Retirement planning as a federal employee involves many decisions, and one of the most important is determining how to handle your Thrift Savings Plan (TSP).
Whether you’re thinking about a TSP Withdrawal or a TSP Rollover, being aware of the available options and their implications can help you make a decision that fits your financial goals.
This article explains the ins and outs of your TSP, examines the process of withdrawing funds, and explores potential TSP rollover strategies.
For other important considerations for retirement planning as a federal employee, check out our blog titled FERS Retirement Planning 101: The Top Components of Your Retirement As a Federal Employee or download our Ultimate Guide to FERS Retirement Planning below.
Understanding Your Thrift Savings Plan (TSP)
Before moving into the details of TSP withdrawals and rollovers, it's helpful to answer the question “what is a Thrift Savings Plan” in the first place. The Thrift Savings Plan (TSP) is a retirement savings account designed specifically for federal employees and members of the uniformed services.
The TSP operates similarly to a 401(k), offering tax advantages, employer contributions (for civilians under FERS), and a limited but diversified selection of low-cost investment options.
Your TSP contributions can be made on either a Traditional (pre-tax) or Roth (after-tax) basis. With a Traditional TSP, your contributions lower your taxable income now, but withdrawals in retirement are taxed as ordinary income. In contrast, a Roth TSP is funded with after-tax dollars, so qualified withdrawals after age 59½ (and meeting the five-year rule) are tax-free.
TSP Withdrawals: Rules, Limits, and Implications
Making a TSP withdrawal can occur in several ways, each with its own eligibility criteria, tax implications, and potential penalties. Your decision might also be influenced by factors such as your current age, financial needs, and future retirement plans.
If you’re considering a TSP withdrawal, here are some key points to keep in mind for each option:
Types of TSP Withdrawal Options
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Age-Based In-Service TSP Withdrawals
Your TSP withdrawal age is a crucial factor here. If you're still employed and at least 59½, you can request an in-service withdrawal from your TSP account. You may withdraw all or part of your balance, and you can make up to four such withdrawals per calendar year. Per TSP.gov, each withdrawal must be at least $1,000, or the entire vested balance if it's less than $1,000 (as of 2025). -
Financial Hardship TSP Withdrawals
If you're under 59½ and face specific financial hardships, you may qualify for a withdrawal. These withdrawals are subject to a 10% early withdrawal penalty and are taxable as ordinary income. Additionally, you won't be able to contribute to your TSP for six months after taking a hardship withdrawal. -
Post-Separation TSP Withdrawals
After retiring or separating from federal service, you have several options:-
Lump Sum Withdrawal:
Take your entire balance in a single payment.
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Installment Payments:
Set up monthly, quarterly, or annual payments.
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Annuity Purchase:
Convert your TSP balance into a lifetime annuity.
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Partial Withdrawals:
Request partial withdrawals while keeping the remainder in your TSP account. There's no overall limit on the number of partial withdrawals you can take, but you cannot take more than one every 30 calendar days.
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TSP Withdrawals for Required Minimum Distributions (RMDs)
If you’re already retired, you need to keep in mind that you will need to start taking TSP withdrawals once you reach RMD age. For Traditional TSP accounts, you must begin taking Required Minimum Distributions (RMDs) by April 1 of the year following the year you turn 73. The IRS determines the annual amount you must withdraw based on your life expectancy and the value of your account.
Note that Roth TSP accounts are also subject to RMDs, unlike Roth IRAs. However, you can avoid RMDs on Roth TSP funds by rolling them into a Roth IRA before RMDs begin. Failure to take RMDs results in a 50% tax penalty on the amount you should have withdrawn.
In addition to making withdrawals, many participants consider rolling over their TSP funds into another retirement account. A TSP rollover may offer more flexibility, allowing you to transfer funds without incurring taxes and then re-allocate those funds into potentially better investment options.
TSP Rollovers: Options for Moving Your Funds into an IRA
A common strategy for those who want to potentially improve their investment results and gain greater flexibility is a TSP rollover to an IRA. This option lets you move your TSP balance into an Individual Retirement Account (IRA), which can offer additional investment choices and potentially lower fees.
When discussing these options, you might see terms such as TSP Rollover and In-service TSP rollover. The latter applies to those still working in the federal service who wish to move funds without interrupting their savings plan.
Each rollover option has benefits and drawbacks. For instance, rolling over to an IRA can offer more investment choices, while keeping funds in the TSP might provide lower administrative fees and unique investment options designed for federal employees.
When considering a TSP rollover, it's also important to know that:
- Traditional TSP funds can roll into a Traditional IRA or 401(k) tax-free, or into a Roth IRA (but you'll owe income tax on the conversion).
- Roth TSP funds must go into a Roth IRA or another Roth 401(k)-type account to maintain their tax-free withdrawal status.
Consult with a financial planning expert if needed to guide you in making the right choice before doing a rollover.
Why Consider an In-Service TSP Rollover?
The TSP offers a limited but diversified selection of funds, designed to keep costs low. While this streamlined selection helps minimize fees, it may not provide the level of flexibility some investors desire.
For those looking to expand their investment options, a TSP rollover to an IRA can offer a broader range of asset classes, including individual stocks, bonds, REITs, sector funds, and other alternatives that aren't available within the TSP.
This wider array of choices could allow for more personalized portfolio strategies aligned with your unique risk tolerance and financial goals.
How to Execute a TSP Rollover
If you don’t already have an IRA, you’ll need to open an account with a brokerage firm or financial institution before proceeding. Click here to schedule a call with one of our financial advisors in Tampa to chat about your financial situation and see if an IRA rollover is right for you.
Once you have an IRA set up, here are the next steps:
1. Complete TSP Form TSP-70 or TSP-77
To initiate the rollover, you’ll need to complete the appropriate form:
- If you are separated from federal service, complete TSP-70 (Request for Full Withdrawal) or TSP-77 (Request for Partial Withdrawal).
- If you are 59½ or older and still employed, use TSP-75 (Age-Based In-Service Withdrawal Request).
- These forms are available on TSP.gov.
2. Request a Direct Rollover (Avoid Taxes and Penalties)
To ensure your rollover is tax-efficient, request a direct rollover, meaning your TSP funds are transferred directly to your IRA or new employer-sponsored plan without any tax withholding. On the form, select the “direct rollover” option and provide the account details for the receiving IRA or 401(k). Be sure to check with the financial institution where your new account is held, as they may require additional forms.
Avoid an indirect rollover, where you receive the funds personally and then have to deposit them into another retirement account within 60 days. With an indirect rollover, 20% of your withdrawal will be withheld for taxes, and failing to deposit the full amount within the 60-day window could result in taxes and penalties.*
*The Troncoso Group does not offer tax advice. Please consult with a tax advisor before considering tax implications of your rollovers.
3. Confirm the Transfer and Update Beneficiaries
Once the rollover is completed, verify that the funds have been received in your new retirement account and that they have been properly classified as either Traditional or Roth, depending on the type of TSP funds rolled over. If needed, update your beneficiary designations on your new account to ensure that your assets are distributed according to your wishes.
Strategies for Making the Right Choice With Your TSP
Your decision to either withdraw or roll over funds from your TSP should be based on an honest evaluation of your financial situation. Consider the following steps:
- Assess Your Current Financial Needs: Determine if you require immediate cash flow, such as when considering a TSP withdrawal for home purchase, or if maintaining long-term growth is more important.
Be sure to have a solid financial plan in place to see how a TSP withdrawal or an in-service rollover could affect your overall financial plan. - Examine the Tax Implications: Discuss your situation with a tax professional to understand potential liabilities and avoid unnecessary penalties. If you’ll be doing an in-service TSP rollover, consider leaning on the help of a qualified professional to ensure the rollover is executed correctly.
- Review Your Retirement Timeline: Understand the TSP withdrawal age and other future requirements like the Required Minimum Distribution age when considering whether to do an early TSP withdrawal.
When planning for retirement as a federal employee, being aware of your available choices when it comes to your TSP can help you get one step closer to a less stressful financial future.
If you are uncertain about the rules for TSP withdrawals or how to make the most of your TSP and other federal benefits, our team of financial advisors and financial planners in Tampa would be happy to guide you. Schedule a call with us here.
