One of the very commonly asked questions is “ Is TSP an IRA?” Many people who are planning for their retirement years often find the need to find out what the two accounts are about, whether they are similar, and what one should know before picking one and leaving the other. Thank you for taking your time to read through this informative post, in which I will take you through the basics of a TSP, as I also help you establish whether it has any connection to an IRA. Read on to find out more.
What is a TSP?
A TSP is a Thrift Savings Plan (TSP) in full. It is a retirement saving and investment plan that those who are either employees of the Federal government or are members of the uniformed services can utilize to safeguard their financial future.
This retirement plan was created by Congress under the Federal Employees’ Retirement System Act of 1986 and was structured to offer similar savings and tax benefits like 401(k) plans. The TSP is in itself a defined contribution plan, which means that the amount of money you receive as income from the TSP account is dependent on how much you contribute during your years of service to your agency, as well as the earnings accumulated over that time horizon. TSPs are administered by the Federal Retirement Thrift Investment Board (FRTIB).
What is an IRA?
IRA stands for Individual Retirement Account. It is a savings account with tax advantages that individuals can use to invest for their retirement years. Like other retirement plans, IRAs are meant to help people save for their retirement years, instead of using up all their earned income without saving up some amount for the future.
Anyone who has an earned income is eligible to contribute to an IRA, including those who already own 401(k)s through their employer. There is, however, a limitation in that the combined total one can contribute to all their retirement savings plans in a single year while maximizing the tax benefits, is fixed. If you, therefore, own an IRA and a 401(k) at the same time, you need to plan beforehand, on the amount of money that you will allocate to either asset.
Tip – You can open a self-directed IRA which allows you to invest in a wide variety of assets while giving you more control over what you can invest in.
Is a TSP an IRA?
So, we are back to our main question. I am sure by now you have an idea of what the response to this question is. A Thrift Savings Plan (TSP) is not an IRA, and an IRA is not a TSP. As much as both are tax-advantaged retirement savings plans, the rules surrounding how the two plans are administered are quite different. Those who are not aware of the existing differences may actually end up paying the price when the tax man comes knocking on their doors.
What are the differences in the TSP and IRA rules that you should know?
- There are clear rules that preclude investors from making contributions to their Roth IRAs, or from making deductions on their contributions to Traditional IRAs if their earned income happens to be a certain level. This is not the case with a TSP.
- One can only contribute to the TSP from their federal salary, which is done through a payroll deduction. When it comes to IRAs, however, investors are allowed to make contributions from any of their qualifying sources of earned income.
- Investors are allowed to convert traditional IRAs to Roth IRAs. One can, however, not take the funds in their traditional TSP and roll them over into their Roth TSP.
- Those who are still working in the year they turn age 72 can no longer contribute to their traditional IRA and are mandated to take the required minimum distributions (RMDs). If, on the other hand, you are still working at your federal job at age 72, you can still make contributions to your TSP, and you are not mandated to take the required minimum distributions until you are ready to exit from federal service.
Also, Note That-
Employees who leave federal service in the year they turn 55 (or later) can access the funds saved through their TSP penalty-free. This age is slashed by 5 years ( to 50), for some special categories of employees including the following:
- DSS Agents working with the Department of State
- Air Traffic Controllers
- Law Enforcement Officers
- Supreme Court & Capital Police
- Border Protection Officers
- Customs Officers
- Nuclear Material Couriers
In the case of an IRA, you will be subject to a 10% early withdrawal penalty if you start taking distributions before reaching age 59 ½. As you can see, it is quite necessary to take into account such rules, since they can make a difference in terms of the overall experience as you are saving for your retirement years.
Frequently Asked Questions on “ Is TSP an IRA?”
1. Can I contribute to both my TSP and an IRA?
Yes, you can. The fact that you participate in a TSP does not mean that you are disqualified to own an IRA. You however have to stick to the stipulated dollar amount that you can contribute to all your retirement savings plans such as your Traditional IRA and Roth IRA, as stipulated by the Internal Revenue Code (IRC). The yearly limits investors can contribute to their retirement plans change annually, so you need to confirm this every year to avoid getting into trouble with the IRS.
If you are contributing to a Roth TSP, however, then it’s a good idea to confirm with your IRA service provider whether you are eligible for a Roth IRA. There’s more information about this on the IRS Publication 590.
2. How can I roll over or transfer the money in my traditional IRA into a TSP account?
If you want to transfer or roll over the funds in your traditional IRA into a TSP account, you should consult with your custodian on how you will complete Form TSP-60, which is essentially a request for a transfer into the TSP. You can access this form on the TSP official website.
3. Can I transfer my TSP into my IRA?
You may transfer some of your payments from your TSP into an IRA or any other eligible employer-sponsored retirement plan. The tax rules regarding such transfers and rollovers can be quite complicated, hence it is advisable to consult with a qualified tax advisor, to get a clear picture of the implications of such transactions.
4. Am I allowed to transfer the funds in my TSP to my spouse’s IRA?
No. This is generally not allowed. The IRS prohibits the transfer of money from an investor’s TSP to their spouse’s IRA. If, however, the owner of the TSP dies, then their TSP account is automatically converted into a beneficiary participant account, as a way to ensure that the surviving spouse receives their death benefit. Some withdrawals from such beneficiary accounts are eligible for TSP-IRA transfers, which is something that is worth considering if you are a spouse who is set to receive a TSP death benefit.
5. Can I take a loan against my TSP account, and my IRA?
TSP Account owners are allowed to take two types of loans, which are:
- TSP general purpose loans
- TSP residential loans
IRA owners are, however, prohibited from taking loans against the funds in their accounts. Attempting to take a loan against your IRA can actually lead to the IRA being terminated and the IRS following that up with taxes.
Also check out some of our other related posts on subjects like self-directed IRAs, rollovers, etc:
Also read: What is a 401(k) to gold IRA rollover?
That will be all for today’s post on “ Is TSP an IRA?” I hope that you enjoyed the article and found it informational. As you can see, anything to do with retirement plans is complex ( due to the many rules), and one that calls for an investor to educate themselves fully on the matter. You can utilize the free recommended resources on this post to get started, or you can reach out to me ( by dropping me a question in the comments section) so that I can point you in the right direction. Doing this will make the path ahead less bumpy, as you connect with reliable financial partners for the journey ahead.
I wish you well,
Eric, Investor and Team Member at Gold Retired