TSP to IRA/401k Rollover: Don't Get Taxed on $100K+ Rollover
BLUF: Complete guide to TSP rollover strategies to avoid taxes and maximize retirement savings
Target Audience: Separating/retiring service members
Time Investment: 3-4 hours research and planning
Financial Impact: $10,000-$50,000+ in saved taxes and fees
The Mission: Maximize TSP Rollover Benefits
TSP rollovers can be complex and expensive if not done correctly. This guide helps you navigate TSP rollover options to avoid taxes and maximize your retirement savings.
Understanding TSP Rollover Options
TSP Rollover Options
Keep TSP
- Advantages: Low fees, government backing, G Fund
- Disadvantages: Limited investment options, no Roth conversion
- Best For: Conservative investors, those who want government backing
Roll to IRA
- Advantages: More investment options, Roth conversion, flexibility
- Disadvantages: Higher fees, no G Fund, complexity
- Best For: Active investors, those who want flexibility
Roll to 401k
- Advantages: Employer matching, lower fees, simplicity
- Disadvantages: Limited investment options, employer dependent
- Best For: Those with good 401k options
TSP vs IRA Comparison
TSP Advantages
- Low Fees: Very low expense ratios
- G Fund: Government securities fund
- Government Backing: Government backing
- Simplicity: Simple investment options
IRA Advantages
- Investment Options: More investment options
- Roth Conversion: Can convert to Roth IRA
- Flexibility: More flexibility in investments
- Control: More control over investments
Cost Comparison
- TSP Fees: 0.04% expense ratio
- IRA Fees: 0.10-0.50% expense ratio
- 401k Fees: 0.05-0.25% expense ratio
- Total Cost: Consider total cost of ownership
TSP Rollover Strategies
Rollover to IRA Strategy
Traditional IRA Rollover
- Tax Treatment: No taxes on rollover
- Investment Options: More investment options
- Roth Conversion: Can convert to Roth IRA
- Flexibility: More flexibility in investments
Roth IRA Conversion
- Tax Treatment: Pay taxes on conversion
- Tax-Free Growth: Tax-free growth after conversion
- Tax-Free Withdrawals: Tax-free withdrawals after 59½
- Tax Planning: Plan for tax implications
Investment Strategy
- Index Funds: Use low-cost index funds
- Target Date Funds: Use target date funds
- Asset Allocation: Maintain appropriate asset allocation
- Rebalancing: Regular rebalancing
Rollover to 401k Strategy
Employer 401k
- Employer Matching: Take advantage of employer matching
- Lower Fees: Often lower fees than IRAs
- Investment Options: Limited but often good options
- Simplicity: Simpler than IRA management
Investment Strategy
- Target Date Funds: Use target date funds
- Index Funds: Use low-cost index funds
- Asset Allocation: Maintain appropriate asset allocation
- Rebalancing: Regular rebalancing
Keep TSP Strategy
TSP Benefits
- Low Fees: Very low expense ratios
- G Fund: Government securities fund
- Government Backing: Government backing
- Simplicity: Simple investment options
TSP Limitations
- Limited Options: Limited investment options
- No Roth Conversion: Cannot convert to Roth
- Withdrawal Rules: Strict withdrawal rules
- No Additional Contributions: Cannot add to TSP after separation
Real Example: O-4 Major's TSP Rollover
Major Rodriguez, O-4, 20 years TIS, Retiring with $400K TSP
TSP Situation:
- TSP Balance: $400,000
- Asset Allocation: 60% C Fund, 30% S Fund, 10% G Fund
- Retirement Age: 45 years old
- Tax Bracket: 22% federal, 5% state
Rollover Strategy:
Option 1: Keep TSP
- Advantages: Low fees, government backing
- Disadvantages: Limited options, no Roth conversion
- Annual Fees: $160/year (0.04% expense ratio)
- Flexibility: Limited flexibility
Option 2: Roll to IRA
- Advantages: More options, Roth conversion
- Disadvantages: Higher fees, complexity
- Annual Fees: $400-2,000/year (0.10-0.50% expense ratio)
- Flexibility: High flexibility
Option 3: Roll to 401k
- Advantages: Employer matching, lower fees
- Disadvantages: Limited options, employer dependent
- Annual Fees: $200-1,000/year (0.05-0.25% expense ratio)
- Flexibility: Moderate flexibility
Final Decision:
- Chosen Option: Roll to IRA
- Reasoning: More investment options, Roth conversion
- Investment Strategy: Low-cost index funds
- Tax Strategy: Partial Roth conversion
TSP Rollover Process
Pre-Rollover Planning
Financial Assessment
- TSP Balance: Assess current TSP balance
- Investment Options: Research investment options
- Tax Implications: Understand tax implications
- Timeline: Plan rollover timeline
Investment Research
- IRA Providers: Research IRA providers
- Investment Options: Research investment options
- Fees: Compare fees and costs
- Services: Compare services and features
Tax Planning
- Tax Implications: Understand tax implications
- Roth Conversion: Plan for Roth conversion
- Tax Bracket: Consider current and future tax brackets
- Tax Professional: Consult tax professional
Rollover Execution
TSP Withdrawal
- Withdrawal Request: Submit TSP withdrawal request
- Direct Rollover: Use direct rollover to avoid taxes
- Timeline: Plan for 2-4 week processing time
- Documentation: Keep all documentation
IRA Setup
- Account Opening: Open IRA account
- Investment Selection: Select investments
- Asset Allocation: Set up asset allocation
- Rebalancing: Plan for regular rebalancing
Tax Reporting
- 1099-R: Receive 1099-R from TSP
- Tax Return: Report rollover on tax return
- Documentation: Keep all documentation
- Tax Professional: Consult tax professional
Common TSP Rollover Mistakes
Mistake 1: Not Understanding Options
Problem: Not understanding rollover options
Solution: Research and understand all options
Impact: Miss opportunities for better investments
Mistake 2: Paying Taxes on Rollover
Problem: Taking distribution instead of rollover
Solution: Use direct rollover to avoid taxes
Impact: Pay unnecessary taxes and penalties
Mistake 3: Not Planning for Fees
Problem: Not planning for higher fees
Solution: Research and plan for fees
Impact: Higher costs, lower returns
Mistake 4: Poor Investment Selection
Problem: Not selecting appropriate investments
Solution: Research and select appropriate investments
Impact: Lower returns, higher risk
Mistake 5: Not Planning for Taxes
Problem: Not planning for tax implications
Solution: Plan for tax implications
Impact: Higher taxes, missed opportunities
TSP Rollover Resources
Military Resources
- TSP Information: Official TSP information
- TSP Withdrawal: TSP withdrawal process
- TSP Rollover: TSP rollover information
- TSP Customer Service: TSP customer service
Financial Resources
- IRA Providers: Research IRA providers
- Investment Options: Research investment options
- Tax Information: Tax information and resources
- Financial Advisors: Financial advisors and planners
Professional Help
- Tax Professional: Tax professional for tax planning
- Financial Advisor: Financial advisor for investment planning
- TSP Specialist: TSP specialist for rollover planning
- Retirement Planner: Retirement planner for long-term planning
Key Takeaways
- Understand Options: Research and understand all rollover options
- Plan for Taxes: Plan for tax implications of rollover
- Compare Fees: Compare fees and costs of different options
- Select Investments: Select appropriate investments
- Plan Timeline: Plan rollover timeline carefully
- Seek Help: Use professional help for complex situations
- Document Everything: Keep all documentation
Remember: TSP rollovers can be complex and expensive if not done correctly. Proper planning can save you thousands of dollars in taxes and fees.
This guide is part of Garrison Ledger's comprehensive military financial intelligence platform. For personalized advice based on your specific situation, use our Ask Our Military Expert feature.