TSP Rollover vs Transfer: What You Give Up by Moving to an IRA
A calm look at the four things the TSP does that an IRA cannot, and the flexibility an IRA adds in return.

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Start with the decision, not the paperwork

Here is the short version. A rollover or transfer out of the TSP is not free. You are trading three things the plan does unusually well for the flexibility an IRA gives you. Whether that trade makes sense depends almost entirely on your age when you separate and how you plan to use the money.

The three things you give up are the G Fund, the fees, and the early-access rules. The thing you gain is choice: more investment options, the ability to consolidate old accounts, and more room to name and structure beneficiaries. None of that is inherently good or bad. It is a trade, and the point of this piece is to show you both sides so the decision is yours to make with your advisor, not the salesperson's to make for you.

One note before we go further. Sirmium Capital is a New York state-registered investment adviser and is not registered with the SEC. Nothing here is individualized investment, tax, or legal advice, and the person who wrote this is not a registered representative. Which account your money should live in, and when, is a planning decision. Route it to a qualified advisor, and route any question about what a given move costs you in taxes to your tax professional.

What the TSP does that an IRA cannot

The G Fund is the clearest example. It invests in special nonmarketable US Treasury securities whose principal never declines, which is a structure you simply cannot buy in an IRA. Money-market and short-Treasury funds get close, but none of them carry that principal guarantee. If a stable, capital-preservation sleeve is part of your plan, rolling out means giving it up.

Then there are the costs. The TSP runs some of the lowest expense ratios available anywhere, about 0.034% on the G Fund, 0.035% on the C and F Funds, 0.048% on the I Fund and 0.051% on the S Fund (as of December 31, 2025), though those figures move a little each year. An IRA can be cheap too, but it can also be considerably more expensive once you layer in fund fees and any advisory fee, so this is a number worth comparing directly rather than assuming.

The one that costs people the most when they get it wrong is early access. The 10% early-withdrawal penalty does not apply to your TSP if you separate from federal service in or after the year you reach age 55, and that drops to age 50, or any age once you have 25 years of covered service, for qualified federal public-safety employees. Military members are not on that list, so a uniformed retiree's early door is the age-55 rule. That public-safety window traces to IRC 72(t)(10) as expanded by SECURE 2.0. If you retire in your early fifties and need the TSP as bridge income, this exception can be worth years of penalty-free withdrawals.

The catch: the penalty exception does not follow the money

This is the part that surprises people. The age-50-or-25-years public-safety exception applies to the plan you separated from. It does not travel into a rollover IRA. Move the balance to a Traditional IRA and, pre-59 1/2, you are generally back under the 10% early-withdrawal penalty unless another exception applies.

There is a workaround, but it is a commitment, not a convenience. A 72(t) substantially-equal-periodic-payments schedule lets you reach IRA money before 59 1/2 without the penalty, but it locks you into a fixed series of withdrawals that must run for the longer of five years or until you reach 59 1/2. That is a real plan, and for some people it works well, but it is far less forgiving than simply leaving early-access dollars in the TSP where the exception already lives.

The practical takeaway: if you separated as a qualified public-safety employee and expect to lean on this money before 59 1/2, think hard before rolling the bridge portion out. You can often keep that slice in the TSP for penalty-free access and move other dollars later, once you are past the age where the penalty matters.

What an IRA adds, and the new in-plan Roth option

The case for rolling out has genuine merit. An IRA opens the full investment universe, lets you consolidate scattered accounts into one place, and generally gives you more flexibility in how you name and structure beneficiaries. For a household that values one consolidated statement and a wider menu, that convenience has genuine value. If early-access penalties are no longer a concern because you are past 59 1/2, much of the reason to stay put falls away.

Before you roll out just to reach Roth, know that the TSP added its own Roth path. As of January 28, 2026 the plan offers an in-plan Roth conversion: you can convert a Traditional TSP balance to Roth TSP without leaving the plan or separating, with a $500 minimum per conversion. The converted amount is taxable income in the year you convert, the tax should be paid from outside funds, and the conversion is irrevocable, reported on Form 1099-R with distribution code G.

A conversion is a tax event with a long tail, so this is squarely a route-to-your-professional decision. The tax hits in the conversion year, and because Medicare's income-related premium surcharges use a two-year lookback, a 2026 conversion can raise your Medicare premiums in 2028. None of that makes converting wrong. It makes it something to model with your tax professional and a qualified advisor before you commit, not something to trigger on a hunch.

What happens to your TSP on its own, the moment you separate

Three things happen to a Thrift Savings Plan account at separation without anyone asking you, and none of them are on the checklist you are handed on the way out.

A small balance is closed for you. If your vested balance is under $200 when your service reports the separation, TSP pays the whole thing directly to you in a single payment and closes the account. It happens 60 days after TSP is notified or 60 days after your separation date, whichever comes first, and 20 percent is withheld for federal tax. You are not given the option to stay. A balance under $5 is forfeited outright and shown as forfeited on the next statement.

Combat-zone money cannot follow you into a civilian TSP. A uniformed-services account can be moved into a civilian TSP account if the vested balance is $200 or more, and only up to the end of the calendar year before the year you turn 72. But a tax-exempt balance built from contributions made in a combat zone cannot make that move. To keep it growing tax-deferred you have to leave the uniformed-services account open and hold it there until you withdraw.

Doing nothing is a decision. Every one of those runs on its own timetable, measured from a separation date you already know. Our separation timeline lays those dates out against yours.

Source: TSP booklet Distributions (tspbk25), retrieved 28 August 2026. Confirm your own balance and dates with TSP; for the tax treatment of any payment, speak with your tax professional.

If you retire with a pension, the Roth math changes

Everything above applies whether or not you have 20 years in. If you do, there is a second reason people consider a rollover: the years between retiring and Social Security or required withdrawals starting, sometimes called the gap years. Your pension is taxed, but it is usually a lower bracket than your active-duty pay was, which creates room to convert some Traditional TSP money to Roth each year without jumping a bracket. VA disability compensation helps the same way: because it is tax-free, it does not count toward that bracket, so a veteran with $60,000 of income can have meaningfully less of it taxable than a civilian with the same number, which creates more of that room. Whether converting makes sense, and how much, depends on your specific brackets in a given year. Model it with a tax professional before you convert anything; a conversion cannot be undone.

Before you pass it on

If you leave a Traditional TSP or IRA to a beneficiary who is not your spouse, a minor child, disabled, chronically ill, or within 10 years of your own age, current law requires them to empty the account within 10 years of your death, and if you had already reached your own required withdrawal age they must also take a distribution in most of those years, not just the last one. A $1,000,000 balance emptied by an adult child in their peak earning years can mean roughly $100,000 a year stacked on top of their own salary, which can push a large share of it into a higher tax bracket than it would have faced spread over their lifetime. Converting some of that balance to Roth during your own lifetime does not shorten the 10 years, but it does mean the tax was paid once, by you, at a rate you chose, rather than by your child at whatever rate that decade hands them.

Source: SECURE Act of 2019; IRC 401(a)(9)(H); the eligible-beneficiary exceptions at IRC 401(a)(9)(E)(ii); IRS final RMD regulations, July 2024.

If you do decide to move it

Two mistakes account for most of the damage we see. The first is an indirect rollover: TSP sends you a check instead of moving the money directly to your new account, which triggers automatic 20 percent federal withholding on the spot. You then have 60 days to deposit the full original amount into the new account, including the withheld 20 percent, out of your own pocket, or the IRS treats whatever you did not deposit as a taxable distribution. Asking TSP for a direct rollover to the new custodian avoids the withholding entirely. The second is rolling Roth TSP into a Traditional IRA, or the reverse, which turns tax-free money taxable or taxable money into a paperwork problem; Roth goes to Roth, Traditional goes to Traditional. And if you separate with an outstanding TSP loan, you generally have to repay it within a set window or the unpaid balance is treated as a taxable distribution.