Thrift savings plans and traditional IRAs are both tax-sheltered retirement plans. You can't open a TSP by rolling money into it from a traditional IRA, but as long as you have a TSP open, you can usually move money into it, even after you've stopped working for your agency.
Allowed Traditional IRA Distributions
Most, but not all, traditional IRA withdrawals can be rolled into a TSP. Required distributions from the IRA, including required minimum distributions from your own traditional IRA when you hit 70 1/2 or distributions from an inherited traditional IRA, can't be combined with your TSP. Also, if you had to take out excess contributions and the earnings on those contributions, you can't roll those over to a TSP. For example, say you contributed $3,000 too much to your traditional IRA. If it grew to $3,200 and you took out that amount to correct the mistake, you can't roll over that distribution.
Money from your traditional IRA adds to your traditional TSP balance. You're not allowed to transfer money from a traditional IRA into your Roth TSP balance. So, since you're always moving money from one tax-deferred account to another, you won't owe any income taxes because you moved the money. However, you still eventually have to pay taxes on the money you moved when you take distributions from the TSP.
You can move your money from your traditional IRA with either a transfer or a rollover. Rollovers require a bit more work. You take a distribution from your traditional IRA and then you have 60 days to get it deposited in your TSP. Even though you won't owe any taxes, you still have to report what you did on your tax return. The transfer is the simpler option -- just fill out a transfer request form and your financial institution moves the money as requested. No need to worry about deadlines or tax reporting.
Nondeductible Traditional IRA Contributions
A TSP plan can't take any nondeductible contributions from your traditional IRA. Typically, if your traditional IRA has any nondeductible contributions, they get prorated in any distribution -- in other words, a part of the distribution consists of nondeductible contributions and a part doesn't. There's a special rule, however, that allows you to transfer only the tax-deferred dollars to the TSP. For example, if you have $50,000 in your traditional IRA and $10,000 is non-deductible, a rollover of $40,000 wouldn't touch your nondeductible contributions, so you're good to go.
- Internal Revenue Service: Retirement Topics - Rollovers of Retirement Plan Distributions
- Thrift Savings Plan: Rollovers and Transfers into the TSP: Eligibility
- Thrift Savings Plan: Rollovers and Transfers into the TSP: Methods for Moving Your Money Into Your TSP Account
- Thrift Savings Plan: Rollovers and Transfers into the TSP: Tax Considerations
- Internal Revenue Service: Publication 590 -- Individual Retirement Arrangements (IRAs)
- Internal Revenue Service. "Publication 560: Retirement Plans for Small Businesses," Page 15. Accessed July 9, 2020.
- Internal Revenue Service. "Publication 560: Retirement Plans for Small Businesses," Page 18. Accessed July 9, 2020.
- Internal Revenue Service. "Publication 590-B, Distributions from Individual Retirement Arrangements." Accessed July 9, 2020.
- Internal Revenue Service. "Amount of Roth IRA Contributions That You Can Make in 2020." Accessed July 9, 2020.
- Internal Revenue Service. "Instructions for Form 8606." Accessed July 9, 2020.
- Internal Revenue Services. "Retirement Topics -- Exceptions to Tax on Early Distributions." Accessed July 9, 2020.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."