Understanding the Thrift Savings Plan
TSP rollovers have gotten surprisingly tricky with all the options out there. As someone who helped several federal employees navigate this decision, I learned everything there is to know about the process. Today, I will share it all with you.
The Thrift Savings Plan is basically the federal government’s version of a 401(k). It’s got rock-bottom fees and solid investment options. When you leave federal service – whether you’re retiring, changing careers, or joining the private sector – you’ve got some choices to make about that money.
Your Actual Options When You Leave
Here’s what you can actually do with your TSP:
Keep it where it is. If you’ve got more than $200 in there, you can just… leave it alone. The account stays open, the fees stay low, and your money keeps growing. I know a few former feds who did this because they couldn’t find anything cheaper anywhere else.
Roll it to an IRA. This gives you way more investment choices – individual stocks, sector ETFs, whatever you want. The tradeoff is you’ll probably pay higher fees than TSP charges.
Roll it to your new employer’s plan. If you’re moving to a job with a 401(k), 403(b), or 457, you might be able to transfer the money there. Depends on whether the new plan accepts rollovers.
Cash it out. You can take the money, but I’d think really hard about this one. Taxes plus the 10% penalty if you’re under 59.5 can eat up 30-40% of your balance.
Why TSP Is Actually Pretty Great
Before you automatically roll over, consider what you’re giving up. That’s what makes the TSP endearing to us personal finance types – it’s genuinely hard to beat.
The expense ratios are absurdly low. We’re talking 0.055% in 2024. Most IRAs charge five to ten times that. On a $500,000 balance, you’re paying $275/year in TSP versus $1,000-$2,500 elsewhere. That adds up.
The G Fund is unique. It’s a government securities fund that gives you returns above inflation with literally zero risk to your principal. You cannot find this anywhere else. I’m apparently one of those people who finds this incredibly appealing, and I’d keep at least some money in TSP just for G Fund access.
The lifecycle funds are solid and cheap. They automatically rebalance as you age. Set it and forget it, with rock-bottom costs.
How to Actually Do the Rollover
If you do decide to move the money, here’s the process:
- Open your IRA or confirm your new employer plan accepts incoming rollovers. Do this first.
- Go to tsp.gov and download Form TSP-70 (if you’re withdrawing everything) or TSP-77 (for a partial withdrawal).
- Fill it out. Specify direct rollover – this is important. You don’t want them cutting a check to you personally.
- Include all the receiving account details. Account number, institution name, mailing address.
- Mail it in and wait. TSP isn’t the fastest at processing, so give it some time.
The Roth Complication
If you’ve got both traditional and Roth TSP balances, they can’t just go to the same place. Traditional TSP rolls to a traditional IRA. Roth TSP rolls to a Roth IRA. Mix them up and you create a taxable mess.
Keep track of your Roth TSP contribution amounts. You’ll need that information later when you start taking qualified distributions from your Roth IRA. Probably should have mentioned that earlier, honestly.
