Yes. You can roll over your Thrift Savings Plan to Fidelity through a direct rollover once you separate from federal service or reach age 59½. The Internal Revenue Code Section 402(c) creates the legal framework requiring separated employees to wait at least 31 days after their separation date before accessing TSP funds, and this waiting period forces many federal employees into rushed financial decisions. Missing a single step in the rollover process can trigger a mandatory 20% federal tax withholding on your entire account balance.
The TSP holds more than $1 trillion in assets across 7 million participant accounts, making it the largest defined contribution plan in the United States. As federal employees approach retirement, they face critical decisions about whether to keep their money in the TSP or move it to a private financial institution like Fidelity.
What you will learn in this article:
🎯 The exact step-by-step process to roll your TSP to Fidelity without triggering penalties or taxes
💰 How direct rollovers save you 20% in mandatory withholding that indirect rollovers require
📋 The specific forms you need and the 7-day waiting period before you can move your money
⚠️ The critical mistakes that cost federal retirees thousands in penalties and how to avoid them
🔍 Real-world scenarios showing what happens with $100,000, $250,000, and $500,000 rollover amounts
What Makes TSP Rollovers to Fidelity Different From Other Retirement Account Transfers
The TSP operates under unique federal regulations that differ from private-sector 401(k) plans. Federal law grants TSP participants special protections and restrictions that do not apply to traditional employer retirement plans. The 5 CFR Part 1650 governs TSP withdrawals and establishes the framework for all rollover transactions.
When you work for the federal government, your TSP account falls under the jurisdiction of the Federal Retirement Thrift Investment Board. This independent agency sets rules that sometimes conflict with what private-sector workers experience with their 401(k) plans. The TSP cannot process rollover requests until your agency formally reports your separation status to the system, which creates delays that do not exist with private employers.
The G Fund stands as the most significant difference between TSP and private retirement accounts. This special government securities fund exists only within the TSP and invests in short-term U.S. Treasury securities that are not available to the general public. Once you roll your money out of the TSP, you lose access to the G Fund permanently and cannot roll money back into the TSP to regain this access unless you return to federal service.
Your TSP account contains employer matching contributions that came from taxpayer dollars. These matching contributions always sit in the traditional (pre-tax) portion of your account, regardless of whether you made Roth or traditional contributions. When you roll over to Fidelity, the matching contributions must go into a traditional IRA to maintain their tax-deferred status, even if you contributed to a Roth TSP.
Who Can Roll Over TSP to Fidelity and When
Federal employees must meet specific eligibility requirements before the TSP allows any rollover transaction. The timing of your rollover determines whether you face penalties and what options remain available. TSP rules distinguish between active employees and separated employees, with each category facing different restrictions and opportunities.
Separated Employees
You become eligible for a full TSP rollover the day after you separate from federal service. However, your agency must report your separation to the TSP before you can initiate any withdrawal or rollover. This reporting process typically takes 30 to 45 days from your final day of work, though some agencies report separations more quickly.
The TSP system checks for a 31-day break in service before processing any distribution. If you separate from one federal job and start another federal position within 31 days, the TSP treats you as a continuous employee and blocks your access to rollover options. This rule prevents employees who change federal jobs from unnecessarily cashing out their retirement savings.
Active Employees Age 59½ or Older
Federal employees who reach age 59½ can take an age-based in-service withdrawal while still working. You can request up to four age-based withdrawals per calendar year, with no more than one withdrawal in any 30-day period. The TSP allows you to roll these withdrawals directly to Fidelity, but you must initiate the rollover through the proper channels.
Active employees who take an age-based withdrawal give up their right to request a partial withdrawal after separation. The TSP treats the age-based withdrawal as your one partial withdrawal opportunity, which means you can only take a full withdrawal or installment payments after you retire.
Special Category Employees
Law enforcement officers, firefighters, air traffic controllers, and other special category employees face different age rules. These employees can access their TSP without the 10% early withdrawal penalty if they separate from service in the year they turn 50 or later. The SECURE Act 2.0 expanded this benefit to allow penalty-free access after 25 years of service, regardless of age.
Military members who contributed tax-exempt combat zone pay to their TSP face unique rollover considerations. The tax-exempt portion of your traditional TSP can roll over to a Roth IRA without triggering income taxes, but the TSP distributes these funds on a pro-rata basis with your regular pre-tax contributions.
The Fundamental Difference Between Direct and Indirect Rollovers
The method you choose for moving money from TSP to Fidelity determines your immediate tax consequences and administrative burden. Federal tax law under IRC Section 402(c) establishes two distinct rollover paths, each with different withholding requirements and deadlines. The TSP strongly recommends direct rollovers, and financial advisors universally echo this guidance.
Direct Rollover Mechanics
A direct rollover moves your money straight from the TSP to Fidelity without you ever touching the funds. The TSP issues a check made payable to “Fidelity Management Trust Company FBO [Your Name]” and mails it directly to Fidelity’s processing center. The “FBO” designation stands for “for benefit of” and tells Fidelity that you are the account owner even though the check is made payable to the institution.
The federal government applies zero tax withholding on direct rollovers. Your full account balance transfers to Fidelity, and you receive no taxable distribution. The TSP reports the transaction to the IRS on Form 1099-R with distribution code G, which signals a direct rollover to a qualified plan. You report this transaction on your tax return, but you owe no taxes unless you converted traditional money to a Roth account.
Indirect Rollover Requirements
An indirect rollover occurs when the TSP sends the money directly to you instead of to Fidelity. The TSP withholds 20% for federal income taxes from the taxable portion of your distribution, even if you tell them you plan to roll the money into an IRA. This mandatory withholding applies to all indirect rollovers and cannot be waived.
You have exactly 60 days from the date you receive the distribution to deposit the full amount into your Fidelity IRA. The IRS counts calendar days, not business days, and grants almost no exceptions to this deadline. If you miss the 60-day window, the IRS treats the entire distribution as taxable income, and you face a 10% early withdrawal penalty if you are under age 59½.
The 20% withholding creates a cash flow problem that trips up many federal retirees. If the TSP sends you $80,000 after withholding $20,000 from your $100,000 account, you must deposit the full $100,000 into your Fidelity IRA to avoid taxes. This means you need to find $20,000 from other sources to make up the withheld amount, and you get that $20,000 back as a tax refund when you file your return.
Direct vs. Indirect Rollover Comparison for $100,000 Balance
| Feature | Impact |
|---|---|
| Direct rollover – amount you receive | $0 (check goes to Fidelity) |
| Direct rollover – amount withheld | $0 |
| Direct rollover – tax consequences | None |
| Indirect rollover – amount you receive | $80,000 |
| Indirect rollover – amount withheld | $20,000 |
| Indirect rollover – amount you must deposit within 60 days | $100,000 |
| Indirect rollover – tax consequences | Taxable on any shortfall |
The Complete Step-by-Step Process for TSP to Fidelity Rollovers
Rolling your TSP to Fidelity requires careful attention to sequence and timing. Each step builds on the previous one, and skipping or reordering steps causes delays or processing errors. The TSP website allows you to complete most of these steps online, though some situations require phone calls to customer service.
Step 1: Open Your Fidelity IRA Account
Contact Fidelity or visit their website to open the appropriate IRA account before you request any distributions from the TSP. You need a traditional IRA to receive traditional TSP money and a Roth IRA to receive Roth TSP money. Fidelity requires your Social Security number, date of birth, and basic contact information to establish the account.
Fidelity assigns you an account number immediately upon approval. Write down this account number because the TSP requires it to process your rollover request. Fidelity charges no account opening fees and no annual maintenance fees for IRA accounts, though individual investments within the IRA may carry their own expense ratios.
Step 2: Add Fidelity to Your TSP Account as a Financial Institution
Log into your TSP account at tsp.gov and navigate to the “My Account” section. Select “Profile Settings” and then “Financial Institutions and Providers.” Click “Add Financial Institution” to begin the process. The TSP asks for the institution name, your account number, the account type (traditional or Roth IRA), and the mailing address for direct rollovers.
Enter “Fidelity Investments” as the institution name. The TSP system limits this field to a certain number of characters, so you cannot include additional descriptors. Provide your Fidelity IRA account number exactly as it appears on your account documents. For the rollover type, select “Direct Rollover” to ensure the check goes to Fidelity instead of to you.
The TSP imposes a mandatory 7-day security waiting period after you add a new financial institution. This waiting period protects you from fraud by giving you time to notice any unauthorized changes to your account. You cannot initiate any rollover to the newly added institution until this 7-day period expires. The waiting period applies even if you have rolled money to Fidelity in the past but removed Fidelity from your list of financial institutions.
Step 3: Wait for Your Separation to Process
Your agency must formally notify the TSP of your separation before the system allows any withdrawal or rollover requests. This notification happens automatically through the payroll system, but the timing varies by agency. Most agencies report separations within 30 to 45 days of your final day, though some process the paperwork faster.
You can check your separation status by logging into your TSP account and looking at your account status. The system displays “Separated” once your agency reports the information. Until this status change occurs, the TSP blocks your access to post-separation withdrawal options. Some participants experience delays of 60 days or more if their agency fails to submit the separation notice promptly.
Step 4: Initiate the Rollover Through the TSP Website
After the 7-day waiting period expires and your separation processes, log into your TSP account and select “Withdrawals and Changes to Installment Payments” from the menu. Choose “Request a Withdrawal” and then select either “Partial Withdrawal” if you want to leave some money in the TSP or “Full Withdrawal” to close your account completely.
The TSP asks whether you want to roll over your withdrawal to a financial institution or receive the money directly. Select the rollover option and choose Fidelity from your list of approved financial institutions. Specify the amount you want to roll over, either as a dollar amount or a percentage of your account balance.
The system generates withdrawal paperwork that you must review and submit electronically. If you are married, your spouse may need to consent to the withdrawal by signing the forms electronically or on paper. The spousal consent requirements apply to FERS employees but work differently for CSRS employees and uniformed services members.
Step 5: Confirm the Disbursement Date and Track the Check
The TSP provides a disbursement date when you submit your rollover request. This date typically falls 7 to 10 business days after you complete the online forms. The TSP processes rollover requests faster than it did before the 2022 system changes, but you should still expect at least a week before the check goes out.
The TSP mails checks through regular U.S. Postal Service mail with no tracking number. The check goes to the address Fidelity provided in their institutional information, not to your home address. You cannot request expedited shipping or courier delivery for rollover checks. Most participants report receiving checks at Fidelity within 5 to 14 days from the disbursement date.
Step 6: Verify the Deposit at Fidelity
Fidelity typically deposits your rollover check within 1 to 3 business days of receiving it. The funds initially show as pending while Fidelity verifies the check and confirms your account information. Once the deposit clears, you can invest the money according to your retirement strategy.
You receive a confirmation notice from Fidelity by mail and email. This notice shows the amount deposited, the date of the deposit, and your updated account balance. Contact Fidelity immediately if the deposited amount does not match what the TSP said they would send, as errors occasionally occur during processing.
How Traditional and Roth TSP Accounts Roll Over Differently
The tax treatment of your TSP contributions determines how you must structure your rollover to Fidelity. Federal tax law requires matching tax types when you roll over retirement accounts. Traditional money must move to traditional accounts, and Roth money must move to Roth accounts, unless you intentionally convert traditional to Roth and pay the resulting taxes.
Traditional TSP to Traditional IRA
Your traditional TSP contains pre-tax contributions and any employer matching contributions. These dollars have never been taxed, which means you owe income tax when you eventually withdraw them from your Fidelity IRA. A direct rollover from traditional TSP to a traditional IRA triggers no immediate tax liability because the money stays in the pre-tax category.
The entire rollover amount goes into your Fidelity traditional IRA, and you continue to defer taxes until you take distributions in retirement. The IRS reports this transaction on Form 1099-R with code G, which indicates a direct rollover that requires no current tax payment. You report the transaction on your Form 1040, but the amount shows as non-taxable.
Roth TSP to Roth IRA
Your Roth TSP contains after-tax contributions and any earnings on those contributions. You already paid income tax on the contributions when you made them, so those dollars can move to a Roth IRA without any additional tax consequences. The five-year clock on your Roth TSP determines whether your earnings are qualified or non-qualified.
A qualified Roth TSP distribution means you made your first Roth TSP contribution at least five years ago and you are at least age 59½, disabled, or deceased. If your distribution qualifies, the entire amount rolls to your Roth IRA tax-free, including all earnings. The Roth IRA starts its own five-year clock from the date of your first Roth IRA contribution, not from the rollover date.
A non-qualified Roth TSP distribution occurs when you fail to meet either the five-year rule or the age requirement. The TSP tracks your contributions separately from your earnings in this situation. Your contributions roll over to your Roth IRA and can be withdrawn at any time without taxes or penalties. Your earnings also roll over, but they sit in a separate bucket within the Roth IRA and cannot be withdrawn tax-free until the Roth IRA satisfies its own five-year holding period.
Traditional TSP to Roth IRA Conversions
You can convert traditional TSP money to a Roth IRA during a rollover, but this transaction triggers immediate income tax liability. The TSP treats this as a distribution followed by a Roth conversion, and you must pay ordinary income tax on the full amount converted. The converted amount appears on your Form 1040 as taxable income for the year you complete the conversion.
Converting large traditional TSP balances to Roth IRAs can push you into higher tax brackets and trigger additional consequences. You may lose eligibility for certain tax credits, face higher Medicare Part B premiums through IRMAA surcharges, or trigger the 3.8% net investment income tax. Most financial advisors recommend spreading large Roth conversions across multiple years to manage your tax bracket.
Splitting Your Rollover Between Account Types
The TSP allows you to roll some money to a traditional IRA and some to a Roth IRA in the same transaction. You specify percentages or dollar amounts for each destination, and the TSP splits the distribution accordingly. This strategy works well when you want to convert only part of your traditional balance to Roth while keeping the rest in a traditional IRA.
TSP Rollover Tax Treatment Summary
| Source and Destination | Tax Treatment |
|---|---|
| Traditional TSP to Traditional IRA | No tax – direct rollover |
| Roth TSP to Roth IRA | No tax – qualified or non-qualified |
| Traditional TSP to Roth IRA | Fully taxable conversion |
| Roth TSP to Traditional IRA | Not allowed by IRS |
Special Considerations for Military Combat Zone Tax-Exempt Contributions
Military members who served in combat zones and contributed tax-exempt pay to their TSP face unique rollover situations. These tax-exempt contributions sit in your traditional TSP account but carry different tax treatment than regular pre-tax contributions. When you withdraw or roll over your traditional TSP, the tax-exempt portion comes out proportionally with your regular pre-tax money.
The TSP calculates the tax-exempt percentage of your traditional account balance. If you contributed $50,000 in tax-exempt combat pay and $50,000 in regular pre-tax contributions, and your account has grown to $200,000, then 25% of any distribution is tax-exempt. The remaining 75% consists of taxable contributions and earnings.
You can roll the entire traditional TSP to a traditional IRA with no current taxes, and the tax-exempt portion retains its special status in the IRA. When you eventually take distributions from the IRA, that tax-exempt portion comes out tax-free while the rest gets taxed as ordinary income. The IRS requires you to track the tax-exempt amount on Form 8606 to prevent double taxation.
Military retirees often prefer to roll just the tax-exempt portion to a Roth IRA. This strategy converts money that has never been taxed into a Roth account where it will never be taxed, creating a triple tax benefit. However, the TSP distributes funds pro-rata, so you cannot cherry-pick only the tax-exempt dollars. You must roll the full amount or accept the proportional split.
The Critical Waiting Periods and Timelines You Must Follow
The TSP imposes multiple waiting periods that extend your rollover timeline beyond what many federal employees expect. These waiting periods exist for security purposes and regulatory compliance, but they frustrate participants who want immediate access to their money. Understanding these timelines helps you plan your rollover to avoid unnecessary stress.
7-Day Financial Institution Waiting Period
The moment you add Fidelity to your list of approved financial institutions, the TSP starts a 7-day countdown. This mandatory waiting period prevents fraudsters from adding their own accounts and immediately stealing your money. The 7 days count as calendar days, not business days, so weekends and holidays count toward the total.
You can add Fidelity to your account months or even years before you plan to roll over. The 7-day waiting period only applies the first time you add a specific financial institution, so proactive participants add Fidelity while still employed to eliminate this delay later. If you remove Fidelity from your account and later re-add it, the 7-day clock starts over.
30-45 Day Agency Separation Reporting Delay
Your agency controls when the TSP receives notification of your separation. Federal regulations require agencies to report personnel actions promptly, but no specific deadline exists for separation notices. Most agencies report within 30 days, though some take 45 to 60 days or longer.
This delay causes the most frustration among newly separated federal employees. You cannot initiate your rollover until your separation status updates in the TSP system, and you have no direct control over when your agency submits the paperwork. Some participants report calling their HR offices repeatedly to push the separation notice through faster.
7-14 Day Check Processing and Mailing Time
The TSP needs time to process your rollover request, generate the check, and mail it to Fidelity. The online system typically shows a disbursement date that falls 7 to 10 business days after you submit your request. However, the actual check may not arrive at Fidelity for several more days due to postal service delays.
Fidelity receives hundreds of rollover checks daily and processes them in the order received. Most checks clear within 2 to 3 business days of arrival, but complex situations or missing documentation can extend this timeline. You can call Fidelity to check whether they have received your check if the timeline extends beyond two weeks.
30-Day Waiting Period Between Multiple Rollovers (Eliminated)
Prior to May 15, 2024, the TSP required participants to wait 30 days between individual withdrawal requests. This rule created problems for people who wanted to roll over different portions of their account to different institutions or who wanted to take partial rollovers over time. The TSP eliminated this 30-day restriction for all withdrawals processed after that date, giving separated participants much more flexibility.
Required Minimum Distributions and How They Affect TSP Rollovers
The IRS forces you to begin taking required minimum distributions from traditional accounts starting at age 73 if you were born between 1951 and 1959, or age 75 if you were born in 1960 or later. These RMD rules apply to both the TSP and traditional IRAs, and you cannot avoid them by rolling over your money. In fact, the rollover itself creates new RMD obligations you must understand.
TSP RMD Rules While Still Employed
The TSP grants you a special RMD exemption if you continue working for the federal government past your RMD age. You do not need to take RMDs from your TSP as long as you remain a federal employee, regardless of your age. This “still working” exception gives career federal employees more time to let their TSP grow tax-deferred.
This exemption disappears the day you separate from federal service. Starting the year after you separate, you must begin taking RMDs based on your age and account balance. The TSP calculates your RMD automatically and sends you reminders, but you remain responsible for taking the correct amount before December 31 each year.
RMDs Must Come Out Before You Roll Over
Federal tax law prohibits rolling over RMDs. If you have already reached your RMD age and separated from service, you must take your RMD for the current year before you can roll any additional money to Fidelity. The TSP blocks rollover requests until you satisfy your RMD obligation, and trying to roll over your RMD amount triggers taxes and penalties.
Your first RMD has a special deadline. You can delay taking it until April 1 of the year after you reach your RMD age, though financial advisors usually recommend against this delay because it forces you to take two RMDs in the same calendar year. You cannot roll over any TSP money until you take this first RMD if you have already passed your required beginning date.
How Roth TSP RMD Rules Changed in 2024
Before 2024, Roth TSP accounts were subject to RMDs just like traditional TSP accounts, even though the distributions were tax-free. The SECURE 2.0 Act eliminated RMDs for Roth TSP accounts starting in 2024, matching the treatment of Roth IRAs. This change removed a major reason to roll Roth TSP money out of the TSP.
If you roll your Roth TSP to a Roth IRA, you maintain the RMD-free status. Neither account requires distributions during your lifetime, giving you maximum flexibility to leave the money to your heirs. Traditional TSP money still faces RMDs whether you leave it in the TSP or roll it to a traditional IRA.
Calculating Your RMD Amount
The IRS publishes life expectancy tables that determine your RMD percentage. At age 73, the distribution period is 26.5 years, which means you must withdraw approximately 3.77% of your account balance. This percentage increases each year as your life expectancy shortens. At age 80, the distribution period drops to 20.2 years, requiring a 4.95% withdrawal.
You calculate your RMD by dividing your account balance as of December 31 of the prior year by your life expectancy factor. If your traditional IRA contains $200,000 on December 31, 2025, and you turn 74 in 2026, your RMD equals $200,000 divided by 25.5, which is $7,843. Failing to take this full amount results in a 25% penalty on the shortfall, which drops to 10% if you correct the error within two years.
The Most Common and Costly TSP Rollover Mistakes
Federal employees make predictable errors when rolling their TSP to Fidelity, and these mistakes trigger unnecessary taxes and penalties. Learning from others’ errors helps you avoid the same problems and keeps your retirement savings intact. The consequences of these mistakes can cost thousands of dollars and create years of tax complications.
Choosing an Indirect Rollover Instead of Direct
The single biggest mistake is requesting the TSP to send the check to you instead of directly to Fidelity. Some participants make this choice because they want to see the check or they misunderstand the difference between direct and indirect rollovers. The 20% mandatory withholding applies immediately, and you must scramble to replace the withheld amount within 60 days.
Federal employees who receive $200,000 from their TSP find themselves holding a $160,000 check after $40,000 gets withheld for taxes. They need to deposit $200,000 into their Fidelity IRA to avoid current taxes, which means finding $40,000 from other sources. Many people cannot access this much cash on short notice, which leaves them stuck paying taxes on the $40,000 shortfall plus a 10% penalty if they are under age 59½.
Missing the 60-Day Deadline on Indirect Rollovers
The IRS grants very few exceptions to the 60-day rollover deadline. Medical emergencies, natural disasters affecting your area, and errors by financial institutions sometimes qualify for waivers, but general forgetfulness or misunderstanding the rules do not. The 60-day period starts the day you receive the distribution, not when you decide to complete the rollover.
Courts have ruled that the IRS does not need to grant extensions just because a taxpayer did not understand the rules. One taxpayer argued that the complexity of the rollover rules should excuse his late deposit, but the court sided with the IRS and upheld the taxes and penalties. The lesson is clear: do not attempt an indirect rollover unless you fully understand the requirements and have the cash available to cover any withholding.
Rolling Over More Than One IRA to IRA Per Year
The IRS limits you to one IRA-to-IRA rollover yearly, counting all of your traditional IRAs as a single IRA for this purpose. This restriction does not apply to rollovers from the TSP to an IRA, but it catches people who later try to move money between different IRA accounts. If you violate the one-per-year rule, the second rollover becomes a taxable distribution.
This rule trips up retirees who roll their TSP to a Fidelity IRA and then decide months later to move some IRA money to a different custodian. If they request the IRA custodian to send them a check and they deposit it at the new custodian, they have triggered the one-per-year limit. Direct trustee-to-trustee transfers between IRAs do not count against this limit, which makes them the preferred method for moving IRA money.
Forgetting About Outstanding TSP Loans
If you have an outstanding TSP loan when separated, you must repay it within 90 days or the TSP declares a taxable distribution. The unpaid loan balance gets reported as income on your tax return, and you owe taxes plus the 10% early withdrawal penalty if you are under age 55 in the year of separation. Many separated employees forget about their loans until they receive the Form 1099-R showing the taxable distribution.
You can avoid these taxes by rolling over an amount equal to the unpaid loan balance into a traditional IRA within 60 days of the loan foreclosure. This rollover uses your own after-tax money to replace the loan proceeds you already spent, but it preserves the tax-deferred status of those dollars. You have until the tax filing deadline, including extensions, to complete this loan offset rollover.
Rolling Over Required Minimum Distributions
The IRS prohibits rolling over any portion of your RMD amount for the current year. If you request a full rollover without first taking your RMD, the TSP automatically holds back the RMD amount and sends it to you as a direct payment. This creates confusion because you expected the full balance to go to Fidelity, but you receive an unexpected check for the RMD portion.
The RMD money you receive gets taxed as ordinary income in the year you receive it. You cannot circumvent this tax by depositing the RMD into an IRA. The IRS tracks RMD amounts on Form 1099-R using specific distribution codes, and the IRS computers flag any attempt to claim a rollover of RMD dollars.
Using the Wrong TSP Withdrawal Form
The TSP maintains different forms for different types of withdrawals, and using the wrong form causes processing delays or outright rejection of your request. Form TSP-77 handles partial withdrawals when separated, while Form TSP-70 processes full withdrawals. Form TSP-75 applies to age-based in-service withdrawals, and Form TSP-76 covers financial hardship withdrawals.
Participants sometimes submit Form TSP-70 when they intend to roll over only part of their account. The TSP processes the form as submitted and liquidates the entire account, rolling the specified amount to Fidelity and sending the remainder directly to the participant. This mistake triggers taxes on the portion that went directly to the participant and cannot be reversed after processing.
Failing to Update Direct Deposit Information
The TSP requires your bank account information or financial institution details to be on file for at least 7 days before processing any distribution. Some participants submit their rollover request first and then try to add Fidelity to their account, which does not work. The system rejects the rollover request and forces you to wait 7 days after adding Fidelity before trying again.
Tax Implications and State-by-State Considerations
Rolling your TSP to Fidelity involves both federal and state tax rules, and the consequences vary significantly depending on where you live. State income tax treatment of distributions can influence your decision to roll over or stay in the TSP. Some states offer special tax breaks for federal pensions and TSP withdrawals that disappear when you roll the money into an IRA.
Federal Tax Treatment of Direct Rollovers
The Internal Revenue Service treats direct rollovers as non-taxable events when you match account types correctly. Traditional TSP to traditional IRA rollovers generate no current tax liability because the money stays in the pre-tax category. Roth TSP to Roth IRA rollovers similarly avoid taxes because the contributions were already taxed and the earnings roll over to another tax-free account.
Converting traditional TSP to Roth IRA creates a taxable event equal to the full amount converted. The IRS adds this amount to your ordinary income for the year, which can push you into higher tax brackets. You report the conversion on Form 8606 and include the taxable amount on your Form 1040. The TSP does not withhold taxes on direct rollovers to Roth IRAs, so you must have cash available to pay the resulting tax bill when you file your return.
State Tax Treatment Varies Widely
Nine states impose no income tax at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. If you live in one of these states, you avoid state income tax on both TSP distributions and IRA distributions, which makes the rollover decision purely about investment options and fees rather than tax consequences.
Four states impose income tax but exempt all retirement income: Illinois, Iowa, Mississippi, and Pennsylvania. Illinois charges a flat 4.95% income tax on wages but exempts pensions, TSP distributions, and IRA distributions completely. Pennsylvania also exempts all retirement account distributions regardless of your age or the amount withdrawn, as long as you meet the plan requirements for the distribution.
New York Offers Special TSP Protection
New York treats TSP distributions differently than IRA distributions for state income tax purposes. The state considers your TSP a government pension benefit, which means withdrawals qualify for favorable tax treatment or complete exemption depending on your circumstances. However, if you roll your TSP into an IRA, you forfeit this special treatment and New York taxes IRA distributions as ordinary income.
This distinction matters significantly for federal retirees who live in New York. A $50,000 withdrawal from the TSP might qualify for full or partial state tax exemption, saving you hundreds or thousands of dollars per year. The same $50,000 withdrawal from an IRA after a rollover gets taxed at New York’s ordinary income tax rates, which range from 4% to 10.9% depending on your total income.
States That Tax Retirement Income Heavily
California, Oregon, and Vermont impose some of the highest state income tax rates on retirement distributions. California taxes IRA and 401(k) distributions as ordinary income with rates up to 13.3% for high earners. The state offers no special exemptions for retirement income, which means a $100,000 IRA distribution could trigger more than $13,000 in state income tax for residents in the top bracket.
Federal employees who plan to retire in high-tax states should consider Roth conversions while they still work, especially if they live in a low-tax state during their working years. Converting traditional TSP to Roth IRA while you live in Florida (0% state tax) and then retiring to California means you avoid California’s high tax rates on the growth in your Roth IRA.
The Most Important Scenarios Federal Employees Face
Real-world examples help clarify the complex rules governing TSP rollovers to Fidelity. These scenarios show how different decisions lead to different outcomes, helping you avoid expensive mistakes and choose the best path for your situation. The dollar amounts matter because tax brackets and withholding percentages create different math at different account balances.
Scenario 1: Clean Direct Rollover at Age 60
Marcus, age 60, retires from federal service with a $250,000 traditional TSP balance. He opens a traditional IRA at Fidelity and adds Fidelity to his TSP account as an approved financial institution. After waiting 7 days for the security period and 35 days for his agency to report his separation, he submits an online request to roll his entire $250,000 to the Fidelity traditional IRA.
The TSP issues a check made payable to “Fidelity Management Trust Company FBO Marcus [Last Name]” and mails it to Fidelity’s processing center. The check arrives 9 days later, and Fidelity deposits the full $250,000 into Marcus’s traditional IRA within 2 business days. Marcus receives Form 1099-R from the TSP showing $250,000 in Box 1, $0 in Box 2a (taxable amount), and code “G” in Box 7 (direct rollover).
| Action | Consequence |
|---|---|
| Direct rollover to matching account type | No immediate taxes or penalties |
| Full $250,000 deposited at Fidelity | Complete preservation of retirement savings |
| Code G on Form 1099-R | IRS recognizes non-taxable rollover |
| Invested immediately after deposit | Money continues growing tax-deferred |
Scenario 2: Costly Indirect Rollover Mistake
Jennifer, age 52, separates from federal service with $150,000 in her traditional TSP. She requests a distribution payable directly to her because she wants to see the check before sending it to Fidelity. The TSP withholds $30,000 (20%) for federal income tax and sends Jennifer a check for $120,000. She deposits this $120,000 into her Fidelity traditional IRA within 30 days.
Jennifer believes she completed the rollover successfully, but the IRS treats the $30,000 withholding as a taxable distribution. When she files her tax return, she owes ordinary income tax on the $30,000 at her 24% federal tax bracket ($7,200) plus a 10% early withdrawal penalty ($3,000) because she is under age 59½. Her total tax bill on this mistake reaches $10,200, and she permanently lost $30,000 from her retirement savings.
| Action | Consequence |
|---|---|
| Indirect rollover with check to participant | 20% mandatory withholding ($30,000) |
| Only rolled $120,000 of $150,000 | $30,000 becomes taxable distribution |
| Under age 59½ at separation | 10% penalty on $30,000 ($3,000) |
| Federal income tax at 24% bracket | $7,200 additional tax owed |
| Total financial loss | $40,200 ($30,000 principal + $10,200 taxes) |
Jennifer could have avoided all taxes by depositing the full $150,000 into her IRA within 60 days, using $30,000 from her savings to replace the withheld amount. She would get the $30,000 back as a refund when she filed her tax return, but few people understand this requirement or have that much cash available.
Scenario 3: Splitting Between Traditional and Roth Accounts
Carlos, age 58, retires with $300,000 in traditional TSP and $100,000 in Roth TSP. He wants to roll everything to Fidelity while keeping the tax treatment of each account type. He opens both a traditional IRA and a Roth IRA at Fidelity and adds both accounts to his TSP profile. After the waiting periods expire, he submits two separate rollover requests.
The first request rolls his $300,000 traditional TSP to his Fidelity traditional IRA with no tax consequences. The second request rolls his $100,000 Roth TSP to his Fidelity Roth IRA, also with no taxes because he already paid tax on the Roth contributions when he made them. Carlos receives two separate Forms 1099-R, one with code “G” for the traditional rollover and one with code “H” for the Roth rollover.
His Roth TSP satisfied the five-year holding period, and he is over age 59½, so all future distributions from the Roth IRA will be tax-free. His traditional IRA will be taxed as ordinary income when he takes distributions in retirement, but he has more investment options at Fidelity than the TSP offered.
Scenario 4: Law Enforcement Officer with Early Access
Detective Maria, age 53, retires from her federal law enforcement position with 25 years of service. She has $400,000 in her traditional TSP and worries about the 10% early withdrawal penalty because she is under age 59½. However, as a law enforcement officer who separated at age 50 or later, she qualifies for penalty-free TSP withdrawals immediately.
Maria decides to leave her TSP money in the plan for now because she benefits from penalty-free access while still enjoying the TSP’s low expense ratios. If she rolls the money to a Fidelity IRA, she loses this special penalty-free treatment and must wait until age 59½ to withdraw without penalties. She plans to roll the money to Fidelity after she turns 59½, when the penalty-free access becomes universal rather than TSP-specific.
This scenario shows how the age-55 rule for general federal employees and the age-50 rule for law enforcement officers only apply to the TSP itself. These special age rules do not transfer to IRAs, which makes keeping money in the TSP attractive for early retirees who might need to tap their savings before age 59½.
Scenario 5: Military Member with Combat Zone Contributions
Staff Sergeant Mike, age 38, separates from active duty with $80,000 in his traditional TSP. Half of this balance ($40,000) represents tax-exempt contributions from combat zone deployments, while the other half came from regular pre-tax contributions. He wants to convert his tax-exempt contributions to a Roth IRA to take advantage of the triple tax benefit.
Mike cannot separate just the tax-exempt portion because the TSP distributes funds proportionally. He rolls the entire $80,000 to a traditional IRA at Fidelity, preserving the tax-exempt status of half the balance. He then immediately converts the full $80,000 from the traditional IRA to a Roth IRA, paying ordinary income tax only on the $40,000 that was not tax-exempt.
His tax bill for the conversion equals his marginal tax rate times $40,000. At a 22% tax bracket, he owes $8,800 in federal income tax on the conversion. The $40,000 in tax-exempt contributions converts to Roth with zero tax liability, and all future earnings on the full $80,000 Roth IRA will grow tax-free forever.
Understanding TSP and IRA Fee Structures
The cost difference between keeping your money in the TSP versus rolling it to Fidelity deserves careful analysis. The TSP operates as a non-profit organization with some of the lowest expense ratios in the investment industry. Fidelity offers competitive pricing but cannot quite match the TSP’s rock-bottom costs, though the gap has narrowed considerably in recent years.
TSP Expense Ratios and Administrative Costs
The TSP charged expense ratios ranging from 0.036% to 0.051% across its five core funds as of 2024. The C Fund (large company stocks tracking the S&P 500) carries a 0.036% expense ratio, which means you pay $3.60 per year for every $10,000 invested. The S Fund (small and mid-sized company stocks) charges 0.051%, or $5.10 per $10,000 invested.
These expense ratios include all costs of running the funds, including investment management fees, custodial services, and administrative expenses. The TSP charges no separate account maintenance fees, no trading commissions, and no transaction fees when you move money between funds. You pay only the expense ratio, which gets deducted automatically from your investment returns.
The TSP’s G Fund expense ratio of 0.037% provides government-backed returns with no market risk. No comparable investment exists outside the TSP, which makes this fund the strongest argument for keeping at least some money in your TSP account after separation. Money market funds at Fidelity carry expense ratios between 0.110% and 0.420%, roughly 3 to 11 times higher than the G Fund.
Fidelity Fee Structure
Fidelity charges no annual account maintenance fees for IRA accounts and no fees to open an account. Stock and ETF trades execute free of commission when placed online, making Fidelity competitive with other major brokers. Most Fidelity mutual funds trade with no transaction fees, though some third-party funds charge loads or purchase fees.
Fidelity’s index fund expense ratios compete directly with the TSP’s low costs. The Fidelity 500 Index Fund (FXAIX) charges 0.015%, compared to the TSP C Fund’s 0.036%. The Fidelity Total Market Index Fund charges 0.015%, lower than any TSP fund. Fidelity even offers four zero-expense-ratio funds that charge nothing for investment management, making them the lowest-cost mutual funds in the industry.
However, investors who choose actively managed funds at Fidelity face much higher costs. Expense ratios on active funds range from 0.50% to 1.50% or more, which can dramatically reduce your long-term returns compared to staying in the TSP. A 1% higher expense ratio costs you roughly $10,000 per year on a $1 million portfolio, which compounds to hundreds of thousands of dollars over a 20-year retirement.
The Math of Fee Differences Over Time
A $500,000 portfolio invested in the TSP C Fund at 0.036% pays $180 per year in fees. The same portfolio in the Fidelity 500 Index Fund at 0.015% pays just $75 per year, saving you $105 annually. Over 25 years assuming 7% average returns, this $105 annual savings grows to approximately $6,700 due to the power of compounding.
Conversely, moving your $500,000 from the TSP C Fund to an actively managed Fidelity mutual fund charging 0.75% increases your annual fees from $180 to $3,750, a difference of $3,570 per year. Over 25 years, this fee difference costs you roughly $230,000 in lost returns, demonstrating why low-cost index investing remains crucial for retirement success.
Annual Fee Comparison by Account Balance
| Account Balance | Annual Cost |
|---|---|
| $100,000 in TSP C Fund (0.036%) | $36 |
| $100,000 in Fidelity 500 Index (0.015%) | $15 |
| $100,000 in Active Fund (0.75%) | $750 |
| $250,000 in TSP C Fund (0.036%) | $90 |
| $250,000 in Fidelity 500 Index (0.015%) | $38 |
| $250,000 in Active Fund (0.75%) | $1,875 |
| $500,000 in TSP C Fund (0.036%) | $180 |
| $500,000 in Fidelity 500 Index (0.015%) | $75 |
| $500,000 in Active Fund (0.75%) | $3,750 |
| $1,000,000 in TSP C Fund (0.036%) | $360 |
| $1,000,000 in Fidelity 500 Index (0.015%) | $150 |
| $1,000,000 in Active Fund (0.75%) | $7,500 |
Weighing the Benefits and Drawbacks of Rolling to Fidelity
The decision to roll your TSP to Fidelity involves trade-offs between cost, investment options, withdrawal flexibility, and special features. Neither choice is universally better, which means you must evaluate your specific situation and priorities. Federal employees split roughly evenly between those who roll their TSP to IRAs and those who leave money in the TSP.
Advantages of Rolling TSP to Fidelity
Fidelity offers thousands of investment options beyond the five core TSP funds. You can invest in individual stocks, corporate bonds, real estate investment trusts, commodities, sector-specific funds, and alternative investments that the TSP does not offer. This flexibility matters most to sophisticated investors who want to build customized portfolios or take concentrated positions in specific companies or sectors.
Fidelity provides better customer service than the TSP, with phone representatives available extended hours and in-person offices in major cities. The TSP call center operates limited hours and has earned widespread criticism since the 2022 system changeover for long wait times, unhelpful responses, and unresolved problems. Fidelity’s website functions more reliably than the TSP website, which has suffered frequent outages and confusing navigation.
Rolling to Fidelity simplifies your financial life if you already maintain other accounts there. You can view all your retirement savings in one place, take required minimum distributions from one account instead of multiple accounts, and work with a single financial institution for estate planning purposes. Consolidation also makes rebalancing easier because you can adjust your overall asset allocation without worrying about multiple account providers.
Fidelity allows you to withdraw money from specific funds rather than pro-rata across your entire portfolio. The TSP forces proportional withdrawals from all your holdings, which means selling G Fund shares, C Fund shares, and every other fund you own in the same percentage. This limitation prevents you from implementing tax-efficient withdrawal strategies like spending bond funds during down markets while leaving stock funds alone to recover.
Disadvantages of Rolling TSP to Fidelity
You lose permanent access to the G Fund when you roll out of the TSP. No investment product available to the general public replicates the G Fund’s unique characteristics: government-backed principal protection, monthly interest rate adjustments based on long-term Treasury yields, and zero market risk. Money market funds at Fidelity offer safety but typically pay lower interest rates than the G Fund.
The TSP provides stronger creditor protection than IRAs in most situations. Federal law under ERISA grants TSP accounts unlimited protection from lawsuits and bankruptcy, similar to the protection enjoyed by private-sector 401(k) plans. IRA protection depends on state law and typically maxes out at $1,512,350 in federal bankruptcy proceedings, with even less protection outside bankruptcy.
Rolling your TSP to an IRA before age 55 eliminates your penalty-free early access. The Rule of 55 allows federal employees who separate in the year they turn 55 or later to access their TSP without the 10% early withdrawal penalty. This special rule applies only to the TSP, not to IRAs, so rolling over your money means waiting until age 59½ for penalty-free access unless you qualify for a different exception.
The TSP’s simplicity benefits federal employees who prefer hands-off investing. The five core funds provide broad diversification across domestic stocks, international stocks, bonds, and government securities, with lifecycle funds that automatically adjust your asset allocation as you age. This simplicity prevents analysis paralysis and reduces the temptation to make emotional investment decisions during market volatility.
Complete Comparison: TSP vs. Fidelity IRA
Investment and Account Features
| Feature | Comparison |
|---|---|
| Investment options in TSP | 5 core funds plus lifecycle funds |
| Investment options at Fidelity | Thousands of stocks, bonds, funds, ETFs |
| TSP expense ratios | 0.036% to 0.051% annually |
| Fidelity expense ratios | 0% to 1.5%+ depending on investment choices |
| G Fund access in TSP | Available with government-backed returns |
| G Fund access after rollover | Lost permanently, no equivalent exists |
| Annual account fees TSP | $0 in all circumstances |
| Annual account fees Fidelity | $0 for IRA accounts |
Protection and Access Features
| Feature | Comparison |
|---|---|
| Creditor protection in TSP | Unlimited under federal ERISA law |
| Creditor protection in IRA | $1,512,350 bankruptcy limit, varies by state |
| Early access Rule of 55 | Penalty-free TSP access after age 55 separation |
| Early access in IRA | Must wait until 59½ for penalty-free access |
| TSP customer service | Limited hours, frequent user complaints |
| Fidelity customer service | Extended hours, in-person branch locations |
| TSP website functionality | Poor ratings since 2022 system changes |
| Fidelity website functionality | Generally reliable and user-friendly |
Withdrawal and Distribution Features
| Feature | Comparison |
|---|---|
| Withdrawal flexibility TSP | Pro-rata from all funds automatically |
| Withdrawal flexibility Fidelity | Choose specific funds to sell |
| Account consolidation TSP | Separate from other retirement accounts |
| Account consolidation Fidelity | Can combine with other existing IRAs |
| Roth conversions in TSP | Not allowed within the TSP |
| Roth conversions at Fidelity | Allowed and processed easily |
| RMD calculation TSP | Calculated automatically by TSP |
| RMD calculation Fidelity | You calculate and track yourself |
Tax and Inheritance Features
| Feature | Comparison |
|---|---|
| State tax treatment TSP | May qualify for special state exemptions |
| State tax treatment IRA | Ordinary income in most states |
| Non-spouse beneficiary TSP option | 5-year distribution requirement after death |
| Non-spouse beneficiary IRA option | 10-year distribution rule after death |
Pros and Cons Summary
Pros of Rolling TSP to Fidelity
Investment Flexibility – Access thousands of individual stocks, bonds, and funds beyond the TSP’s five core options. Build customized portfolios that match your specific risk tolerance and investment philosophy.
Better Customer Service – Reach representatives during extended hours with shorter wait times. Visit physical branch locations for in-person assistance when you need face-to-face guidance.
Targeted Withdrawals – Sell specific investments based on market conditions and tax strategy. Avoid forced pro-rata liquidation across all your holdings that the TSP requires.
Account Consolidation – Combine multiple retirement accounts under one roof. Simplify required minimum distribution calculations and estate planning documentation.
Lower Fees on Index Funds – Pay 0.015% or even 0% on certain Fidelity index funds. Save money compared to TSP expense ratios if you choose low-cost options carefully.
Cons of Rolling TSP to Fidelity
Lose G Fund Forever – Forfeit permanent access to government-backed returns with zero market risk. Cannot regain G Fund access even if you return to federal service later.
Weaker Creditor Protection – Face state-law-based IRA protection limits instead of unlimited ERISA coverage. Risk losing retirement savings to lawsuits in states with weak IRA protection.
Lose Age-55 Penalty Exception – Give up penalty-free early access if you separate before age 59½. Must wait until 59½ or qualify for different exceptions to avoid 10% penalty.
Higher Potential Costs – Pay dramatically higher fees if you choose actively managed funds or advisory services. Risk selecting expensive investments that erode returns over decades.
More Complex Management – Take responsibility for calculating required minimum distributions yourself. Navigate more complicated investment choices that can lead to analysis paralysis or poor decisions.
Common Mistakes to Avoid When Rolling Your TSP
Taking an Indirect Rollover creates a 20% mandatory withholding problem and a strict 60-day deadline. The TSP sends you a check for 80% of your balance after withholding taxes, and you must deposit the full 100% into your Fidelity IRA to avoid current taxes and penalties.
Missing the 60-Day Rollover Deadline on indirect rollovers triggers full taxation of the distribution plus a 10% penalty if you are under age 59½. The IRS grants very few exceptions to this deadline, and ignorance of the rules does not qualify as a hardship.
Forgetting to Add Fidelity 7 Days Before Requesting the Rollover delays your access to funds by at least a week. The TSP imposes this mandatory security waiting period after you add any new financial institution to your account.
Rolling Over Your Required Minimum Distribution violates federal tax law and triggers immediate taxation of the RMD amount. You must take your RMD for the current year before you can roll any additional money to Fidelity.
Using the Wrong TSP Withdrawal Form causes processing errors that can liquidate your entire account when you meant to do a partial rollover. Form TSP-77 applies to partial withdrawals and Form TSP-70 handles full withdrawals, and using them incorrectly cannot be undone.
Failing to Separate Traditional and Roth Money into matching account types triggers unnecessary taxes. Traditional TSP must go to traditional IRA and Roth TSP must go to Roth IRA, unless you intentionally convert and accept the tax bill.
Rolling Over Before Taking Care of Outstanding Loans leaves you with a taxable distribution of the unpaid loan balance. You have 60 days to roll over an amount equal to the loan balance using other funds to avoid taxes and penalties.
Moving Money Out Before Age 55 When You Might Need Early Access eliminates your penalty-free withdrawal option under the Rule of 55. The special TSP age-55 rule does not transfer to IRAs, leaving you stuck waiting until 59½ for penalty-free access.
Choosing Expensive Investments at Fidelity erases any benefit of rolling over if you select actively managed funds with high expense ratios. Stick to low-cost index funds to maintain the TSP’s primary advantage of minimal fees.
Rolling Over Without a Clear Investment Plan at Fidelity leaves your money sitting in a settlement fund earning minimal interest. Decide your asset allocation before you roll over so you can invest the money immediately upon arrival.
Special Considerations for Backdoor Roth IRA Contributors
Federal employees who earn too much to contribute directly to a Roth IRA often use the backdoor Roth IRA strategy. This strategy involves contributing to a traditional IRA with after-tax dollars and immediately converting to a Roth IRA. The IRS allows this maneuver, but the pro-rata rule creates problems for people who maintain traditional IRA balances from TSP rollovers.
How the Pro-Rata Rule Affects TSP Rollovers
The pro-rata rule requires you to calculate what percentage of all your traditional IRAs consists of after-tax contributions. When you convert any traditional IRA money to Roth, the IRS treats the conversion as proportionally taxable based on your overall after-tax percentage. This rule prevents you from cherry-picking only your after-tax contributions for tax-free conversion while leaving your pre-tax money untouched.
If you roll $200,000 from your traditional TSP to a traditional IRA at Fidelity, your IRA now contains $200,000 of pre-tax money. You then contribute $7,000 of after-tax money to a traditional IRA (because your income exceeds the Roth IRA limits) and immediately try to convert it to Roth. The pro-rata rule says only 3.4% of your conversion is tax-free, which means you owe taxes on the other 96.6% of the conversion.
Avoiding Pro-Rata Problems
You can eliminate pro-rata rule complications by rolling your traditional IRA balance into your TSP before doing backdoor Roth conversions. The TSP accepts incoming rollovers from traditional IRAs while you remain a federal employee, and money in the TSP does not count toward the pro-rata calculation. Form TSP-60 handles incoming transfers and rollovers from IRAs and other qualified plans.
This reverse rollover strategy works best before you separate from federal service because the TSP makes it harder to roll money in after separation. You must have an active federal employee account with a balance greater than zero to accept incoming rollovers. Once you separate and roll your entire TSP to Fidelity, you lose this reverse rollover option and get stuck with pro-rata taxation on future backdoor Roth attempts.
Beneficiary and Estate Planning Differences
The person who inherits your retirement accounts faces different rules depending on whether the money sits in the TSP or a Fidelity IRA. The SECURE Act of 2019 changed inheritance rules dramatically, and the differences between TSP and IRA beneficiary treatment have narrowed but not disappeared entirely.
Spousal Beneficiaries
Your surviving spouse enjoys maximum flexibility regardless of whether you keep your money in the TSP or roll it to Fidelity. Spouses can treat an inherited TSP or inherited IRA as their own account, rolling the money into their own retirement accounts and delaying required minimum distributions until they reach RMD age. Spouses can also choose to keep the money in an inherited account and stretch distributions over their life expectancy.
The TSP allows surviving spouses to keep inherited money in the deceased spouse’s TSP account indefinitely. This option preserves access to the G Fund and the TSP’s low expense ratios while giving the survivor time to make long-term decisions. Fidelity provides similar flexibility for inherited IRAs, plus the ability to retitle the account or roll it into the surviving spouse’s own IRA.
Non-Spouse Beneficiaries Face the 10-Year Rule
Adult children, siblings, friends, and most other beneficiaries must empty inherited retirement accounts within 10 years of your death. This 10-year rule applies to both inherited TSP accounts and inherited IRAs, eliminating the old “stretch IRA” strategy that let beneficiaries spread distributions over their entire lifetime.
The TSP forces non-spouse beneficiaries to take a lump-sum distribution or set up periodic payments that must empty the account within five years. This five-year requirement is actually stricter than the 10-year rule that applies to inherited IRAs, making the IRA option more attractive for legacy planning. Your adult children gain an extra five years of tax-deferred or tax-free growth if they inherit a Fidelity IRA instead of a TSP account.
Required Minimum Distributions for Inherited Accounts
The IRS issued confusing guidance about whether non-spouse beneficiaries must take annual RMDs during the 10-year period or can wait and withdraw everything in year 10. Current IRS regulations require annual RMDs during the 10-year period if you die after your required beginning date for RMDs, but no annual RMDs if you die before that date. These rules apply equally to inherited TSP accounts and inherited IRAs.
Required Minimum Distribution Age Changes
The SECURE 2.0 Act changed RMD ages based on when you were born. People born between 1951 and 1959 must begin taking RMDs at age 73, while those born in 1960 or later wait until age 75. These changes apply to both TSP accounts and traditional IRAs, with no difference in treatment between the two account types.
You calculate your RMD by dividing your account balance as of December 31 of the prior year by your life expectancy factor from the IRS Uniform Lifetime Table. At age 73, your life expectancy factor is 26.5, which means you must withdraw approximately 3.77% of your balance. This percentage increases each year as your remaining life expectancy shortens.
The penalty for missing an RMD dropped from 50% to 25% under SECURE 2.0, and falls further to 10% if you correct the mistake within two years. Despite this reduction, the penalties remain severe enough to demand careful tracking of your RMD obligations. The TSP calculates your RMD automatically and sends reminders, while Fidelity requires you to track your own RMDs across all your IRA accounts.
FAQs
Can I roll my TSP to Fidelity while I am still employed?
No. You cannot roll your TSP to Fidelity while working unless you are age 59½ or older and request an age-based in-service withdrawal for rollover.
How long does a TSP rollover to Fidelity take?
Yes, expect 2 to 4 weeks total. The 7-day security wait, 7-10 day check processing, postal delivery time, and Fidelity deposit clearing combine to this timeline.
Will I pay taxes on a TSP to Fidelity rollover?
No, direct rollovers matching account types (traditional to traditional, Roth to Roth) generate zero tax liability. Converting traditional to Roth triggers immediate taxation of the converted amount.
Can I roll over just part of my TSP to Fidelity?
Yes. Request a partial withdrawal using Form TSP-77 and specify the amount or percentage to roll to Fidelity. The remaining balance stays in your TSP account.
What happens if I miss the 60-day rollover deadline?
No relief applies to most situations. The IRS taxes the entire distribution as income plus a 10% penalty if you are under age 59½, with very few exceptions granted.
Does the 20% withholding apply to direct rollovers?
No. Direct rollovers to Fidelity face zero withholding because the money goes straight from TSP to Fidelity. Only indirect rollovers trigger mandatory 20% federal tax withholding.
Can I roll my TSP back from Fidelity if I change my mind?
No. Once you roll money from TSP to an IRA, you cannot reverse it unless you return to federal employment and maintain a TSP account balance above zero.
Do I lose access to the G Fund forever after rolling to Fidelity?
Yes. The G Fund exists only within the TSP, and rolling your money out eliminates your access permanently. No similar investment exists at Fidelity or elsewhere.
Will rolling my TSP to Fidelity affect my federal pension?
No. Your TSP account and your FERS or CSRS pension operate independently. Rolling your TSP to Fidelity changes nothing about your monthly pension payments or benefits.
Can I roll my Roth TSP to a traditional IRA?
No. The IRS prohibits rolling Roth money into traditional accounts. Roth TSP must go to Roth IRA, and traditional TSP must go to traditional IRA or convert to Roth.
What if I have an outstanding TSP loan when I separate?
No automatic forgiveness exists. You must repay the loan within 90 days or face taxation and penalties on the unpaid balance as a deemed distribution.
How does the TSP 7-day waiting period work?
Yes, you must wait 7 calendar days after adding Fidelity before initiating rollovers. This security measure prevents fraud and cannot be waived or shortened for any reason.
Can law enforcement officers roll TSP before age 55 without penalties?
Yes. Law enforcement officers and other special category employees who separate at age 50 or later avoid the 10% early withdrawal penalty on TSP distributions and rollovers.
Are TSP rollovers reported to the IRS?
Yes. The TSP sends you Form 1099-R showing the distribution amount and type. You must report this on your tax return even though direct rollovers generate no tax liability.
Can I roll my TSP to a Fidelity 401(k) at a new employer?
Yes. The TSP allows direct rollovers to eligible employer retirement plans at new jobs. This option helps consolidate accounts and may offer better investment options than starting a new TSP.
Does New York State tax TSP distributions differently than IRA distributions?
Yes. New York treats TSP as a government pension with favorable tax treatment, but taxes IRA distributions as ordinary income. Rolling TSP to IRA costs you these state tax benefits.
What is the minimum amount I can roll from TSP to Fidelity?
No regulatory minimum exists, but the TSP requires partial withdrawals to be at least $1,000. You can roll any amount $1,000 or higher to Fidelity in a partial rollover.
Will rolling my TSP affect my ability to do backdoor Roth IRA contributions?
Yes. Rolling traditional TSP to a traditional IRA triggers the pro-rata rule, making future backdoor Roth conversions partially taxable. Consider rolling IRA money back into TSP first.
Can I roll my deceased spouse’s TSP to my Fidelity IRA?
Yes. Surviving spouses can roll inherited TSP directly to their own IRA at Fidelity or keep it in the deceased spouse’s TSP account for later decisions.
How do I track my tax-exempt combat pay in a Fidelity IRA?
Yes, use Form 8606 to track tax-exempt basis. Your Form 1099-R shows the tax-exempt amount, and you must report this annually to prevent double taxation on future distributions.
Related reading
- Are Retirement Rollovers Taxable? (w/Examples) + FAQs
- How to Roll Over IRA to Fidelity (w/Examples) + FAQs
- Can You Roll Over 401k While Still Employed? (w/Examples) + FAQs
- Should I Roll Over My 401k to Fidelity? (w/Examples) + FAQs
- Can I Roll Over Empower 401k to Fidelity? (w/Examples) + FAQs
- Can You Roll a Defined Benefit Plan Into an IRA? (w/Examples) + FAQs
- Can a 72(t) Bridge You to Age 59½? (w/Examples) + FAQs