How to Close out Your 401(k) to Roll Over Into a TSP

Owners of 401(k)s can make direct or indirect rollovers to TSPs.

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Thrift savings plans and 401(k)s are both employment-based retirement investment plans. TSPs are administered by the federal government and are available to civil servants and members of the military. A TSP is similar to a 401(k), which is offered by private employers. Both feature tax-free deposits and matching contributions of a limited percentage. There are two ways to transfer 401(k) funds into a TSP: direct rollover or indirect rollover. Unlike in 401(k) plans, participants in a TSP can roll over other retirement funds into their accounts even after they leave federal employment or military service.

TSP Advantages

TSPs have several features that many investors like. Participants in a TSP should consider these advantages if they also have 401(k) plans or individual retirement accounts. TSPs charge very low fees, according to Kiplinger, and these plans are considered easy to manage because they offer a handful of simple funds. TSP participants can choose from five index funds focused on large companies, small companies, internationals and government securities. TSPs also offer lifestyle funds that manage diversified portfolios targeted to the participant's year of retirement.

Rollover Forms

TSP participants must first get rollover forms from the financial firm administering the 401(k) plan to be transferred. These can often be found online or by calling the firm's customer service number, which should be included with the plan's documentation or listed on the 401(k) firm's website. Before 401(k) participants can close their plans for rollovers, they must be separated from the jobs that enrolled them in the 401(k).

Direct and Indirect Rollover

A TSP participant has two options for transfering a 401(k), IRA or other plan eligible for IRS retirement plan tax considerations. In a direct rollover, all of the funds are transferred to the TSP direct from the 401(k) administrator. The administrator issues a check made payable to Thrift Savings Plan. That check includes the participant's name and the TSP account number or Social Security number. In an indirect rollover, the 401(k) administrator issues the funds directly to the TSP participant. This option is more risky, because if the funds are not added to the TSP account within 60 days, that money counts as an early withdrawal and is subject to taxes and a 10 percent fee.

TSP Forms

Whether executing a direct rollover or an indirect rollover, the TSP participant will have to fill out form TSP-60 and include the funds when submitting, whether it's a direct-transfer check or one from the participant's own account. Money that's added to the TSP account is treated like other deposits and is distributed with the same contribution allocations. There is no limit to the number of transfers or rollovers a participant can make, according to the TSP website. A 401(k) plan transfer can't be used to start a TSP account.