Moving your Thrift Savings Plan balance into an Individual Retirement Account is one of the biggest financial decisions many federal employees and military members make. A TSP rollover to IRA can offer more investment choices, added flexibility for withdrawals, and easier account consolidation. But the process is full of small details that can turn into costly errors if you’re not paying attention. In 2026, with updated contribution limits and evolving IRA rules, it’s worth slowing down and reviewing the most common missteps before you move a dollar.

This article walks through the mistakes people most often make during a TSP rollover to IRA, along with practical ways to avoid them.

Why People Consider Rolling TSP Funds Into an IRA

Before diving into the mistakes, it helps to understand why this move is so popular. The TSP is known for low administrative costs and a simple lineup of index-based funds. An IRA, on the other hand, typically opens the door to a much wider range of investments, including individual stocks, bonds, mutual funds, and sometimes annuities. Some retirees also like having more control over how and when they take withdrawals, since IRA distribution rules differ from TSP withdrawal rules in several ways.

That flexibility is valuable, but it doesn’t automatically mean a rollover is the right choice for everyone. The decision should be based on your personal financial picture, not just the idea of having “more options.”

Common TSP rollover to IRA Mistakes to Avoid

1. Taking a Cash Distribution Instead of a Direct rollover

One of the costliest errors is requesting a check made out to you personally instead of arranging a direct, trustee-to-trustee transfer. When funds are paid directly to you, the TSP is generally required to withhold 20% for federal taxes. If you don’t deposit the full original amount (including the withheld portion) into an IRA within 60 days, that withheld amount may be treated as a taxable distribution, and if you’re under age 59½, an early withdrawal penalty could apply.

Example: Suppose a retired postal worker requests $150,000 from her TSP account and receives a check for $120,000 after withholding. If she only deposits $120,000 into her new IRA, the remaining $30,000 may be treated as taxable income, even though she never intended to keep it. Requesting a direct rollover avoids this entirely, since the funds move institution-to-institution without withholding.

2. Missing the 60-Day Deadline

If you do end up with an indirect rollover (a check payable to you), the clock starts ticking immediately. You generally have 60 calendar days to deposit those funds into an IRA. Miss the deadline, even by a few days, and the entire distribution can become taxable. Life events like a move, a hospital stay, or simple paperwork delays have caused otherwise careful savers to miss this window. Whenever possible, choose a direct rollover to remove this risk altogether.

3. Overlooking What You’re Giving Up

The TSP’s fund lineup is often praised for having some of the lowest expense ratios in the retirement plan world. Before initiating a TSP rollover to IRA, compare the fees of your prospective IRA investments to what you currently pay in the TSP. Some IRA products, particularly certain mutual funds or insurance-based accounts, carry higher ongoing costs. Higher fees don’t automatically make an account a bad choice, but they should be part of your decision, not an afterthought discovered a year later on a statement.

4. Ignoring Required Minimum Distribution (RMD) Timing

If you’re rolling over funds in the same year you’re required to take an RMD, timing matters. RMD amounts generally cannot be rolled over; that portion must be distributed to you first. A federal retiree who rolls over an entire balance without first satisfying the RMD for that year may end up with an excess contribution problem in the IRA, which can trigger additional paperwork and potential penalties to correct.

5. Not Comparing Investment Menus Side by Side

It’s easy to assume an IRA is automatically “better” because it offers more choices. But more options can also mean more complexity and more room for costly mistakes if you’re not comfortable managing a diversified portfolio on your own. Before rolling over, take time to look at:

  • The specific funds or investments you plan to use in the IRA
  • Their historical expense ratios and how they’re structured
  • Whether you’ll manage the account yourself or work with an advisor

A wider menu is only useful if it aligns with your actual investment strategy and comfort level.

6. Forgetting the Age 55 Separation Rule

The TSP allows penalty-free withdrawals starting at age 55 (or 50 for certain public safety employees) if you separate from federal service in or after the year you reach that age. This is often called the “age 55 rule,” and it’s more favorable than the IRA’s standard age 59½ threshold. If you roll your entire TSP balance into an IRA too early and then need funds before 59½, you could face a 10% early withdrawal penalty that wouldn’t have applied had you left the money in the TSP a bit longer. Retirees who plan to leave federal service early should think carefully about this timing gap before moving everything out.

7. Choosing the Wrong Type of IRA

Traditional and Roth IRAs are taxed differently, and mixing them up during a rollover can create an unwanted tax bill. Pre-tax TSP balances typically roll into a traditional IRA without immediate taxation. Roth TSP balances should generally go into a Roth IRA to preserve their tax-free growth status. If a Roth TSP balance is mistakenly rolled into a traditional IRA, it can trigger taxes that wouldn’t otherwise apply. Always confirm with your receiving institution that account types

Additional Educational Resources

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