Can You Contribute to TSP After Military Retirement?

The Thrift Savings Plan (TSP) serves as a retirement savings vehicle for federal employees and uniformed service members, similar to a 401(k). A common question for individuals transitioning from military service is whether they can continue to contribute to their TSP account. While direct payroll contributions cease upon military retirement, it is possible to continue adding funds to an existing TSP account under specific conditions. This process primarily involves rolling over funds from other qualified retirement accounts.

Understanding Post-Service TSP Contribution Eligibility

Funds can be rolled into a TSP account from various qualified retirement plans. These include traditional Individual Retirement Arrangements (IRAs), 401(k) plans, 403(b) plans, and governmental 457(b) plans.

The TSP can accept transfers into either a Traditional TSP balance or a Roth TSP balance, depending on the tax treatment of the funds being rolled over. For instance, pre-tax funds from a traditional IRA or eligible employer plan can be rolled into a Traditional TSP account. When considering Roth funds, the TSP can accept rollovers from Roth 401(k)s, Roth 403(b)s, and Roth 457(b)s into a Roth TSP balance. However, the TSP does not accept rollovers from Roth IRAs into a Roth TSP account.

Navigating Post-Service TSP Contribution Methods

Adding funds to your TSP after military retirement primarily involves initiating a rollover. This typically begins with gathering necessary information from your previous retirement plan or IRA custodian. You will need details such as the account number, the precise type of account (e.g., traditional IRA, 401(k)), and the exact amount you intend to roll over.

The primary form for initiating a rollover into the TSP is Form TSP-60, titled “Request for a Transfer Into the TSP.” This form is available on the official TSP website. Completing Form TSP-60 requires providing personal identifying information, your TSP account number, and details about the source account from which the funds are originating. You must also certify that the distribution meets the eligibility requirements for a rollover into the TSP.

There are two main methods for executing a rollover: a direct rollover (also known as a trustee-to-trustee transfer) or an indirect rollover. In a direct rollover, funds are sent directly from your previous plan administrator or IRA custodian to the TSP. This method is preferred as it avoids potential tax withholding and penalties.

Direct Rollover

For a direct rollover, your previous plan administrator or IRA custodian will typically issue a check made payable directly to the Thrift Savings Plan. This check, along with the completed Form TSP-60, must be mailed to the TSP Rollover and Transfer Processing Unit. The TSP website provides the specific mailing address for these submissions. Some financial institutions may also have electronic capabilities for direct transfers.

Indirect Rollover

An indirect rollover involves the funds being distributed to you directly, and then you are responsible for depositing them into your TSP account within 60 days. This method carries more risk and potential tax implications. If you receive a distribution from a traditional retirement account, the distributing plan is required to withhold 20% for federal income taxes. To roll over the full amount, you would need to replace the withheld 20% with other funds. If the entire amount, including the 20% withheld, is not deposited into the TSP within the 60-day window, the unrolled portion becomes a taxable distribution and may be subject to an additional 10% early withdrawal penalty if you are under age 59½.

After submitting the necessary forms and funds, the processing time for rollovers can vary. While some rollovers may process within a couple of weeks, others could take several months. It is advisable to monitor your TSP account online for confirmation of the transfer and to contact the TSP if the funds do not appear within the expected timeframe. You may also need to follow up with your former plan administrator or IRA custodian to ensure the transfer was initiated successfully.

Key Considerations for Post-Service TSP Contributions

Rollovers into the TSP are not subject to the annual contribution limits that apply to new contributions by active employees. This means there is no limit on the amount you can roll over from eligible retirement accounts into your TSP, as these are considered transfers between existing retirement savings, not new contributions.

The tax implications of rollovers depend on the type of funds being transferred. To maintain the tax-deferred status of Traditional TSP funds, pre-tax money from traditional IRAs or qualified plans should be rolled into a Traditional TSP account. Similarly, to preserve the tax-free status of Roth TSP funds, post-tax money from Roth 401(k)s or other designated Roth employer plans should be rolled into a Roth TSP account.

Rolling over pre-tax funds from a traditional account into a Roth TSP account constitutes a taxable event, similar to a Roth conversion. The entire amount converted would be subject to federal income tax in the year of the conversion. This means you would owe taxes on the converted amount, even if you do not immediately withdraw the funds.

Maintaining accurate contact information with the TSP is important for managing your account post-retirement. This ensures you receive important statements, tax documents, and communications regarding your account. Regularly reviewing your TSP account statements allows you to track your investment performance and confirm that any rollovers have been successfully processed and allocated according to your investment elections.