When you separate from federal service you will have a choice as to whether to leave your money in the Thrift Savings Plan or to roll it over into an Individual Retirement Arrangement (IRA) and the rules that govern them. Not surprisingly, the Thrift Board encourages you to leave your TSP contributions right where they are and many financial advisers urge you to roll your money into IRAs, or other tax deferred plans, that they offer.

Rollovers have been allowed in IRAs since the 1970s and in the TSP since its inception in the late 1980s. Originally the rules were that, as long as the money that was withdrawn from the TSP (or other tax advantaged account, such as an IRA) was rolled into another tax advantaged account within 60 days, there was no tax due and there was no withholding. That changed in the 1990s; beginning then, federal income taxes were withheld from any rollover that was not a direct rollover (i.e., the money went directly from the IRA or TSP to the other qualified account). Most financial advisers are aware of the fact that rollovers have to be direct in order to avoid federal income tax withholding. If you are working with an adviser when you rollover your TSP, follow their advice and do a direct rollover.

The TSP doesn’t have a form that is used specifically for rollovers. In order to roll money from the TSP into another plan or IRA, you would use the appropriate TSP form and have the financial adviser you are working with fill in the transfer portion of the form. There are currently five possible forms you might use, depending on your situation: 1) TSP – 70, Request for Full Withdrawal; 2) TSP – 75, Age-Based In-Service Withdrawal Request; 3) TSP – 77, Request for Partial Withdrawal When Separated; 4) TSP – 79, Change from Monthly Payments to Final Payment; and 5) TSP – 90, Withdrawal Request for Beneficiary Participants. It is likely that the forms will be changed after the TSP Modernization Act is implemented in September 2019.

Under current TSP rules, you are only allowed two withdrawals (and therefore, two rollovers) from your TSP account. If you have not taken an age-based withdrawal while working (you must be at least 59 ½ to do so), you are allowed one partial withdrawal and one full withdrawal once you separate from federal service. If you took an age-based withdrawal while working, you would only be allowed to take a full withdrawal after you separate. When the TSP Modernization Act is implemented there will be more withdrawal choices, but still not as many as you would have in an IRA (where you can take money out whenever you feel like it). So, when it comes to withdrawal choice, the advantage goes to the IRA.

When it comes to investment expenses, the expenses in the TSP are significantly less than the expenses in most IRAs. So, when it comes to expenses, the advantage belongs to the TSP.

If you separate from federal service in or after the year in which you reach 55 (50 for certain special category employees), your withdrawals will be penalty free. If your money is in an IRA, you will face an early withdrawal penalty for anything you take out up until you reach 59 ½. Both the TSP and IRAs have an exception for life expectancy based payments that are continued for the longer of 5 years, or until you reach the age of 59 ½. IRAs, however have more exceptions to the early withdrawal penalty than the TSP does. So, depending on your situation, the advantage can be with the TSP, an IRA, or neither.

If you continue working at your federal job past the age of 70 ½, you are not required to take required minimum distributions (RMDs) from the TSP. With a traditional IRA, you must take RMDs at 70 ½ whether or not you are still working. With a Roth IRA you never have to take RMDs, but with the Roth TSP, you do. Here whether or not there is an advantage depends on your situation.

IRAs generally offer less protection from creditors that do employer sponsored retirement plans like the TSP, so here’s another TSP advantage.

When all is said and done, it’s your situation more than anything else that will give you the answer as to whether or not to roll your money out of the Thrift Savings Plan.

See more on TSP Transfers including rollovers at ask.FEDweek.com