TSP to Roth IRA Rollover Guide for 2026
The common advice to roll a TSP into a Roth IRA leaves out the most important detail: a direct rollover isn't necessarily tax-free. A separated federal employee moving pre-tax TSP savings into a Roth IRA is making a taxable conversion, not merely changing account providers. The decision requires identifying which balance will move, planning how to pay the tax, and understanding when the converted money can be spent. What a TSP to Roth IRA Rollover Is Taxed As A federal employee leaves service, opens a Roth IRA, and requests a transfer of traditional TSP savings. The employee expects no tax because the money never enters a checking account. That expectation confuses the payment method with the tax treatment. According to the TSP's withdrawal guidance, traditional money rolled into a Roth IRA is taxable in the current year, and no income tax is withheld from that rollover. Estimated tax payments may therefore be necessary. Moving the same traditional money directly to a traditional IRA generally preserves tax deferral instead. The source balance and destination determine the federal tax result. The word “rollover” alone doesn't establish whether a transaction creates income. Tax result by TSP source and destination Source balance Destination Taxed...