Can I roll over my Thrift Savings Account?
I have a Thrift Savings Account (like an IRA) with the Federal Government. I am retired and taking Required Minimum Distributions. Can I roll over this account into some other financial instrument without paying taxes on the total and also reap additional monetary security and income advantages?
Thank you for your question. Rollovers can definitely be a confusing topic to understand. Keep in mind that your Thrift Savings Plan is essentially a 401(k). Here is an excerpt from a recent article I wrote on rollover options:
"Here is a clear and simple explanation of what a 401(k) rollover is and what your options are when you leave or retire from your job. According to FINRA, people have 4 choices when they start a new job or retire:
- Leave the money in your former employer’s plan
- Roll over the money to your new employer’s plan, if the plan accepts transfers
- Roll over the money into an individual retirement account (IRA)
- Take the cash value of your account"
To read the full article please click here. Please let me know if you have any additional questions.
You can roll a TSP account to an IRA without tax consequences. You will still have to take out RMDs. If your TSP account is pre-tax then you would roll to a Traditional IRA. If your TSP has a Roth balance then you would roll that amount to a Roth IRA.
I can't tell if you are military, but if you are and have a tax-exempt balance (from contributions made in a combat zone) then you need to be very careful or that balance could get paid out if you try to roll to a Traditional IRA...You won't owe taxes, but you'll lose future tax deferred earnings.
Now, whether you should roll out of TSP is another matter. To answer that question, I recommend you consult with a trusted financial or tax advisor that has access to all your facts and circumstances.
The easy part of the question is can you roll your TSP (the acronym for the federal thrift savings plan)? Simple answer yes. The process is laid out on the TSP site. The key is to roll over without tax consequence, it must be rolled over to an approved custodian. The custodian will provide the proper paperwork to roll the account and advise the government they will put the funds in an approved tax sheltered account.
The second part of the question to reap additional monetary security and income advantages? The federal government has the highest level of monetary security. The TSP is protected from all creditors including bankruptcy by the federal government. IRA's are usually protected at the state level which is marginally less safe then federal. So you will not pick up additional safety, you actually have less. That is a decision you need to make if a significantly smaller amount of security is a deal killer. The income advantage portion of your question is yes you could receive a higher income return than inside the TSP. Here is the caution with higher income comes higher risk. Any suggestion of getting higher income without increasing the risk is most likely a false statement. Inside an IRA or pension you may have a variety of investment options that have higher income, including but not limited to high yield bonds business development companies (BDC's) and real estate and corporate loan options. Each carries more risk than the federal government and usually higher yields but no guarantees.
As a summary, yes you can roll your TSP and any broker, advisor, bank can assist in setting up an IRA roll over account or your pension administrator can provide assistance in rolling to your pension or 401(k) plan. Getting more safety than the federal government: no. Increasing return while increasing the risk: yes. If you need assistance on making selection seek out an experienced advisor that is a fee only advisor.