A separated federal employee can roll their TSP balance into an IRA. That part is not a question. The TSP supports direct rollovers to Traditional IRAs (from Traditional TSP money), Roth IRAs (from Roth TSP money), and certain other eligible retirement plans.

The question that actually matters is whether a rollover is wise. And that question turns on three things: what you’re buying with the move, what you’re giving up, and whether the math works after fees.

How the rollover actually works.

The TSP supports a direct rollover, which means the money moves from the TSP to the receiving IRA trustee without ever passing through your hands. A direct rollover is non-taxable — it is not a distribution, it is a transfer. The TSP will issue a Form 1099-R showing the transfer as a direct rollover, with no taxes withheld.

The receiving IRA custodian accepts the funds and reports them on its own Form 5498 for the tax year of receipt. From the IRS’s perspective, the dollars never left the retirement system.

There are some mechanics worth flagging:

  • Traditional TSP to Traditional IRA. This is the most common path and is cleanest mechanically. The money retains its pre-tax character; no taxes are due.
  • Roth TSP to Roth IRA. Also clean. The money retains its Roth character, including the 5-year clock that determines qualified distributions.
  • Mismatched rollovers. Rolling Traditional TSP money into a Roth IRA is a conversion, not a rollover. It is taxable. The TSP supports in-plan Roth conversions, but a Traditional-to-Roth movement is a separate transaction with its own tax consequences.

Why people do it.

The reasons separated federal employees most often give for wanting to roll their TSP into an IRA:

  1. More investment choices. The TSP offers five core funds (G, F, C, S, I) and a Mutual Fund Window. An IRA at a typical custodian offers thousands of mutual funds, ETFs, individual stocks and bonds, and alternatives. For someone who wants broader exposure, an IRA delivers it.
  2. Easier partial Roth conversions. In-TSP Roth conversions are possible but involve in-service restrictions for active employees and TSP processing timelines. An outside IRA can be converted in any size, in any month, with a click.
  3. Single point of management.A federal employee who already has an IRA, a taxable brokerage account, and outside real estate may prefer to consolidate the TSP into the same advisor’s platform rather than manage a separate account.
  4. Inherited IRA planning. A non-spouse beneficiary of a TSP inherits the account under TSP rules, which differ in important ways from inherited IRA rules. For beneficiaries who need the flexibility of inherited IRA treatment, a rollover to an inherited IRA (within the strict IRS timelines) is sometimes the right path.

What you give up.

The case for staying in the TSP is also real. Here is what you give up when you leave:

  • The G Fund. The G Fund is a non-marketable U.S. Treasury security specifically structured for the TSP. It has no interest-rate risk in the way a typical bond fund does, and it has no perfect outside equivalent. Rolling out of TSP means giving up access to it.
  • The expense ratios.The TSP’s underlying funds have institutional expense ratios among the lowest in the industry — the C, S, and I Funds have expense ratios that are a fraction of typical retail index funds. An IRA at a typical custodian will cost more per dollar invested.
  • Creditor protection.The TSP’s creditor protection under 5 U.S.C. § 8437(e) is exceptionally strong. Most IRAs also have strong protection, but the strength varies by state and by the type of IRA. The TSP is uniform.
  • Spousal consent structure. TSP withdrawals above $5,000 trigger spousal consent for FERS participants. IRA withdrawals do not have the same statutory framework, which can be a feature or a bug depending on your perspective.
  • Required Minimum Distribution coordination. Multiple Traditional IRAs must have their RMDs aggregated and then distributed from one or more of them. The TSP RMD is calculated separately. After a rollover, you have one less RMD to think about — but only because you’ve consolidated.

The honest trade-off.

Rolling out of TSP is essentially a cost-versus-control decision. You pay more in fees for the privilege of having more investment flexibility and (often) a more flexible withdrawal experience. Whether the additional flexibility is worth the additional fee depends on what you intend to do with that flexibility.

For a separated federal employee who plans to buy and hold a three-fund portfolio for 25 years, the additional flexibility is theoretical. The TSP’s low cost and G Fund are doing the heavy lifting. Rolling out is mostly a fee increase.

For a separated federal employee who plans to do regular Roth conversions, partial withdrawals from specific tax lots, or beneficiary-IRA planning for a non-spouse heir, the additional flexibility is concrete. The fee increase may be worth paying.

The mechanics of getting it done.

If you do decide to roll over, the cleanest path is:

  1. Open the receiving IRA at the chosen custodian, designated as a rollover IRA.
  2. Submit the TSP’s withdrawal form electing a direct rollover, with the receiving IRA’s account information.
  3. Wait for the TSP to process and disburse. The TSP processing timeline is typically two to four weeks, depending on the form and the queue.
  4. Confirm the receiving IRA custodian has booked the funds as a direct rollover, not as a regular contribution.

Do not have the TSP send you a check and then deposit it. The 60-day clock and the 20% mandatory withholding rule both apply to indirect rollovers. The direct path is the only path that does what you want.