TSP Rollover to IRA: Pros, Cons, and When It Makes Sense

If you have left government or military service in recent years, then there is a good chance you still have a Thrift Savings Plan (TSP) account in your name. Consolidating financial accounts can make planning and management easier, but the TSP is in a league of its own among retirement investment options, largely because of its low expense ratios. So, keeping your assets in the TSP may not be a bad option.

That said, sometimes it makes sense to simplify your financial life and roll your investments into fewer accounts. This guide covers the pros and cons of a TSP rollover, when it makes sense to do so, and when you should leave your money in the TSP. As with all major financial decisions, there is no one-size-fits-all approach. Each situation needs to be reviewed on its own merits.

Any financial decision you make should be consistent with a financial plan that reflects your values and goals.

What Should You Do with Your TSP After Military Service?

The first thing you will need to do is determine if your assets are eligible for distribution. The TSP has certain eligibility criteria, so contact customer service through the ThriftLine if in doubt.

Once you determine your funds are eligible for distribution, you need to decide what to do with those funds. Your main options include:

• Leaving your funds within your TSP account

• Rolling your TSP into an IRA

• Rolling your assets into a 401(k) plan at your new employer

• Withdrawing your funds, though watch out for early withdrawal penalties

• Rolling your funds into a qualified annuity

The TSP’s Cost Advantage

Before diving into the pros and cons of a rollover, it is worth understanding just how competitive the TSP’s fees are. The TSP has some of the lowest expense ratios in the investment industry. Here is how the core funds compare as of 2025:

G Fund	F Fund	C Fund	S Fund	I Fund
0.049%	0.055%	0.035%	0.057%	0.048%

For comparison, Vanguard, one of the industry leaders in low-cost investing, has an average ETF expense ratio of 0.04% and an average mutual fund and ETF expense ratio of 0.07% as of December 31, 2025. The industry average ETF and mutual fund expense ratio is 0.44%. While Vanguard is very competitive with the TSP on fees, both are significantly lower than the industry average, and most 401(k) plans fall somewhere in between.

The higher the management fees you pay, the more money you give up in total returns. Your investments need to earn greater returns just to end up with the same amount of money after fees.

Pros of Doing a TSP Rollover Into an IRA

Portability and Flexibility

Transferring your funds from the TSP gives you much more flexibility with how and where you invest your money. Here are the main advantages:

Account consolidation

As you depart the military and begin building a civilian financial life, account consolidation can simplify your financial management. If you have already been contributing to an IRA, transferring your TSP into that account may make your overall financial picture easier to manage.

More investment choices

While the TSP offers solid diversification for most investors, there are situations where it is not the right investment vehicle. Rolling into an IRA opens up a much wider range of options, including:

• Real Estate Investment Trusts (REITs)
• Individual stocks and bonds
• Index funds or mutual funds focused on specific industries or sectors
• A self-directed IRA to manage real estate or a closely-held business
• A qualified longevity annuity contract (QLAC)
• And many other investments

Cons of Doing a TSP Rollover Into an IRA

Higher Costs

While some brokerages now offer zero-cost index funds, many include a larger cash allocation that can limit returns. As shown in the expense ratio table above, the TSP’s fees are among the lowest available; rolling into an IRA will almost certainly result in higher costs.

Tax planning: The Combat Zone Contribution Problem

This is one of the most important and least understood considerations in a TSP rollover, particularly for military members with significant combat zone contributions.

For those who made contributions from tax-exempt combat zone pay, the eventual distribution of those contributions is tax-exempt, even though the earnings on those contributions are not. TSP tracks this information precisely, and you can see it clearly on your account statements.

Here is the problem: when you transfer your TSP to an IRA, most IRA custodians have no system to segregate your tax-free and taxable contributions. Combat zone contributions are the only type of contribution that is truly tax-free, and the TSP is the only retirement plan that accounts for them. Most IRA custodians work with pre-tax and after-tax contributions, not tax-free contributions.

When you shift your TSP to an IRA, your custodian will likely treat the account as follows:

• Traditional accounts will be considered pre-tax
• Roth accounts will be considered after-tax

This means your tax-free distribution may have tax withholdings applied even though it is technically tax-free. You can eventually recover the withheld money when you file your tax return, but the burden of proof falls on you to clearly document:

• Your deployments and total contributions during those deployments
• That your deployments qualified for tax-free contributions according to IRS Publication 3 (Armed Forces Tax Guide)
• That your rollover and distributions were consistent with IRS Notice 2014-54 (Guidance on After-Tax Amounts to Rollovers)

IRS Notice 2014-54 requires that when you withdraw from a retirement account with both pre-tax and after-tax contributions, you must make withdrawals in proportional amounts. For example, if you have $100,000 in TSP — $80,000 traditional and $20,000 Roth — and you want to withdraw $20,000, you cannot simply pull from the Roth account to avoid taxes. The IRS requires the $20,000 to come from both accounts in proportion: 80% traditional ($16,000) and 20% Roth ($4,000). The TSP handles this automatically, but once you roll into an IRA, you are responsible for managing it yourself.

Managing this correctly without TSP’s help can require significant time, and potentially the assistance of an accountant, enrolled agent, or fee-only financial planner. For those with large combat zone contribution balances, this is often reason enough to keep funds in the TSP.

Important New Development: In-Plan Roth Conversions

Starting January 28, 2026, the TSP now allows in-plan Roth conversions, meaning you can convert existing Traditional TSP balances to Roth TSP directly within your account without rolling out to an IRA first. This is a significant new planning tool that may affect your rollover decision, particularly if your goal was to convert to Roth. Consult a fee-only financial planner to determine whether an in-plan conversion or a rollover to a Roth IRA makes more sense for your specific situation.

Pros and Cons Summary

Pros and Cons of Rolling Your TSP Into an IRA:

Pros and Cons of Leaving Your Investments in the TSP:

Which Option Is Right for You?

There is no universally right or wrong answer. If you prefer a hands-off approach with low fees, or if you have a large amount of tax-free combat zone contributions, keeping your funds in the TSP is likely the stronger choice. If you prefer a more hands-on investing approach, want access to a broader range of investments, or are looking to consolidate multiple accounts in one place, rolling into an IRA may be a better fit.

Whatever you decide, do not make this decision quickly. A TSP rollover should be part of a methodical, long-term financial plan that is consistent with your values and financial goals. A fee-only financial planner who is familiar with military benefits can help you evaluate which path makes the most sense for your specific situation.

For step-by-step rollover instructions, including guidance on how to handle tax-exempt combat zone contributions, see our complete TSP Rollover Guide.