As an employee of the federal government, you can save for retirement through the Thrift Savings Plan. As long as you're working for the government, you can't move your savings to another account. However, as soon as you get another job, you're free to move your TSP to a number of other retirement accounts.
If you want to avoid taxes when you move your TSP savings, you need to make a plan rollover. You're only allowed to make a roll over after you've quit, retired, or been fired from your government job. While you could fund another retirement plan by taking out your savings through an early withdrawal, this rarely makes financial sense. The IRS charges income tax plus a 10 percent penalty on early withdrawals, which knocks out any benefit of funding another retirement plan.
Work Plan Rollover
Since the government won't let you take your TSP with you as a parting gift, you'll need a new retirement plan if you leave to take a new job. One convenient thing to do is transfer your TSP into the new job's plan. All you'll need to do is get the bank account info of your new employer to the person handling your TSP. He should transfer the funds right over and you won't owe any taxes on the move.
Traditional IRA Rollover
A Traditional Individual Retirement Arrangement rollover is also possible with a TSP since it's independent of your job. Just like a TSP, it has a tax deduction for your contributions and tax deferred growth on your investment gains. The process is the pretty much the same as a work plan rollover. You open a Traditional IRA at a brokerage firm, get the account information from the brokerage firm, get those facts to the TSP handler and wait for the money to be delivered.
Roth IRA Rollover
You can also move your TSP into a Roth IRA. The Roth IRA needs to be funded with after-tax money. This means you'll need to pay income tax on your entire TSP account balance to make this transfer. In exchange, when you take out your investment gains in retirement, your withdrawals will be completely tax-free. According to Nasdaq, this makes the Roth IRA a better choice than other accounts if you want to keep your taxes low in retirement.
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- Tax Benefits of Rolling Over a Pension to an IRA
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- How to Remove Money From a Cash Balance Pension Plan