“Team, thank you again for the great show and the humor in how you answer these questions. I have a question about my Roth IRA and Roth TSP…. and it has nothing to do with the Megatron or back door! I’ve had my Roth IRA for about 15 years and began funding the Roth side of my TSP 5 years ago. I intend to transfer the Roth portion of my TSP to my Roth IRA whenever I decide to retire from the military. With that in mind: Will all the contributions I’ve made to my Roth TSP over the years be counted as contributions in my Roth IRA? Or would the entire value of the Roth TSP count as the contribution when it is transferred to my Roth IRA? Is there some other rule that I am missing? I understand that Roth IRA contributions can always be accessed without penalty and that contributions are considered to be the first portion withdrawn from the account. What I don’t understand is how or if that would change once another retirement plan such as my Roth TSP is brought over. I’m trying to keep track of how much of my Roth money can be accessed without penalty to use as a potential bridge from my late 50’s to 59.5. I drive a 2020 Camry. I like a good Old Fashioned when cocktails are on the menu or a Bud Light from those magnificent blue cans when out on the course. Cheers, Rob, VA”

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The Thrift Savings Plan (TSP) is a retirement savings plan available to federal employees and members of the military. The Roth TSP option allows investors to contribute after-tax dollars and enjoy tax-free growth and distributions in retirement. Once you’ve invested in a Roth TSP account, you may consider rolling those funds over into a Roth IRA to gain more flexibility and control over your investments. However, taking an early withdrawal from either account can incur penalties, and the rules are different for each.

Roth TSP to Roth IRA Rollover

A Roth TSP to Roth IRA rollover is a tax-free transfer of funds from one retirement account to another. When you leave federal employment or retire, you have the option to roll over your Roth TSP account balance into a Roth IRA. This means that the Roth TSP funds will be transferred directly to your Roth IRA account without being subject to federal income tax. Once the funds are in your Roth IRA, you can invest them in any assets available through your IRA custodian.

Advantages of a Roth TSP to Roth IRA Rollover

Rolling over your Roth TSP to a Roth IRA offers several advantages:

1. Greater Investment Flexibility: The Roth TSP investment options are limited to specific funds, while a Roth IRA allows you to invest in a wide range of assets, including individual stocks, bonds, and mutual funds.

2. No Required Minimum Distributions: Roth IRAs don’t have required minimum distributions (RMDs) at age 72 like traditional IRAs do, which means you can leave your funds to grow tax-free for as long as you like.

3. Tax-Free Withdrawals: Roth IRA earnings can be withdrawn tax-free after age 59 and a half as long as the account has been open for at least five years. This offers greater flexibility in retirement for tax-free income and is a benefit that the TSP does not offer.

Penalty-Free Withdrawals Before Age 59 and a Half

While both the Roth TSP and Roth IRA offer tax-free growth and distributions, taking withdrawals before age 59 and a half can result in penalties for early withdrawals. However, there are exceptions to the early withdrawal penalty for both accounts:

Roth TSP Early Withdrawal Exceptions

The Roth TSP allows for penalty-free withdrawals before age 59 and a half if you meet certain criteria, including:

1. Distribution After Leaving Government Service: If you leave federal employment in the year you turn 55 or later, you can take penalty-free withdrawals from your Roth TSP account. If you leave service before the age of 55, you must wait until age 59 and a half to take penalty-free withdrawals.

2. Qualified Reservist Distribution: If you’re a Reservist or National Guard member and have been called to active duty for at least 180 days, you can take penalty-free withdrawals from your Roth TSP account.

3. IRS Levy: If the IRS places a levy on your Roth TSP account, you may be eligible for a penalty-free withdrawal.

Roth IRA Early Withdrawal Exceptions

The IRS allows for penalty-free withdrawals from a Roth IRA before age 59 and a half under certain circumstances, including:

1. Qualified Distribution: A qualified distribution is a withdrawal made after age 59 and a half and after the account has been open for at least five years.

2. Disability: If you become permanently disabled before age 59 and a half, you may withdraw funds from your Roth IRA without penalty.

3. First-Time Homebuyer: You may withdraw up to $10,000 from your Roth IRA without penalty to purchase your first home.

4. Unreimbursed Medical Expenses: You may withdraw funds from your Roth IRA without penalty to pay for unreimbursed medical expenses that exceed 10% of your adjusted gross income.

In summary, while the Roth TSP and Roth IRA offer many benefits, understanding the withdrawal rules is critical for avoiding penalties. By rolling over your Roth TSP into a Roth IRA, you can gain greater investment flexibility and control over your funds. If you do need to withdraw funds before age 59 and a half, understanding the early withdrawal exceptions can help you avoid penalties and maximize your retirement savings.