Does a Roth TSP Count as a Roth IRA for Taxes?

A Roth Thrift Savings Plan (TSP) and a Roth Individual Retirement Account (IRA) are both tax-advantaged savings vehicles designed to provide tax-free income in retirement. Understanding the distinctions between these two popular retirement accounts, particularly concerning their tax treatment, is important for effective financial planning. This article clarifies how contributions and withdrawals from Roth TSP and Roth IRAs are taxed. By examining their specific rules and comparing their key features, individuals can gain a clearer perspective on managing their retirement savings.

Understanding General Roth Account Taxation

Roth-style retirement accounts operate on a tax principle: contributions are made with after-tax dollars, meaning no immediate tax deduction is received for the amounts contributed. This allows eligible earnings within the account to grow tax-free over time. A significant benefit emerges upon withdrawal, as qualified distributions, including both contributions and earnings, are entirely free from federal income tax.

To qualify for tax-free withdrawals of earnings, two primary conditions must be met. First, a five-year waiting period must be satisfied, which begins on January 1 of the tax year for which the first contribution was made to any Roth account. Second, the account holder must generally be age 59½ or older at the time of withdrawal. Exceptions to the age requirement include withdrawals made due to disability or for a first-time home purchase, up to a lifetime limit of $10,000. If these conditions are not met, the earnings portion of a withdrawal may be subject to ordinary income tax and a 10% early withdrawal penalty. Contributions, however, can typically be withdrawn at any time without tax or penalty, as taxes were already paid on those amounts.

Tax Treatment of Roth TSP

The Roth Thrift Savings Plan (TSP) is a retirement savings program available exclusively to federal employees and members of the uniformed services. Contributions to a Roth TSP are made with after-tax dollars, similar to other Roth accounts, meaning the money contributed has already been subject to federal income tax. These contributions are typically made through payroll deductions, and they grow tax-free within the plan. The Internal Revenue Service (IRS) sets annual contribution limits for the TSP, which are significantly higher than those for Roth IRAs. For example, in 2025, the elective deferral limit for regular TSP contributions is $23,500, with an additional catch-up contribution of $7,500 for those age 50 or older.

For earnings in a Roth TSP to be entirely tax-free upon withdrawal, two conditions must be satisfied. First, the account must have been open for at least five years, with this five-year period beginning on January 1 of the calendar year in which the first Roth TSP contribution was made. Second, the participant must generally be age 59½ or older, be permanently disabled, or have passed away. If these criteria are met, both contributions and earnings can be withdrawn without federal income tax liability. Any agency matching contributions to the TSP are always made on a pre-tax basis, even if the employee’s contributions are designated as Roth, and these agency contributions and their earnings will be taxed upon withdrawal. Roth TSP accounts are not subject to required minimum distributions (RMDs), allowing funds to remain in the account as long as desired.

Tax Treatment of Roth IRA

A Roth Individual Retirement Account (IRA) is a personal savings plan widely available to individuals who meet specific income requirements. Contributions to a Roth IRA are made with after-tax money, which allows for tax-free growth of earnings and tax-free qualified withdrawals in retirement. The maximum annual contribution limit for a Roth IRA is generally lower than that for a Roth TSP. For instance, in 2025, the Roth IRA contribution limit is $7,000, with an additional $1,000 catch-up contribution permitted for individuals age 50 and older.

Eligibility to contribute to a Roth IRA is subject to modified adjusted gross income (MAGI) limitations, which can phase out or eliminate the ability to make direct contributions for higher earners. For 2025, single filers with a MAGI of $150,000 or more, and joint filers with a MAGI of $236,000 or more, may face reduced or no direct Roth IRA contribution eligibility. Qualified withdrawals from a Roth IRA are tax-free if the account has been open for at least five years and the owner is age 59½ or older, disabled, or using the funds for a first-time home purchase. Contributions to a Roth IRA can be withdrawn at any time, tax-free and penalty-free, as these funds have already been taxed.

Key Tax Comparisons

While both Roth TSP and Roth IRAs share the fundamental benefit of tax-free qualified withdrawals, their tax treatment differs in several key aspects. A significant distinction lies in contribution eligibility: Roth IRAs impose income limitations that can restrict or prevent higher-income individuals from contributing directly, whereas Roth TSPs have no such income-based restrictions. Additionally, the annual contribution limits are substantially higher for Roth TSPs compared to Roth IRAs, allowing eligible federal employees and military personnel to save more on a tax-advantaged basis.

Another difference involves the application of the five-year rule for tax-free earnings. While both account types generally require a five-year holding period and an age of 59½ for qualified distributions, these five-year clocks are typically separate. This means that meeting the five-year rule for a Roth TSP does not automatically satisfy the requirement for a Roth IRA, and vice versa.

Rollovers from a Roth TSP to a Roth IRA can also impact the five-year rule, potentially restarting the clock for the earnings portion within the Roth IRA if that Roth IRA has not yet met its own five-year period. Roth TSP participants who separate from service can leave their funds in the TSP, and Roth TSP balances are exempt from required minimum distributions (RMDs). Roth IRAs are also exempt from RMDs for the original owner.