Can I Contribute to TSP After Separation?

The Thrift Savings Plan (TSP) functions as a retirement savings and investment plan for federal employees and uniformed service members, similar to a 401(k) in the private sector. Individuals often accumulate significant retirement savings within their TSP accounts during their service. After separating from service, questions often arise regarding managing and contributing to TSP accounts.

Post-Separation Contribution Eligibility

Upon separating from federal or uniformed service, direct payroll contributions to your TSP account cease. Employee and agency contributions are tied to active employment and stop once that employment ends. However, you can add funds to your TSP account after separation through rollovers or transfers from other qualified retirement plans. This is the primary method for contributing to a TSP account once you are no longer actively employed by the federal government.

The TSP accepts rollovers or transfers from various eligible retirement accounts. These include pre-tax funds from employer-sponsored plans like 401(k)s, 403(b)s, and governmental 457(b) plans, and traditional Individual Retirement Accounts (IRAs). For Roth TSP accounts, transfers of Roth money are accepted from Roth 401(k)s, 403(b)s, and 457(b)s. The TSP does not accept rollovers or transfers from Roth IRAs into a Roth TSP balance.

To be eligible for a rollover or transfer into the TSP, your account must remain open and have an existing balance. You cannot use the TSP to open a new retirement account by transferring funds if your original TSP account is closed. It is also not possible to roll money into a beneficiary participant account.

A direct rollover transfers funds directly from your former employer’s plan or IRA to your TSP account, or vice-versa, without the money passing through your hands. This method generally avoids immediate tax consequences and withholding.

Conversely, an indirect rollover occurs when funds are distributed to you directly. You then have 60 days to deposit the full amount into another qualified retirement plan or IRA. The IRS mandates a 20% tax withholding from the distributed amount. You must still roll over the entire amount, including the withheld 20%, from other sources to avoid taxes and potential penalties. Failure to redeposit the full amount within 60 days can result in the distribution being considered taxable income and may incur a 10% early withdrawal penalty if you are under age 59½. Before initiating any transfer, gather information from your current retirement account provider to ensure smooth processing.

Initiating Rollovers and Transfers

After confirming eligibility for a rollover or transfer, you can initiate the transaction. While the TSP has moved towards online processes, the primary forms associated with these transactions are Form TSP-60 for traditional funds and Form TSP-60-R for Roth funds. These forms detail the information required for a successful transfer.

The process begins by accessing your My Account online or contacting the ThriftLine. You will need to provide detailed information about the retirement plan or IRA from which funds are being transferred, including the financial institution’s name, address, and the type and amount of funds. A separate form is generally required for each check or transfer if funds are coming from multiple sources.

For a direct rollover, the financial institution holding your external retirement account often completes a portion of the TSP form and sends it, along with the funds, directly to the TSP. Ensure your name and TSP account number or Social Security number are clearly associated with the transfer. Funds are not invested until the transfer documentation is received and processed.

If an indirect rollover is chosen, you are responsible for sending a guaranteed form of payment, such as a check, along with the completed TSP transfer form. The TSP advises against sending the form and check separately. Processing generally takes several weeks after all necessary documentation is submitted.

Managing Your Account After Separation

After separating from federal service, your TSP account continues to function as a retirement asset. You can keep your account in the TSP, provided your balance is $200 or more, and benefit from its low costs. This allows your investments to continue accruing earnings.

Your investment options within the TSP remain accessible. The TSP offers five individual funds: the G Fund (Government Securities Investment Fund) for capital preservation, the F Fund (Fixed Income Index Investment Fund) for bonds, the C Fund (Common Stock Index Investment Fund) tracking the S&P 500, the S Fund (Small Capitalization Stock Index Fund) for smaller U.S. companies, and the I Fund (International Stock Index Investment Fund) for international stocks. Lifecycle Funds (L Funds) are also available, which are professionally managed portfolios that adjust asset allocation based on a target retirement date. A mutual fund window allows access to external mutual funds, though this option may involve additional fees and minimum investment requirements. You can change your investment allocations at any time through your online account.

The TSP offers various withdrawal options for separated participants:
Partial distributions: Must be at least $1,000, with only one allowed every 30 days.
Total distributions.
Installment payments: Can be set as a fixed dollar amount or based on life expectancy.
Purchase of a life annuity: Offers guaranteed monthly payments from the TSP’s annuity provider.
Withdrawals are generally subject to federal income tax. Early withdrawals before age 59½ may incur a 10% penalty, unless an exception applies, such as separating from service at age 55 or older.

Required Minimum Distributions (RMDs) are mandatory withdrawals that must begin at a certain age. For separated TSP participants, RMDs typically start the year you turn age 73 (or 75 if born in 1960 or later), or the year you separate from service, if later. The first RMD can be delayed until April 1 of the following year. Subsequent RMDs must be taken by December 31 each year. Starting in 2024, Roth TSP balances are no longer subject to RMDs.

Managing your TSP account after separation involves maintaining accurate personal information and knowing how to access support. You can access your account online through the TSP website to update contact information, change beneficiaries, and manage statement preferences. Keep your address current to receive communications, including tax reporting information. For assistance, the TSP ThriftLine is available by phone.