I like the TSP. No, I LOVE the TSP! And you should too. However, when it comes to distributions from the TSP, you literally could not make it any more complex.

For this reason alone, it would be wise to roll your TSP over to an IRA upon separating from service, unless you really, and I mean REALLY, want to leave your heirs with a nightmare.

Now, when I say rollover to an IRA, I don’t propose you put it into a high cost fund or annuity. You can get similarly cheap investments at Vanguard and other places as TSP. But with those firms come much more flexibility in distribution options.

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TSP Withdrawal Options are HORRIBLE! Why You Should Roll it to an IRA

The Thrift Savings Plan (TSP) is a retirement savings and investment plan for federal employees and members of the uniformed services, offering a variety of investment options and tax benefits. However, when it comes to withdrawing money from your TSP account, the options are severely limited and inflexible, making it a less-than-ideal choice for those looking to access their retirement funds.

One of the main drawbacks of TSP withdrawal options is the lack of flexibility in accessing your funds. While TSP does offer several withdrawal options, such as a partial withdrawal, a single payment, or a series of monthly payments, the restrictions and limitations on these options can be frustrating for retirees. For example, TSP only allows one partial withdrawal during your lifetime, and the amount you can withdraw is subject to certain rules and limitations. Additionally, the monthly payments option does not allow for changes in the payment amount, frequency, or duration, making it difficult to adjust your withdrawals to fit your financial needs.

Furthermore, the tax implications of TSP withdrawals can be disadvantageous for retirees. When you withdraw money from your TSP account, the entire withdrawal amount is subject to federal income tax, which can result in a significant tax burden, especially for larger withdrawals. In contrast, rolling over your TSP account to an Individual retirement account (IRA) offers more flexibility and control over your withdrawals, as well as potential tax advantages.

Rolling over your TSP to an IRA gives you the ability to choose from a wider range of investment options, as well as more control over your withdrawals. With an IRA, you can access your funds through a variety of withdrawal options, such as periodic payments, lump sum withdrawals, or systematic withdrawals, allowing you to tailor your withdrawals to your specific financial needs. Additionally, IRAs offer more flexibility in managing the tax implications of your withdrawals, as certain types of IRAs, such as Roth IRAs, offer tax-free withdrawals in retirement.

In conclusion, the limited and inflexible withdrawal options of the TSP make it a less-than-ideal choice for retirees who are looking to access their retirement funds. By rolling over your TSP account to an IRA, you can gain more control and flexibility over your withdrawals, as well as potential tax advantages. If you’re unhappy with the TSP’s withdrawal options, consider rolling over your account to an IRA to take advantage of the benefits and flexibility that an IRA has to offer.