Military TSP to IRA Rollover: A Veteran's Guide for 2026

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For many veterans, the financial briefing at separation is cursory: a checklist, a handshake, and a vague notion that you should "probably do something" with your retirement accounts. That "something" usually involves a decision that will affect your wealth for decades: should you keep your money in the Thrift Savings Plan, or roll it to an IRA?

The default advice is often "leave it in the TSP because fees are low." That advice is not wrong. The TSP's expense ratios are genuinely excellent and the G Fund is one of a kind. But fees are no longer the only factor that matters. The SECURE Act and changes to inheritance rules have shifted the calculus for military families. This guide walks through the tradeoff honestly, from both sides.

1. Understanding the Thrift Savings Plan (TSP)

The Thrift Savings Plan is the federal government's version of a 401(k). It is a defined contribution plan that has served as the bedrock of military retirement savings, especially under the Blended Retirement System (BRS).

The Core 5 Funds

Unlike civilian 401(k)s that may offer dozens of choices, the TSP keeps it simple:

• G Fund (Government Securities): A principal-protected fund that earns interest tied to long-term Treasuries, an option you cannot replicate in an IRA.
• F Fund (Fixed Income): Tracks the Bloomberg U.S. Aggregate Bond Index.
• C Fund (Common Stock): Tracks the S&P 500 Index (large U.S. companies).
• S Fund (Small Cap): Tracks the Dow Jones U.S. Completion Total Stock Market Index.
• I Fund (International): Tracks an international developed-markets index.

2026 Limits and Matches

For 2026, the elective deferral limit has risen to $24,500 (up from $23,500 in 2025). If you are age 50 or older, you can contribute an additional $8,000 in catch-up contributions, for a total of $32,500. If you are between ages 60 and 63, SECURE 2.0 created a "super catch-up" allowing up to $11,250 extra ($35,750 total). Under the Blended Retirement System (BRS), the DoD matches up to 5% of your base pay, a benefit worth capturing while you are active.

"The Lifecycle (L) Funds offer automated rebalancing, but they are often more conservative than a veteran with a pension needs. A defined-benefit pension acts like a large bond allocation, which can free you to hold more equity in the TSP than a civilian with the same balance."

2. When to Roll Over: Separation, Retirement, or Wait?

The timing of a TSP-to-IRA rollover matters. You generally have three windows:

Separation Before Retirement

If you separate before 20 years, you keep your TSP but lose the ability to contribute (unless you join federal civil service). A rollover here is often considered to consolidate accounts and gain investment flexibility, weighed against the TSP's low costs and the G Fund.

Military Retirement (20+ Years)

Retiring with a pension changes your risk profile. You now have a "floor" of guaranteed income. This is often the time veterans evaluate a rollover to run Roth conversions during the "gap years": the period between military retirement and Social Security / RMD age.

The Age 59½ and Age 73 Milestones

Once you reach age 59½, you can withdraw penalty-free. At age 73, Required Minimum Distributions (RMDs) begin. RMDs from a Traditional TSP are fully taxable and can create a "tax torpedo" when combined with a military pension and Social Security. The TSP has historically been less flexible on withdrawals than an IRA.

3. TSP vs. IRA: Key Differences and Tradeoffs

Why would anyone move money out of a low-cost plan? Because cost is not the only measure of value. Control, tax flexibility, and estate planning can outweigh a few basis points. But the TSP's strengths are real, so the decision is a genuine tradeoff, not a foregone conclusion.

4. The Roth Conversion Ladder Strategy

This is a primary reason veterans consider a TSP rollover. A Roth conversion ladder systematically moves money from Traditional (pre-tax) accounts to Roth (tax-free) accounts over a series of years.

Why the "Gap Years" Matter

Many veterans retire in their 40s or 50s. You have a military pension, but you likely have not yet started Social Security or RMDs. This creates a "tax valley": years where your taxable income is lower than it will be later in life, creating room to convert at lower rates.

The Strategy

1. Roll over: Move Traditional TSP funds to a Traditional IRA.
2. Convert: Each year, convert enough to "fill up" your current tax bracket (for example, the 22% or 24% bracket).
3. Pay tax now: You pay tax on the converted amount while your income is in the valley.
4. Grow tax-free: Converted dollars grow tax-free from then on.
5. Withdraw tax-free: Qualified Roth distributions do not count as provisional income, so they will not push up taxes on your Social Security later.

2026 update: The TSP now offers in-plan Roth conversions (starting Jan 28, 2026). An IRA still provides more granular control over conversion timing and amount precision, which is why the full ladder strategy (converting specific amounts to "fill" your bracket each year) is often run in an IRA. Figures above are illustrative and depend on your specific facts.

5. The SECURE Act 10-Year Rule: Protecting Your Inheritance

The SECURE Act of 2019 eliminated the "Stretch IRA," which used to let your children inherit a retirement account and stretch distributions over their lifetime.

The New Reality: The 10-Year Rule

If you pass away and leave a Traditional TSP or IRA to a non-spouse beneficiary (like your children), they must empty the entire account within 10 years.

The Tax-Bomb Scenario

Imagine you leave a $1,000,000 Traditional TSP to your daughter, age 45 and in her peak earning years. She must withdraw that balance over 10 years: roughly $100,000 on top of her salary every year. That can push her into a much higher bracket, with state tax on top, so a large share of your life savings can be lost to taxes.

One possible response: converting some of that money to Roth before you pass (using the ladder above) means she still empties the account in 10 years, but qualified Roth withdrawals are tax-free. You pay the tax toll at a controlled rate today instead of leaving her a larger one tomorrow. Whether this fits depends on your bracket versus hers.

6. Coordination with Military Pension and VA Disability

Veterans often have an income mix civilians do not:

1. Military pension: Taxable at the federal level; treatment varies by state.
2. VA disability: Tax-free.
3. TSP / investments: Taxable (Traditional) or tax-free (Roth).

The VA Disability Advantage

Because VA disability is tax-free, it does not fill up your tax brackets. That can let you convert more of your Traditional TSP to Roth without jumping into a higher bracket. A civilian with $60,000 of income has $60,000 of taxable income; a veteran with $60,000 of income might have far less taxable if part is VA disability, creating "headroom" in lower brackets to move money at a lower cost.

7. Step-by-Step TSP Rollover Process

Executing a TSP-to-IRA rollover requires precision. One wrong checkbox can trigger a large tax bill.

Step 1: Open Your Destination IRA

You cannot roll over to "yourself." Open a Traditional IRA (and/or Roth IRA) at a custodian before you start.

Step 2: Log into TSP.gov

Use the "Rollovers and Distributions" tool. You will need the account number and letter-of-acceptance details from your new IRA custodian.

Step 3: Choose "Direct Rollover"

Crucial: instruct the TSP to send the funds directly to the new institution. Do not have the check made payable to you.

Step 4: Mind the 60-Day Rule

If the TSP mails a check made payable to the custodian, you must deposit it within 60 days. Miss the window and the IRS may treat the entire balance as a taxable distribution, plus a 10% penalty if you are under 59½.

Step 5: Invest the Funds

Once the funds arrive in your IRA, they sit in cash until you invest them. This is the time to build a portfolio that complements your pension floor.

8. Common Mistakes to Avoid

1. The indirect rollover. Requesting a check payable to you triggers automatic 20% federal withholding. You then have 60 days to deposit the full amount, meaning you must replace the withheld 20% from savings to make the deposit whole. Always do a direct rollover.
2. Rolling Roth TSP to Traditional IRA. This turns tax-free money back into taxable money. Roll Roth TSP to Roth IRA, and Traditional TSP to Traditional IRA.
3. Converting too much in one year. A large single-year conversion can spike your bracket and, two years later, your Medicare IRMAA surcharges. Spreading conversions can help.
4. Ignoring state taxes. Some states exempt military pensions and federal TSP distributions from state tax. Moving to an IRA may change that treatment depending on state law.

Frequently Asked Questions

Can I roll over my TSP while still in service?

Generally no. In-service withdrawals are limited to age 59½+ or financial hardship. Most veterans must wait until they separate or retire.

What is the difference between a Traditional and Roth IRA?

A Traditional IRA is pre-tax (deduction now, tax later). A Roth IRA is post-tax (tax now, tax-free qualified withdrawals later). Which fits depends on your current versus expected future bracket.

Do I pay taxes on a TSP-to-IRA rollover?

No, provided you roll Traditional to Traditional and Roth to Roth. Taxes are triggered only if you convert Traditional to Roth, or if you withdraw the money.

What happens to my TSP loan if I separate?

You generally must repay it within a set window. If you do not, the outstanding balance is treated as a taxable distribution, subject to income tax and possible penalties.