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A written yes, no or not-yet answer on a TSP rollover to an IRA, with the forms in the right order, is what First Command Financial Services gives veterans carrying large TSP balances. The work takes about 90 days, with a written decision by week 6. If money moves, it goes only by direct trustee-to-trustee transfer, which avoids the 20% federal withholding a check to you triggers. For some clients we recommend leaving the Thrift Savings Plan where it is and fixing the beneficiary paperwork around it.
A TSP rollover to an IRA usually deserves a serious look within a few years of your first regular withdrawal, often between ages 55 and 62 for separated service members. TSP withdrawals come proportionally out of every fund you hold, so a retiree drawing $4,000 each month in a down year sells C Fund shares with every check.
That is the main practical reason a rollover enters the conversation. It also points to who needs the review: separated members close to regular withdrawals, and single veterans whose heirs are not spouses. A spouse can keep an inherited TSP. A child cannot. Someone like Hiroshi, still earning $160,000 and not drawing, often doesn't need a rollover yet.
Reversibility matters too. Traditional IRA money can later be moved back into the TSP, but Roth IRA money never can. Rolling Roth TSP money out is a one-way door, and the Roth IRA's own 5-year clock applies to it.
| Age | In the TSP | In a traditional IRA |
|---|---|---|
| 50 | $8,000 catch-up if contributing | $1,100 catch-up |
| 55 | Penalty-free only if separated at 55+ | No age-55 exception |
| 59½ | Withdrawals penalty-free | Withdrawals penalty-free |
| 60 to 63 | $11,250 catch-up if contributing | No change |
| 75 (born 1960 or later) | RMDs begin; Roth TSP none | RMDs begin; Roth IRA none |
In weeks 1 and 2, First Command Financial Services collects the TSP statement, a copy of your current TSP-3 beneficiary form, the new 401(k) plan summary and any IRA statements. In weeks 3 to 5, we compare what the TSP and an IRA each allow on withdrawals, fund costs, heir rules and interfund transfers. (The TSP allows 2 unrestricted transfers a month, then only into the G Fund.)
Week 6 produces the written decision: keep, roll part, or roll all. Your down-market rule goes on the same page, and it comes first. For Hiroshi, selling half his C Fund in the last crash is the exact risk this review exists to prevent, so the rule is settled before any account moves.
Weeks 7 to 12 happen only if you roll. Open the IRA first. Request a direct transfer. Confirm the deposit. Record any tax-exempt combat zone money as basis on Form 8606, or send it to a Roth IRA. Then update every beneficiary form.
Asking the TSP for a check before the IRA is open costs $180,000 in 20% withholding on a $900,000 balance. Unless Hiroshi replaces that $180,000 from other money within 60 days, it becomes taxable income plus an $18,000 early withdrawal penalty at age 54. Opening the IRA first avoids both.
Put these to any advisor, including us. The answers should come in writing, before any form is signed.
A rollover decision holds for 1 year, then gets reviewed again, and it reopens sooner when something changes. Triggers are withdrawals about to start, a new heir (marriage, a child's death or divorce), Hiroshi leaving the contractor job at 55 or later (the 401(k) then allows penalty-free withdrawals), a change in TSP or IRA tax rules, or a 20% stock drop. After a drop, the review checks the written rule. It does not move funds.
Consider one hypothetical single veteran: Hiroshi, 54, a retired Navy commander earning about $160,000 as a defense contractor program manager. He has about $900,000 in the TSP plus a new 401(k), and his heir is his adult daughter. He sold half his C Fund in the last crash and wants to know whether a rollover would stop that.
Our answer for him is to keep the TSP for now. Its low costs and transfer limits suit someone still earning and prone to selling. The real gap is the heir. He needs a current TSP-3 naming his daughter, plus a signed letter telling her to request a direct transfer to an inherited IRA.
Here's the arithmetic. Say he dies before age 75 and the TSP pays her the $900,000 as one payment. Even ignoring her salary, the $16,100 standard deduction leaves $883,900 taxable. Then $883,900 minus $640,600 is $243,300 above the top-rate line, and at 37% that is $90,021. If she directs a transfer to an inherited IRA and takes about $90,000 each year for 10 years, that plus her $70,000 salary is $160,000 a year, far below the 37% line. Same account, same heir. Only the form she signs differs.
Now a second hypothetical retiree: 62, married, the same $900,000, drawing $4,000 each month, or $48,000 each year. We would tell him to roll most of it to an IRA. There, in a down year, each check can come from a bond fund while his stock funds sit untouched; the TSP would sell them pro rata. His wife could have kept a TSP either way, so the heir question matters less for him.
Either account can lose value, and an owner or heir who sells after a drop may get back less than went in.
Usually yes, if she is an adult child. A non-spouse heir of an IRA generally must empty it by the end of the 10th year after death, and the TSP pays her one payment or lets her transfer to an inherited IRA with the same clock. Yearly withdrawals may also apply. Check the current IRS rules.
You can leave the rest in the TSP or roll more later, as long as the TSP still allows it. Money in a traditional IRA can move back into the TSP. Roth IRA money never can. That is why we put the keep, partial or full choice in writing first.
Neither is safer from market losses; both can lose value. Staying put keeps the option open, while a Roth IRA's own 5-year clock applies and the move cannot be reversed. A Roth IRA offers a wider fund menu, which helps some households and gives a crash-prone seller more ways to sell.
From first call to a finished rollover takes about 12 weeks, with a decision at each stage. At the first call, you choose whether to share statements. At week 6, you pick keep, partial or full. On transfer day, you name which IRA funds receive the money, before the transfer, never after.
At week 12, you sign the new beneficiary forms and the heir's letter. First Command Financial Services asks for $500K in investable assets; to begin, send your details through the form on this page.
This article is general financial information only, not investment advice tailored to your circumstances. Investing involves risk, including loss of principal. Before making any financial decision, consult a qualified professional about your specific situation.