Public-sector workers with a thrift savings plan (TSP) may be tempted to move their 澳洲幸运5官方开奖结果体彩网:retirement funds elsewhere. TSPs, though generally great products, aren’t flawless and tend to lose their appeal once the participant’s days as a federal empl♊oඣyee are over.

A popular option is to move accumulated capital into a separate 🐼澳洲幸运5官方开奖结果体彩网:individual retirement account (IRA). If your retirement contributions have already been taxed and are sitting in a Roth TSP, then it can make a lot of sense to open a Roth IRA, an account that also is funded with 澳洲幸运5官方开奖结果体彩网:after-tax dollars, to house your savings. These accounts offer a wider selection of investment options and more flexible withdrawal rules, including the option to let your retirement money sit there for as long as you like.

In this article, 🦄we’ll talk you through how to 🅺move your retirement funds from a Roth TSP to a Roth IRA and flag the most important things to be aware of before proceeding.

How to Move Roth TSP Funds into a Roth IRA

You’ll first need to decide how you want to move money to a Roth IRA. There are two main methods. The first is known as a 澳洲幸运5官方开奖结果体彩网:direct rollover, and the second is known as an 澳洲幸运5官方开奖结果体彩网:indirect rollover. Direct rollovers involve having your TSP administrator send the fund for you without you touching them. Indirect rollovers involve you withdrawing the funds and s🏅ending them to the Roth IRA yourself.

Withdrawing funds from a TSP, Roth or traditional, is a relatively straightforward process. All you need to do is log in to your account on the and then select the “Withdrawals and Changes to Installment Payments” link in the menu. Once there, an online withdrawal wizard will walk you through the entire process.

Direct Rollover (or Transfer)

Choosing this option basically means instructing the TSP administrators to handl𒈔e the transfer for you. Essentially, all you need to do is indicate how much you want to transfer and the details of the account where the proceeds will go, then just wait for the fun🍎ds to be moved.

Indirect Rollover (or Rollover) 

An indirect rollover is the do-it-yourself approach. Here, you get the m🌱oney in your TSP sent to you and then deposit it into another reti⛎rement account yourself.

While that may sound both simple and appealing, there i♋s a good reason why many financial experts advise people not to take this path. Indirect rollovers can be complicated and costly to execute. Key things to be aware of incl💙ude:

• If the distribution is not “qualified,” the TSP will withhold 20% of the earnings portion for federal income taxes.
• The earnings portion of a “non-qualified” distribution will be taxed and potentially be subject to the early 10% withdrawal penalty unless you roll over the full balance withdrawn.

Qualified vs. Non-Qualified Distributions

You may now be wondering 💜what “qualified” and “non-qualified” distribution𒁏s are.

Roth TSP balances are separated into two pools: money contributed and earnings generated. Funds added to this account have already been subjected to income tax, meaning that they won’t be taxed at the point of withdrawal. With earnings, it’s a little more complica🧜ted.

The extra money that the investments in your pension make may or may not be taxable. For Roth TSP earnings to be considered “qualified” and tax free when wi🍃thdrawn, the following must be true:

• Five years have passed since Jan. 1 of the first year when you made Roth contributions to your TSP account.
• The distribution occurs when you are at least 59½ years old, die, or become totally disabled.
  

Fortunately, when you transfer capital to a Roth IRA, you don’t need to worry about this—unless, of course, you do an indirect rollover. When doing a rollover yourself, any distribution deemed not “qualified” will be subject to income tax withholding. You’ll get that money back after you make the transfer, butꦑ until then, the transaction will be treated a꧂s a withdrawal.

To avoid the repercussions of making an early withdrawal, everything taken from the TSP needs to be transferred to the Roth IRA—including the sum withheld for taxes. That may not be a big issue if the amount is small. However, if it is large, you’ll be left with a big shortfall to make up and the risk of paying penalties if you cannot cover it.

How Soon Do You Need the Money?

As mentioned above, Roth accounts must be open for five years before earnings can be withdrawn tax free. This requirement, known as the 澳洲幸运5官方开奖结果体彩网:five-year rule, is often well-publicized. What people often fail to realize is that these five years cannot be carried ൩over.

When you deposit Roth TSP funds into a Roth IRA, you are back to square one. The Roth IRA is a new and different account, so earnings cannot be withdrawn tax free until at least five years from Jan. 1 of the year when the rollover was done. However, if you already had a Roth IRA prior to doing the rollover, the five years are based on that account. You can withdraw tax free five years from Jan. 1 of the year in which you made your first contribution to a Roth IRA.

The Bottom Line

Both Roth TSPs and Roth IRAs have merits, and 澳洲幸运5官方开奖结果体彩网:choosing which one is best depends on your individual circumstances. It’s imꦇportant to think carefully before making any switch and not get misled by all the talk on the internet that making this jump is a no-brainer for everyone. Like any big financial transaction, make sure you do your homework and pay close attention to the rules before taki✤ng action.

Failing to realize that the five-year rule cannot be carried over and that you could be hit with 澳洲幸运5官方开奖结果体彩网:out-of-pocket expenses when executing an indirect rollover can cause big headaches. If you’re not careful, you co💧uld potentially undo some of the sacrifices you made contributing chunks of your salary and paying taxes in advance so 🍒that your older self could live more comfortably.