund is central to your plan, a partial rollover that leaves some money in the TSP can keep the door open.
2026 rules that change the math
Three 2026 rules shape the decision: required minimum distributions begin at age 73, or age 75 if you were born in 1960 or later, with the earliest age-75 RMD year being 2035; Roth TSP is no longer subject to lifetime RMDs as of 2024; and the Rule of 55 can waive the 10% early-withdrawal penalty on TSP distributions taken after separation in the year you turn 55 or later.
| 2026 rule | Detail |
|---|---|
| IRA contribution limit | $7,500, or $8,600 if age 50 or older (a rollover does not count toward this) |
| RMD start age | 73, or 75 if born in 1960 or later (earliest age-75 RMD year is 2035) |
| Roth TSP lifetime RMDs | Eliminated as of 2024; Roth TSP no longer forces lifetime RMDs |
| Early-withdrawal penalty | 10% before 59½; Rule of 55 can waive it for TSP distributions after separation (roughly ages 55 to 59½) |
RMD timing feeds directly into conversion planning. Because Roth IRA money has no lifetime RMDs and Roth TSP lost its lifetime RMD requirement in 2024, moving pre-tax dollars to Roth before your RMD start age can reduce future forced distributions. Our required minimum distributions guide details how the age 73 and 75 rules apply.
Frequently asked questions
Should I roll my TSP into an IRA?
Whether to roll your TSP into an IRA depends on your goals. An IRA offers wider investment choice and more flexible Roth conversion timing, while the TSP keeps a very low 0.055% expense ratio and the unique G Fund. Many separees weigh cost and the G Fund against flexibility, and often review the decision with a professional before moving any money.
How do I avoid taxes on a TSP rollover?
You avoid taxes by using a direct (trustee-to-trustee) rollover and matching tax character: Traditional TSP to a Traditional IRA and Roth TSP to a Roth IRA. The direct method carries no 20% withholding and no current tax. Converting Traditional dollars to a Roth is the exception, since a conversion is deliberately taxable ordinary income in that year.
Can I move my TSP to a Roth IRA without paying taxes?
Roth TSP can move to a Roth IRA without current tax, because both hold after-tax money. Traditional TSP cannot move to a Roth IRA tax-free, since that is a Roth conversion and the pre-tax amount is taxed as ordinary income in the conversion year. Confirm your 5-year clock and age before withdrawing earnings.
How long does a TSP rollover to an IRA take?
A TSP rollover commonly takes about two to four weeks from request to funds posting, though timing varies with processing and mail. A direct rollover paid to the IRA custodian avoids the 60-day deadline. An indirect rollover, by contrast, gives you exactly 60 calendar days from receipt to redeposit the full pre-withholding amount.
What is the downside of rolling over TSP to an IRA?
The main downsides are giving up the TSP’s roughly 0.055% expense ratio and losing access to the G Fund, which has no outside equivalent. You may also face higher fund costs at some IRA custodians. The upsides are broader investment choice and more control over Roth conversion timing, so the tradeoff is cost and the G Fund versus flexibility.
Can I roll over my TSP while still working for the government?
Generally no. You must be separated from federal service to roll your TSP to an IRA, with a limited exception for age-based in-service withdrawals available at 59½ and older. Before separation, most participants cannot move money to an outside IRA, which is why rollover planning usually begins as retirement approaches.
Does a TSP rollover count toward my annual IRA contribution limit?
No. A rollover is not a contribution, so it does not count against the 2026 IRA limit of $7,500, or $8,600 if you are age 50 or older. You can roll over any eligible amount, even a large balance, and still make a separate annual IRA contribution if you qualify.
What happens to my TSP loan if I do a rollover?
An outstanding TSP loan must generally be resolved before or at separation. If it is not repaid, the unpaid balance is treated as a taxable distribution (a loan offset) and may carry a 10% penalty if you are under 59½. You can often roll an equivalent amount into an IRA within the allowed window to avoid the tax, so address any loan early.
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Q3 Advisors is a registered investment adviser focused on retirement tax planning. This page is educational and is not advice; consult a qualified professional.
