If you’re leaving federal service or simply reorganizing your retirement accounts in 2026, you may be
wondering How to roll over TSP funds without creating an unexpected tax bill or losing valuable benefits.
The Thrift Savings Plan is one of the most cost-efficient retirement accounts available, and moving money
out of it is a decision that deserves careful thought rather than a quick phone call. Many federal
employees and retirees make avoidable errors during this process simply because they didn’t know the
rules had nuance. This article walks through the most common missteps so you can approach your rollover
with more confidence and fewer surprises.

Why the Rollover Process Deserves Extra Attention

A rollover sounds simple on paper: move money from one retirement account to another. In practice, the
TSP has specific procedures, forms, and timing requirements that differ from private-sector 401(k) plans.
Get a detail wrong, and you could trigger income taxes, an early withdrawal penalty, or lose access to
investment options you were counting on. Before diving into the mistakes themselves, it helps to remember
that the goal isn’t just to move the money—it’s to move it in a way that preserves its tax-advantaged
status and keeps your long-term retirement plan on track.

Mistake #1: Choosing an Indirect Rollover Without Understanding the Risks

There are two ways to move TSP money: a direct rollover (also called a trustee-to-trustee transfer) and
an indirect rollover. With a direct rollover, the TSP sends your funds straight to your new IRA or
employer plan custodian. With an indirect rollover, the check is made out to you personally, and you’re
responsible for depositing the full amount into a new account yourself.

The problem with indirect rollovers is twofold. First, the TSP is generally required to withhold 20% for
federal taxes on the traditional portion, meaning you’d need to come up with that missing 20% out of
pocket to complete a full rollover. Second, if you miss the deadline or don’t replace the withheld amount,
the difference may be treated as a taxable distribution—and possibly subject to an early withdrawal
penalty if you’re under age 59½.

In most cases, a direct rollover is the simpler and lower-risk path when you’re figuring out how to roll
over TSP funds into an IRA or another qualified plan.

Mistake #2: Letting the 60-Day Window Slip By

If you do end up with an indirect rollover—whether by choice or because a check was issued to you—the
clock starts ticking immediately. You generally have 60 days from the date you receive the funds to
deposit them into another eligible retirement account. Miss that window, and the entire distribution can
become taxable income for the year, plus a possible penalty if you’re not yet eligible for penalty-free
withdrawals.

A common scenario: someone requests a payout intending to reinvest it, gets distracted by a move or a new
job, and realizes two months later that the deadline has passed. Setting a calendar reminder the same day
you receive a distribution check is a small habit that can prevent a costly mistake.

Mistake #3: Mixing Up Roth and Traditional Balances

Many TSP participants hold both traditional and Roth balances within the same account. When rolling over,
these two portions need to go to the correct type of receiving account—traditional TSP funds to a
traditional IRA (or pre-tax employer plan), and Roth TSP funds to a Roth IRA (or Roth employer account).

Combining them incorrectly, such as directing a Roth balance into a traditional IRA, can create tax
reporting headaches and potentially trigger unnecessary taxes on money that was supposed to remain tax-free
in retirement. Before submitting your rollover paperwork, double-check that your new account structure
matches the tax treatment of each TSP balance you’re moving.

Mistake #4: Not Comparing Fees and Investment Choices

The TSP is known for having some of the lowest administrative fees in the retirement plan industry. When
people roll their balance into an IRA, they sometimes assume every account works the same way, without
checking the expense ratios of the mutual funds or the annual account fees charged by the new custodian.

Over a 20- or 30-year retirement horizon, even a seemingly small difference in fees can add up. Before
finalizing a rollover, it’s worth reviewing: