What Is a Thrift Savings Plan Account Rollover?

by Jeannine Mancini

    The Thrift Savings Plan is a retirement savings plan for federal employees and members of the uniformed services. The plan, which is commonly referred to as TSP, allows you to save for your retirement by building funds in an account tax-free. Since a TSP account is a long-term investment, you cannot withdraw funds from the account until you reach the age of 59 1/2. At the time of withdrawal, you are required to pay taxes on the funds. You can roll certain retirement accounts into a TSP account or choose to roll your TSP account into a different type of retirement account, depending on your investment needs.

    About TSP Accounts

    The Thrift Savings Plan offers the same savings and tax benefits that private corporations can offer employees under 401(k) plans. During your working years, you contribute earnings to the TSP account. Some agencies also contribute to the employees' accounts under the plan. The funds accumulate and earn interest during your working years. When you retire, you begin receiving income from the account.

    Benefits of the TSP

    Rolling your retirement accounts into a TSP account allows you to benefit from the tax-deferred growth. The Thrift Savings Plan features low administrative costs and high contribution limits. At the time of publication, the contribution limit is $17,000. Rollovers do not count towards your contribution limit. While you are in the service, you may qualify for eligible in-service withdrawals. For an in-service TSP withdrawal, you must suffer a financial hardship or meet the age requirement. When you withdraw funds early, you do not have the opportunity to put the money back into the account. You are also subject to income taxes on the withdrawal amount, except on any portion that comprised tax-exempt contributions, Roth contributions, or Roth earnings. With a hardship withdrawal, you cannot make contributions for six months, and may also face a 10-percent early withdrawal tax penalty imposed by the IRS.

    Rolling Retirement Accounts into a TSP Account

    To consolidate your retirement investments, you can opt to move money from your IRA and eligible employer plans into a TSP account. Qualified employer plans include a private sector 401(k) or nonprofit 403(b) employer plan. With a direct rollover, your traditional IRA or eligible employer plan sends all or part of the money to the TSP account. You can also receive money from your traditional IRA and roll it into the TSP yourself. You must complete the rollover within 60 days of receiving the funds. If you want to roll over Roth IRA funds, the transfer must be a direct rollover of a qualified or non-qualified distribution from a Roth 401(k), Roth 403(b) or Roth 457(b).

    Rolling Over a TSP Account

    When you leave the service or federal employer, you can no longer contribute to a TSP account. You must decide what to do with the funds in your account. There are several options that allow you to continue deferring taxes on your investment. Leaving the assets in the TSP account may be the most convenient option. You can always transfer the funds out of the account at a later date. Rolling the funds into a traditional IRA gives you a wide range of investment options. You also avoid the 10-percent tax penalty. If your new employer offers a 401(k) plan, you may want to roll asset from the TSP account into the plan. The main advantage to a 401(k) plan is the ability to borrow from the account. You can roll the TSP funds into a qualified deferred annuity. With the annuity, the money you invest is turned into a steady stream of income.

    About the Author

    Jeannine Mancini, a Florida native, has been writing business and personal finance articles since 2003. Her articles have been published in the Florida Today and Orlando Sentinel. She has also written for Chron, San Francisco Chronicle, The Nest, Opposing Money Views and The Motley Fool. She earned a Bachelor of Science in interdisciplinary Ssudies from the University of Central Florida.

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