Can the Balance in a TSP Account Be Rolled Over Into a Roth IRA?

Thrift savings plans allow government employees to save money for retirement, either with tax-deferred savings in a traditional TSP or after-tax savings in a Roth TSP. Eligible distributions from either a traditional or Roth TSP can be rolled over into a Roth individual retirement account, but not everyone can take eligible distributions.

Timing

You can roll money from your TSP to your Roth IRA if you leave employment or take an age-based in-service withdrawal. Age-based in-service withdrawals are allowed as soon as you reach age 59 1/2. However, if you take a financial hardship in-service withdrawal, that money isn't eligible to be rolled into a Roth IRA, or any other qualified retirement account. In addition, you can't roll over required minimum distributions or excess contributions.

Methods

You can move your money into a Roth IRA with either a transfer or a rollover. With a transfer, you tell your TSP coordinator the information for your Roth IRA and the money is moved straight to the Roth IRA. If you use a rollover, you request a distribution, which is subject to income tax withholding, and you have only 60 days to redeposit the full amount you originally requested, even though part of that is withheld for taxes. In other words, you must make up the difference out of pocket.

Tax Implications

When you roll the money into your Roth IRA, you will owe taxes on any money converted from a traditional TSP plan because you're moving the money from a tax-deferred account to an after-tax account. However, any portions moved from a Roth TSP won't be taxed because you're just moving the money from one after-tax account to another. For example, say you move $20,000 from a traditional TSP plan and $10,000 from a Roth TSP plan to a Roth IRA. You only have to pay taxes on the $20,000 from the traditional TSP plan.

Split Rollovers

Typically, distributions from your TSP are prorated between your traditional TSP funds and your Roth TSP funds. But, if you have money in both traditional and Roth TSPs, the transfer is done separately so you can choose to move just the Roth TSP into a Roth IRA and move the traditional TSP into a traditional IRA. That way, you avoid taxes on the transfer. But, when you take distributions from the traditional IRA, that money will be taxed, just as it would have been if you took a distribution from your traditional TSP plan.

About the Author

Mark Kennan is a writer based in the Kansas City area, specializing in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."

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