TSP to Roth IRA

Submitted by Jacob McAlpine on Wed, 2023-01-18 18:39

I am curious if anyone out there has already initiated a transfer from their TSP to a Roth IRA?

I’m happy to hear anyone’s thoughts on it regardless of if you have done it or not.



Submitted by Alan - IRA critic on Wed, 2023-01-18 18:44

From pre tax TSP or Roth TSP?  Both types of direct rollovers should be allowed if you are eligible for distributions (eg. due to separation from service).  



Submitted by Jacob McAlpine on Wed, 2023-01-18 20:12

In theory, from both. My understanding is that both should be eligible. I am curious if anyone has contemplated a good reason not to do a rollover and just keep the money in a TSP account. My understanding is that it would best to do it, but curious if I am not considering something.



Submitted by Alan - IRA critic on Wed, 2023-01-18 21:09

  • A pre tax TSP to Roth direct rollover would be taxable, therefore more beneficial if your current marginal rate is less than it will be later in retirement, and not beneficial if your current marginal rate is higher than in retirement. If about the same, it’s a toss up. Of course, the amount of the rollover is vital. Roth TSP to Roth IRA would not be taxable, and Roth IRA distribution ordering rules are more favorable than non qualified Roth TSP distribution taxation.
  • Many TSP participants keep funds in the TSP due to the G fund, which is not easily duplicated in an IRA.
  • Many older TSP participants roll Roth TSP to a Roth IRA to avoid RMDs, but starting in 2024 the Roth TSP and other employer Roth accounts will no longer be subject to RMDs.
  • Starting in 2024, employer plans including the TSP will be upgraded by the Secure 2.0 bill to treat surviving spouse beneficiaries as plan participants rather than beneficiaries. This puts the TSP on par with IRA rules.
  • The TSP had a change of administrators last year that triggered some service issues. Eventually, those should be resolved.
  • In some states with sub standard IRA creditor protection, remaining in the TSP provides complete creditor protection except for spouses and the IRS. However, most states do provide IRA owners with complete protection in or out of bankruptcy.
  • No question that these rollovers are eligible under IRS rules, but the factors listed above and perhaps others like familiarity with the TSP v Roth IRAs are prime factors in making this decision.
  • I cannot help with respect to forms requirements and special requirements the TSP might have. Most 401k to IRA rollovers are initiated through the receiving IRA custodian, but the TSP probably has a special process to execute these direct rollovers. If you have both pre tax and Roth balances in the TSP be very careful to direct them to the correct IRA type. Roth to Roth is non taxable, pre tax to TIRA is non taxable, but pre tax TSP to Roth IRA is taxable.


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