Federal Retirement Planning: Should You Keep Funds in the TSP or Roll to an IRA?
If you're a federal employee planning for retirement, one of the most important decisions you’ll face is how and when to access your savings—especially when choosing between keeping funds in your Thrift Savings Plan (TSP) or rolling them into an Individual Retirement Account (IRA).
Understanding the withdrawal rules for each option can help you avoid penalties and make smarter financial choices. Here’s what you need to know.
The Basics: TSP and IRA Are Not the Same
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TSP is the official retirement savings plan for federal workers, similar to a 401(k).
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IRA is a private retirement account anyone can open, with its own set of rules.
Why TSP Has an Early Withdrawal Advantage
If you retire in the year you turn 55 or older, the TSP allows penalty-free withdrawals under what's known as the Rule of 55.
This means you can tap into your retirement savings early without paying a 10% penalty, which is great if you plan to retire before age 60.
By contrast, IRAs typically require you to wait until age 59½ to withdraw money without penalties, unless you qualify for a few specific exceptions (like disability or certain medical expenses).
What Happens If You Transfer TSP to an IRA?
Many retirees roll over their TSP funds into an IRA for more control over investments. But this move comes with a trade-off: you lose access to the Rule of 55.
Once your money is in an IRA:
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You’ll usually need to wait until 59½ to make penalty-free withdrawals.
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Early access may trigger a 10% penalty unless you meet one of the limited exceptions.
That’s why timing matters—especially if you’ll need that money before turning 59½.
On the other hand, you might be missing out on benefits—check what’s available to you here.
Special Note on Roth Accounts
Here’s where things can get confusing—but it’s important:
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Roth IRA: You can withdraw your contributions anytime, tax- and penalty-free. But withdrawing earnings early can lead to penalties unless the account is at least 5 years old and you're 59½ or older.
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Roth TSP: You can’t choose whether withdrawals come from contributions or earnings—they’re pulled proportionally. However, the Rule of 55 still applies, so you may be able to access Roth TSP funds penalty-free if you retire at 55 or older.
This makes Roth IRAs more flexible in how and when you access your money—but the TSP offers earlier full access if you retire at 55+.
What’s the Best Strategy?
Here are three smart options based on your retirement goals:
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Leave your money in the TSP
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Ideal if you need early access at 55 or want to avoid penalties
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Roll over to an IRA
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Great for investment flexibility, long-term growth, and Roth conversions—just wait until you’re 59½
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Do both
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Keep some funds in TSP for early use, transfer the rest to an IRA for strategic growth
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Final Thoughts
If you’re retiring between 55 and 59½, keeping money in the TSP can give you early, penalty-free access.
Rolling over to an IRA offers more flexibility but limits when you can withdraw without fees.
Before making any moves, consult with a federal benefits specialist or financial advisor.
The right strategy could save you thousands and give you more control over your retirement.
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