If you have funds in the government Thrift Savings Plan, you have similar rollover and reinvestment rights to private employees with 401(k) plans. Generally, as long as you don't touch the funds or take funds from a regular TSP and put them into a Roth account, you won't have to pay any taxes. However, you will need to structure the transaction the right way to avoid withholding.
Reinvesting Inside the TSP
The TSP has an interfund transfer provision that lets you reinvest your money, although you are capped at two transfers per month and can only transfer money into the TSP's Government Securities Investment fund after that. As of 2013, the TSP offers a choice between five regular funds that track government securities, bonds, international stocks, and large and small stocks. In addition, you can also choose to invest in a pre-diversified portfolio, called an L Fund, which functions under a pre-set retirement date.
If you've decided to take money out of your TSP after separating from government employment, the manner in which you roll over your funds impacts how you are taxed. As long as you put your rollover money into your new account within 60 days, you won't have to pay any taxes on it. However, if the money goes to you before it goes into the new account, taxes will be withheld, and you'll have to add money to make up for the withholding. To avoid this, structure the transfer as a direct rollover, in which the funds go from your TSP account into your replacement tax-advantaged account.
Tax-Deferred Rollover Choices
If you choose to roll over tax-deferred funds out of your TSP account, you have two options. You can transfer them to your own individual retirement account. Doing this gives you the greatest degree of control over how those funds are invested because you can buy anything that your IRA custodian allows. The other option is to roll them into the 401(k) account that your new employer offers, assuming that you have one available to you and that your employer allows transfers into the plan. Using a workplace 401(k) may give you access to better investments or may leave you subject to higher fees. It will probably give you fewer investment options than an IRA, although most 401(k)s are still more liberal than the TSP's six choices.
Rollovers to Roth IRAs
The TSP has a Roth provision that operates similarly to a Roth IRA account in that you put money in on an after-tax basis, but withdraw it tax-free. If you have Roth TSP funds, you can do a direct rollover into a Roth IRA or Roth 401(k) account if desired. You can also choose to roll over regular TSP funds into a Roth account. If you do that, though, you will have to pay taxes, but not penalties, on the money that you roll over.
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