A TSP rollover transfers your Thrift Savings Plan (TPS) balance to another eligible retirement account—typically a Traditional or Roth IRA—after leaving federal service. This tax‑advantaged move helps expand investment options beyond TSP funds, consolidates scattered accounts, and can simplify required minimum distribution (RMD) rules, especially for Roth balances.
Quick Takeaways
- Direct TSP rollovers avoid the 20% tax withholding that applies to indirect 60-day rollovers.
- As of 2024, Roth TSP balances are no longer subject to RMDs during your lifetime—matching Roth IRAs.
- Traditional TSP → Traditional IRA; Roth TSP → Roth IRA maintains favorable tax treatment.
- The TSP G Fund has no equivalent outside the federal system—if you value its unique stability, you may want to keep some funds in TSP.
- Finhabits offers a streamlined rollover process with bilingual support and diversified ETF portfolios.
What is a TSP rollover?
A TSP rollover moves your Thrift Savings Plan balance into another eligible retirement account without triggering taxes when done correctly. Some federal employees and service members transfer to an IRA after separating from service. You can also roll TSP funds into a new employer plan if that plan accepts rollovers.
Think of a rollover like changing homes for your retirement money. Your savings stay protected from taxes during the move, but gain new features and options in their new location. Done right, nothing gets lost in transit.
Who needs it: Separated federal employees, military members transitioning to civilian life, or anyone looking to simplify multiple retirement accounts. If you’re still in federal service and age 59½ or older, you may be eligible for an in‑service age‑based withdrawal; check the TSP website for current rules.
Key options for your TSP after leaving service
1) Keep money in the TSP
You can leave your balance in the TSP and continue enjoying exceptionally low-cost index funds and Lifecycle funds. This makes sense if you’re satisfied with the limited investment lineup and simplicity. While you can’t make new employee contributions, you can transfer eligible amounts in from other retirement accounts.
2) TSP rollover to an IRA
Moving to a Traditional IRA or a Roth IRA broadens your investment options to include a wide range of ETFs and funds aligned with your goals. With Finhabits, you’ll gain control through a user-friendly app that helps you track progress, receive bilingual guidance, and make informed decisions. Traditional TSP money typically goes to a Traditional IRA; Roth TSP money goes to a Roth IRA to preserve favorable tax treatment.
3) Roll TSP into a new employer plan
If your new employer’s 401(k), 403(b), or 457 plan accepts rollovers, you can consolidate retirement savings within one workplace plan. This might simplify your financial life, but check whether the new plan offers the investments you want and understand any fees or restrictions.
Quick note if you’re confusing plan types
TSP is not a 401(k)—it’s the federal government’s defined contribution plan with unique features. While many rules mirror 401(k)s, and you’ll see “401K rollover” guidance that feels familiar, TSP has its own processes and investment funds (particularly the G Fund, which has no private-sector equivalent).
How a TSP rollover works: step by step
Direct vs. indirect (60‑day) rollover
- Direct rollover (trustee‑to‑trustee): Money moves straight from TSP to your new IRA or plan without passing through your hands. No current taxes or withholding. This is the safest route and what most financial advisors recommend.
- Indirect rollover: TSP sends funds to you personally; you have 60 days to deposit into an IRA. Mandatory 20% federal tax withholding applies to taxable amounts. To avoid taxes, you must replace the withheld amount from other funds. The IRS maintains strict enforcement of the 60-day deadline with limited exceptions.
Direct rollovers eliminate the stress of deadlines and the need to come up with the withheld 20% from other sources.
Step‑by‑step timeline
- Choose your destination: Evaluate which option, Traditional IRA or Roth IRA, is best for you based on your current tax situation and long-term goals. If you have both Traditional and Roth TSP balances, you’ll need both types of IRAs to properly receive each source.
- Open your Finhabits account(s): This takes just minutes online. You’ll receive the account details TSP requires to initiate your rollover.
- Start the rollover with TSP: Log into your TSP account online to initiate the rollover. The TSP online portal now allows direct electronic requests, making the process more streamlined than the old paper form system. Specify Finhabits as your IRA custodian.
- Keep tax types separate: Traditional to Traditional; Roth to Roth. Mixing these creates tax complications that are easily avoided with proper planning.
- Monitor the transfer: Track status through both TSP and your Finhabits dashboard. The TSP sends funds via U.S. Treasury check to Finhabits with your account information included. The Employer Identification Number of the TSP is 52-1529691.
- Invest according to your plan: Once funds arrive, select your Finhabits portfolio and begin growing your retirement savings with investments tailored to your timeline and risk tolerance.
Costs, taxes, and rules to know
Taxes if done right vs. wrong
- Direct rollover: Non-taxable event when keeping the same tax character (Traditional to Traditional, Roth to Roth). You’ll receive a Form 1099-R showing a direct rollover code and confirming documentation from Finhabits.
- Indirect rollover: 20% federal withholding applies to taxable amounts. To avoid taxes on the withheld portion, you must deposit the full pre-withholding amount within 60 days using other personal funds. Missing this deadline triggers taxes and potential penalties if you’re under 59½.
Additional resources: IRS Rollovers of Retirement Plan and IRA Distributions; IRS Publication 575 for taxation of distributions; TSP Fact Sheet on Taxes on TSP Payments.
Contribution limits and eligibility
For 2025, the IRA contribution limit is $7,000, or $8,000 if you’re 50 or older. These limits are separate from rollovers—you can roll over your entire TSP balance regardless of size and still make your full annual IRA contribution if you’re eligible based on income.
For 2025, single filers can make full Roth IRA contributions with modified adjusted gross incomes under $150,000, and married couples filing jointly under $236,000, according to IRS announcements. Higher income individuals may still be eligible for Traditional IRA contributions.
Documents checklist: what you’ll need
- Your TSP account number and recent statement
- Government‑issued ID for identity verification when opening your Finhabits account
- Traditional IRA with Finhabits and/or Roth IRA with Finhabits account numbers
- Social Security Number and basic contact information
- Clear instructions on how you want to split Traditional vs. Roth balances
- Beneficiary information (take this opportunity to review and update)
Finhabits makes this process straightforward by walking you through each step and helping you gather the necessary information. Our team can help answer questions about required documentation to ensure a smooth transfer.
Comparison: keep TSP, roll to IRA, or roll to new plan
| Option | Pros | Cons | Best for
|
|---|---|---|---|
| Keep money in TSP | Ultra-low costs ; G Fund security; simple lineup; federal oversight | Limited fund selection; no new contributions after separation; separate account to track | Those who value simplicity and the unique G Fund guarantee
Those who might return to Federal employment |
| TSP rollover to IRA (Finhabits) | Broader ETF selection; consolidate accounts; Roth has no lifetime RMDs; app-based control; bilingual support
Included in your membership |
No equivalent to G Fund; more decisions required | Those wanting more investment options, mobile access, and personalized guidance |
| Roll into new employer plan | One workplace account; possible loan features; may have advisor support | Fund selection varies by employer; may have higher fees; rollover might not be accepted | Those preferring a single workplace plan and its specific investment lineup |
Practical scenarios and numbers
Example: avoiding the 20% withholding
Consider a $120,000 Traditional TSP balance. With an indirect rollover, TSP withholds $24,000 (20%) for federal taxes and sends you $96,000. To keep the full amount tax-advantaged, you must deposit the entire $120,000 into your Traditional IRA with Finhabits within 60 days—meaning you need to add $24,000 from your personal funds temporarily. A direct rollover eliminates this complexity entirely.
Example: consolidating multiple accounts
Maria has her TSP plus three old 401(k)s from previous private-sector jobs. By consolidating all her traditional retirement funds into a Traditional IRA with Finhabits, she simplified from four quarterly statements to one intuitive app dashboard. This made rebalancing easier, ensured consistent beneficiary designations, and gave her a clear picture of her progress toward retirement. Maria specifically appreciated having Spanish-language support available when she had questions about the rollover process.
Example: Roth TSP to Roth IRA
James, a retired military officer, had accumulated $75,000 in his Roth TSP from contributions during deployment. By rolling this amount to a Roth IRA with Finhabits, he preserved the tax-free growth potential while gaining access to a broader range of ETFs aligned with his post-military career goals. The elimination of RMD requirements for both Roth TSP (as of 2024) and Roth IRAs made this decision more about investment options than distribution rules.
Best practices and common mistakes
Best practices
- Use a direct rollover to avoid withholding and the 60-day deadline pressure.
- Keep tax types separate: Traditional to Traditional; Roth to Roth for clean accounting.
- Verify destination details before initiating: account numbers and custodian information must be exact.
- Update beneficiaries during the rollover process to ensure your wishes are current.
- Maintain tax records including all 1099-R and 5498 forms showing your rollover was properly executed.
Common mistakes
- Missing the 60-day window on indirect rollovers, triggering unnecessary taxes.
- Forgetting to replace the 20% withholding from personal funds in an indirect rollover.
- Mixing Roth and Traditional funds inappropriately, creating tax complications.
- Overlooking investment costs beyond the headline expense ratio when choosing a new provider.
- Neglecting RMD planning if you’re approaching or past age 73 (the current RMD age threshold).
Decision support: is a TSP rollover to a Finhabits account right for you?
Evaluate using these criteria
- Investment preferences: Do you want access to a broader range of ETFs and funds than TSP’s limited menu?
- Value proposition: Does having mobile access, bilingual support, and personalized guidance offset slightly higher fees?
- Account consolidation: Would merging TSP with other retirement accounts simplify your financial life?
- Tax planning: Could more flexible withdrawal options in an IRA help optimize your tax situation?
- Digital experience: Would you benefit from Finhabits’ app-based monitoring and educational resources?
When to get help: If you have both Roth and Traditional TSP balances, complex tax considerations, upcoming RMDs, or multiple old accounts, getting guided support saves time and reduces errors. Finhabits provides step-by-step assistance to ensure your TSP transfer stays tax-advantaged and aligned with your long-term goals.
401K rollover vs TSP rollover: what’s different?
Both follow IRS rules for qualified retirement plans, but TSP has unique attributes. The TSP uses a standardized federal investment lineup with exceptionally low costs (0.055% expense ratio versus typically 0.5%-1% for many 401(k) plans). Your rollover steps are similar: choose IRA vs. another plan, request a direct transfer, and match tax types.
Key difference: The TSP G Fund has no equivalent outside federal service. It provides principal protection with interest rates based on longer-term government securities. If you value this unique stability feature, you might consider keeping some funds in TSP while rolling other portions to a Finhabits IRA for broader diversification.
Simple withholding calculator (illustrative)
Use this comparison to see why direct rollovers are strongly preferred over indirect rollovers:
| Scenario | Direct Rollover | Indirect Rollover
|
|---|---|---|
| $100,000 Traditional TSP | Full $100,000 transfers to IRA | $80,000 to you; $20,000 withheld for taxes |
| Amount you must deposit | $0 (handled between institutions) | $100,000 (requires adding $20,000 from personal funds) |
| Deadline pressure | None | 60-day strict timeline |
| Tax reporting | Simple 1099-R showing direct transfer | More complex; must track withholding and document timely deposit |
Direct rollovers eliminate withholding challenges and deadline stress—they’re the clear winner for most federal employees.
Frequently asked questions
Is a TSP rollover worth it?
It depends on your priorities. If you want more investment choices, simplified account management, or enhanced digital tools, rolling to an IRA with Finhabits offers significant advantages. If you highly value the G Fund’s unique guarantees and ultra-low TSP costs, keeping some money in TSP may make sense as part of your strategy.
How do I avoid taxes on a TSP rollover?
Use a direct rollover from TSP to the same type of account (Traditional to Traditional, Roth to Roth). Avoid taking possession of the funds. If you do an indirect rollover, replace the 20% withholding and deposit the full amount within 60 days to prevent tax consequences.
What’s the difference between a TSP rollover and a 401(k) rollover?
The processes follow similar IRS rules, but TSP has unique federal forms and procedures. TSP offers exceptionally low fees and a limited fund lineup including the unique G Fund. Your core steps—direct rollover, matching tax types, confirming receiving account details—remain similar.
Can I roll my Roth TSP into a Roth IRA with Finhabits?
Yes. Roth TSP balances typically roll to a Roth IRA with Finhabits to maintain tax-free growth potential. As of 2024, neither account type requires RMDs during the owner’s lifetime, making this a clean transfer without distribution requirement differences.
Can I roll my TSP into a Traditional IRA with Finhabits?
Yes. Finhabits welcomes direct rollovers to both Traditional IRA with Finhabits and Roth IRA with Finhabits. Our streamlined process guides you through the necessary steps, including opening your account, initiating the TSP transfer request, and selecting investments once funds arrive.
How long does a TSP rollover to Finhabits take?
Most TSP rollovers complete within 2-3 weeks, though timing varies based on TSP processing volumes and whether funds move by check or electronically. Finhabits is by your side throughout the process and provides clear guidance if there are any delays.
Do rollovers count toward my annual IRA contribution limit?
No. Rollovers are entirely separate from annual IRA contribution limits. For 2025, you can contribute up to $7,000 ($8,000 if you’re 50+) to IRAs regardless of any rollover amounts you transfer from your TSP or other retirement accounts.
What happens to my TSP loan if I do a rollover?
Any outstanding TSP loan must be repaid before you can roll over your full account. If you don’t repay it, the loan balance becomes a taxable distribution that cannot be rolled over, potentially triggering taxes and penalties if you’re under 59½.
How do I choose between keeping my money in TSP versus rolling to Finhabits?
Consider what matters most to you. Keep some money in TSP if you highly value the G Fund’s guarantees and ultra-low costs. Choose a rollover to Finhabits if you want broader investment options, consolidated accounts, bilingual support, and an intuitive mobile app to track and manage your retirement savings.
Glossary
- TSP (Thrift Savings Plan): The federal government’s defined contribution retirement plan for federal employees and uniformed service members.
- Direct rollover: A trustee-to-trustee transfer that moves retirement funds directly between financial institutions without passing through your hands.
- Indirect rollover: A distribution paid to you personally; you have 60 days to redeposit into an eligible retirement account to maintain tax advantages.
- G Fund: A unique TSP investment option that provides interest income with government security protection, unavailable outside the TSP.
- Roth vs. Traditional: Roth uses after-tax contributions with qualified tax-free withdrawals; Traditional uses pre-tax contributions with taxable withdrawals later.
- RMD (Required Minimum Distribution): Mandatory withdrawals starting at age 73 (as of 2023-2025) for Traditional accounts; Roth TSP and Roth IRAs are exempt during the owner’s lifetime.
- Form 1099-R: Tax document reporting retirement plan distributions and rollovers.
- Form 5498: Tax document confirming IRA contributions, rollovers, and year-end fair market value.
- Custodian: The financial institution that holds your IRA or retirement plan assets (Finhabits partners with established custodians for security).
Why roll to a Finhabits IRA
- Account flexibility: Choose a Traditional IRA with Finhabits or a Roth IRA with Finhabits
- based on your current tax situation and future goals.
- Guided rollover process: Get step-by-step assistance requesting your TSP transfer and tracking its progress.
- Diversified ETF portfolios: Access investment options designed for your specific goals, risk tolerance, and time horizon.
- We’re here to help: Get support for clear communication at every step.
- Mobile app control: Monitor your accounts, track progress, and make adjustments easily through the Finhabits app.
- Educational resources: Access ongoing financial education to build your confidence and knowledge.
- Security focus: Trust bank-level security with 256-bit encryption and SIPC account protection up to $500,000.
Citations and resources
- TSP Fact Sheet: Taxes on TSP Payments
- TSP Withdrawals (official resource hub)
- IRS: Rollovers of Retirement Plan and IRA Distributions
- IRS Publication 575: Pension and Annuity Income
- IRS: Required Minimum Distributions (RMDs)
- IRS: Roth Accounts in Retirement Plans
- FINRA: Roll Over Your TSP
- TSP: SECURE 2.0 and the TSP
