With a FERS retirement, can I transfer a partial TSP lump sum to an IRA?


I am planning to withdraw my TSP. Most of it will be to pay off my house. I know I will have to pay about 20% in taxes. Instead of withdrawing the whole amount would it be better to just withdraw the House payoff amount and transfer the remaining to an IRA, or is that even an option?

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Asked on March 6, 2018 2:44 am
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Generally the answer is yes, it is an option. And, yes, I think taking a partial withdrawal to pay off the house and leaving the remainder available either in the TSP or an IRA makes sense.
If you have not taken an age-based withdrawal while working, you are allowed (under current rules) to make a partial withdrawal and a full withdrawal once you have separated from federal service.
If you take a partial withdrawal, you can transfer the entire amount of that withdrawal to an IRA or other account (from which you will pay off your house) and leave the rest in your TSP. At a later date you could roll the amount left in your TSP to an IRA.
Or you could do it all in one fell swoop. You can take a full withdrawal and use part of it to pay off your house and the move the rest to an IRA.
The TSP will be making withdrawal options more flexible soon due to the recently passed TSP Modernization Act. This will give you the opportunity to take multiple partial withdrawals rather than just one. If you retire prior to the implementation of the Act, you may want to simply take a partial withdrawal to pay off your house and leave the rest in the TSP until you have more flexibility in taking out the rest. If you retire after the Act’s implementation, you will be able to pay off the house, transfer some to an IRA and leave some in the TSP.
In an early edition of FEDweek’s “TSP Investment Report, the pros and cons of rolling your TSP to an IRA are discussed.

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Answered on March 6, 2018 10:40 am