How To Roll Over TSP Into a Roth IRA

by Jeannine Mancini

    The Thrift Savings Plan, known as TSP, is a retirement account exclusively for federal employees or members of the armed forces. The tax-deferred investment plan is similar to a 401(k) plan employers typically offer their employees. Contributing to the TSP allows you to save for your retirement while reducing your current taxes. By rolling the TSP into a Roth IRA, you eliminate future income taxes on your earnings. However, you will face taxes the year you perform the rollover.

    A direct transfer or rollover from the TSP to a traditional IRA or Roth IRA qualifies as an "eligible rollover distribution." If the money is directly transferred into a traditional IRA and does not touch your hands, you are not subject to income tax on the funds until you begin withdrawing from the account. When rolling into a Roth IRA, on the other hand, you must pay taxes on the funds since a Roth IRA only accepts money that has already been taxed. The main advantage to a Roth IRA is that once you pay taxes on the contribution, your earnings grow tax-free. When you begin making withdrawals from the Roth IRA, you do not report the payments as income.

    While you are in service, you are entitled to only one age-based withdrawal. Taking the withdrawal makes you ineligible for a partial withdrawal when you separate from the service. To qualify, you must be age 59 1/2 or older. After separating from the service, you can withdrawal or rollover funds when you desire. Your withdrawal can either be for the full amount or a portion of the funds in the TSP.

    You will need to open a Roth IRA before requesting the withdrawal. IRAs are not required to accept TSP transfers. When exploring your investment options, find out if the company accepts rollovers and if a minimum amount is required. After setting up your account, you can obtain the proper withdrawal request forms by going to TSP.gov. If you are requesting an in-service withdrawal, complete form TSP-75, "Age-Based In-Service Withdrawal Request." For a full withdrawal after you are no longer in the service, complete TSP-70, "Request for Full Withdrawal." Use form TSP-77, "Request for Partial Withdrawal When Separated" if you are no longer in the service. Each form requires you to report Roth IRA information on a certain page of the form. Mail the completed form to the address provided in the form instructions.

    Allow several weeks from the time you submit your withdrawal request to receive a deposit into your Roth IRA. The TSP will send you written notification when your payment is disbursed. Failing to properly complete the forms may delay processing. You can check the status of your request at any time by going to the "My Account: Withdrawals" section of TSP.gov or calling the ThriftLine.

    About the Author

    Jeannine Mancini, a Florida native, has been writing since 2003. Her articles have appeared in popular magazines such as "Parents" and "American Baby." She earned a Bachelor of Arts in literature from the University of Central Florida.

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