For a service member about to separate, a TSP to IRA rollover at First Premier Bank starts with one test: whether moving the money cuts the tax cost or just delays it. The answer decides where your traditional TSP ends up. It can stay put, go to an IRA through a direct trustee-to-trustee transfer, or be split so the part earned tax-free in a combat zone lands in a Roth IRA.
Do I have to move my TSP when I separate?
No. The TSP keeps your account after you separate, and nothing has to come out until required minimum distributions begin at 75 for anyone born in 1960 or later, which covers every reader still in uniform or recently out. No due date forces a move.
A direct trustee-to-trustee rollover to a traditional IRA is untaxed when it happens, but it isn't tax-free; the tax waits until income draws. Moving money for tidiness alone saves nothing. And before 59½ the 10% early-distribution penalty applies to the TSP and an IRA alike, so at 39 a rollover doesn't buy easier access to the money.
The question starts to matter in 3 situations: your TSP statement shows a tax-exempt balance from combat zone pay, the IRA's funds would cost more than the TSP's, or a new employer plan is in the picture. Take Andre (hypothetical), a Marine gunnery sergeant 6 months from retiring at 20 years. His $95K logistics job starts right after separation, so a new plan is coming.
Andre's $420K and the $30K that was never taxed
Hypothetical: Andre and Miriam, 39 and 37. Andre retires at 20 years under High-3; Miriam is a dental hygienist; they have 3 kids and rent near base. His annual TSP statement shows $420K traditional, and $30K of that is tax-exempt money from deployments.
TSP distributions from the traditional balance take taxable and tax-exempt money pro rata. A full direct rollover therefore sends $390K to a traditional IRA and $30K to a Roth IRA, with no tax due on either. Nobody has to write a check.
Now the growth gap. Assuming 5% a year, for illustration, $30K becomes about $101.6K in 25 years ($30K × 3.386). In the Roth IRA, all of it can come out tax-free after 59½ and 5 years. In a traditional account, the $71.6K of growth is taxable: about $14.3K at an illustrative 20% rate. If the $30K basis is never tracked on Form 8606, tax lands on the full $101.6K, about $20.3K.
The backdoor Roth pro-rata problem doesn't bite here. Retired pay plus Andre's $95K and Miriam's hygienist pay keep them under the $242K to $252K married-filing-jointly Roth IRA phase-out the IRS sets for 2026, so they can contribute to a Roth IRA directly.
If they later want the TSP's low fund costs back, the TSP accepts traditional IRA money after separation, so the $390K can return. First Premier Bank weighs that against the IRA's yearly cost in dollars before suggesting either. Every one of these accounts is invested, so its balance can fall below the amount Andre deposited.
Before moving anything else, check your own statement for a tax-exempt line. A direct transfer of that money to a Roth IRA is the one rollover move that removes future tax on its growth instead of postponing it. One caveat: with no tax-exempt balance and a plan to hold the same broad index funds, a rollover usually isn't worth it, because it saves no tax and IRA funds rarely cost less than the TSP's.
The split, step by step
The growth gap and the way back
Asking the TSP for a check and skipping Form 8606 tend to come together. A $100K check of taxable money arrives as $80K after 20% withholding; redepositing only $80K within 60 days makes $20K taxable (about $4K at an illustrative 20% rate) plus a $2K early-distribution penalty. Losing track of $30K of basis later taxes money that was never taxable, about $6K more. Combined cost: near $12K.
| Common belief | What the rule says | What it means for you |
|---|---|---|
| A rollover cuts my taxes | Direct rollover is untaxed, not tax-free | Tax waits until income draws |
| A check is fine; I'll redeposit | 20% withheld; full amount in 60 days | Ask for a direct transfer |
| Combat pay is just traditional money | Tax-exempt part can go to Roth IRA | Find it on your statement |
| Once out, it can't come back | TSP takes traditional IRA money after separation | Low TSP costs stay available |
| Roth IRA money can return | TSP refuses Roth IRA money | Roth moves are one-way |
| An IRA avoids RMDs | RMDs at 75 if born 1960+ | Same age either way |
Can Roth TSP money ever come back?
No. Roth TSP money can roll to a Roth IRA but never back, because the TSP refuses Roth IRA money. It's a door that only swings one way. The Roth IRA also runs its own 5-year clock for tax-free earnings, so someone with no existing Roth IRA starts that clock at zero.
How often should I recheck a TSP rollover?
Once a year, in January, when the 1099-R for the rollover year arrives. Box 2a, the taxable amount, should show zero for a direct rollover; if it doesn't, call the TSP before you file. An extra review is triggered by a new employer plan, a move into a federal civilian job that reopens TSP contributions, or a Form 8606 that needs updating after any IRA distribution.
Four questions for whoever moves your TSP
Anyone can ask you to move the money. Put these to them first, whether it's First Premier Bank or someone else.
- Tax-exempt balance: ask whether they'll find the combat zone amount on your TSP statement before recommending any move.
- Fund costs: ask for the proposed IRA's yearly cost in dollars on your balance, next to the TSP's cost on the same balance.
- Paperwork route: ask who requests the direct transfer, and how they'll confirm it on the 1099-R and on Form 8606.
- Their pay: ask how they're paid if the money moves and how they're paid if it stays in the TSP.
Your first TSP rollover meeting at First Premier Bank
Bring 3 things: your latest TSP annual statement (it shows the tax-exempt balance), your separation date and the new employer's benefits summary. The statement matters most. Without the tax-exempt line, nobody can tell whether a split to a Roth IRA is on the table.
First Premier Bank works out the tax cost of each route, stay, roll or split, with your own balances on the table. It takes one decision at a time, in order of due date, so the separation paperwork comes before anything that can wait a year.
You leave with a 1-page roadmap: the rollover decision, the forms involved (the TSP transfer request, and Form 8606 if basis exists) and the January 1099-R check. First Premier Bank goes over the fee when you first talk and puts it on paper before any work begins. We meet by phone or video, so your duty station doesn't matter.
What people ask about a TSP to IRA rollover
How long can my TSP sit untouched after I separate, and at what age does money have to come out?
If I move combat zone money into a Roth IRA and regret it, can I undo it, and is it really worth leaving the TSP's low costs for?
Read the rules at the source
Related First Premier Bank services
This is general information and education, not individual investment, tax, or legal advice. Investing involves risk, including loss of principal. Before making any financial decision, talk to a qualified professional about your specific circumstances.