- Federal Employee's Retirement Planning Guide - https://fedretire.net -

I Rolled Over My TSP Account to an IRA – Should You?

Posted By Dennis Damp On In ANNUITIES / ELIGIBILITY,BENEFITS / INSURANCE,ESTATE PLANNING,FINANCE / TIP,RETIREMENT CONCERNS,SOCIAL SECURITY / MEDICARE,SURVIVOR INFORMATION | No Comments
Share [1]

I rolled over my traditional Thrift Savings Plan (TSP) to my personal Fidelity IRA last month. The TSP was established in 1987 concurrent with the Federal Employees Retirement System (FERS), and I retired in 2004 under the Civil Service Retirement System (CSRS), leaving me only 17 years to fund my TSP.

There were many factors behind the move: convenience, lower-cost investment options with Fidelity, and inheritance limitations, among others.

As a CSRS federal employee, I was limited to contributing 5% of my salary with no government match. FERS employees receive a 5% match and can contribute up to $23,500 of their salary this year, plus a $7,500 catch-up contribution for those over age 50.

Comparing 2026 Healthcare Plans to their Medicare Advantage Option [2]

Inheritance Considerations

When an annuitant dies, the TSP establishes a Beneficiary Participant Account (BPA) in the spouse’s name if married and/or sets up a temporary account for all non-spouse beneficiaries. Temporary account holders have 90 days to either withdraw the funds or roll them over into an inherited IRA. When a beneficiary participant dies, the new beneficiary(ies) cannot continue to maintain the account in the TSP.

The TSP’s Death Benefits Guide [3] clearly states on page 11, “Death benefit payments made from your beneficiary participant account must be paid directly to your beneficiary(ies). These payments are subject to certain tax restrictions and cannot be rolled over to an IRA or an eligible employer plan. In addition, your beneficiary(ies) will have to pay the full amount of taxes on the taxable portions of the payment in the year it is received.”

According to Code 402(c)(9) and (11), the beneficiary of a spousal BPA account is not considered a beneficiary of the employee, which is a requirement for a rollover. Beneficiaries from BPAs are subject to a 10% withholding unless the recipient elects otherwise.

FERS annuitants have considerably larger TSP accounts due to the 5 percent match and increased contribution limits. As of October 1, 2025, there were 189,836 TSP participants with account balances of $1 million or more. Hundreds of thousands more have accounts in the upper 6-figure range. Their heirs could be left with a considerable tax burden the year the annuitant’s spouse passes under the inherited BPA rules.




Simplification

This consolidation reduced the number of RMDs to track and centralized all of our retirement accounts under one roof. Plus, Fidelity doesn’t charge for any trades, and they have numerous financial planning tools available to help manage your taxable and retirement accounts.

Fidelity will also set up inherited IRAs for beneficiaries as directed by the decedent’s beneficiary designations. My wife will only need to notify our Fidelity financial advisor and send them a copy of the death certificate; they will then assist her in distributing the proceeds as designated in the beneficiary designation for that account.

Withdrawals, Transfers, and Distributions

The TSP allows participants to complete their withdrawal and transfer forms [4] online; it’s easy to do. After signing in to your account, go to the withdrawals section and submit the required information. To avoid taxes on a transfer, send the funds to the company that you wish to set up an IRA with or to consolidate the TSP funds into an existing IRA at that firm.

If you are sending your rollover to a company for which you don’t have the contact or bank information listed in your TSP account, you must enter that information and wait 7 days before you can process the rollover.

You can’t transfer your current year’s RMD. You must elect to have the RMD sent to you with the remainder of your account forwarded to the new custodian that you select.

The 2026 FEHB & PSHB Open Season Selection Guide [5]

Conclusion

I dislike leaving something I’ve been involved with for the past 33 years. Yet, it was inevitable and an integral part of our estate planning. The goal of estate planning is to ensure your heirs receive their due and to simplify things for those you leave behind. The fewer accounts you have, the easier it is to settle an estate.

Another significant benefit of rolling over your TSP into an IRA with a firm like Fidelity is that they offer one of the best trading platforms available. There is no charge for trading stocks, mutual funds, and ETFs, plus they offer several mutual funds with no management fees.

Purchasing mutual funds through the TSP’s Mutual Fund Window was expensive and cumbersome. Plus, when the annuitant dies, they close the holdings you have in the mutual fund window and invest it in their general funds.

Helpful Retirement Planning Tools

[6]

[16]
Disclaimer: The information provided may not cover all aspects of unique or special circumstances.  Federal regulations, medical procedures, investment information, and benefit details are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance, including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change.

The information contained herein may not be suitable for your situation. This service is not affiliated with OPM or any federal entity. You should consult a financial, medical, or human resource professional where appropriate. Neither the publisher nor the author shall be liable for any loss or other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Last 5 posts by Dennis Damp