[vc_row][vc_column width=”2/3″ el_class=”section section1″][vc_column_text]The technical terms can sometimes be confusing when you’re moving your money to an IRA from your Thrift Savings Plan. Knowing the exact meaning of terms can be very important. And the fact of the matter is, there is a big difference between “transfers” and “rollovers.”
At a glance, the term “transfer” means that the company in charge of your IRA gets the money directly from the TSP. The term “rollover” in effect, means the money is sent directly to you instead.
Generally speaking, when moving money, most people are looking for a transfer and not for a rollover. The IRA should receive all of your TSP retirement fund in order to maximize it.
The problem with the rollover is this: the TSP will automatically send some of your money to the IRS (20 percent) and 80 percent directly to you. The problem comes when you transfer two months later when you have to send the totality of your TSP retirement fund to the new IRA account, or you will be hit with taxes.
Say you have a TSP worth $100,000 dollars. If you transfer it the right way, 100 percent of it would be sent directly to your IRA. Adversely, if you did a rollover, it would breakdown like this: you’d get $80,000 dollars, and the IRS would get $20,000 dollars, and then, after 60 days, you will be expected to deposit all $100,000 dollars into the IRA account, even though the IRS will never give the $20,000 dollar you initially sent them back. If you can’t make the full $100,000 dollar payment after that time, you’ll incur a 10 percent penalty (if under the age of 59.5 years old) or be required to pay income tax on the $20,000 dollar difference.
And the more money you have in your TSP, the higher these numbers will get. In most instances, a transfer is always better than a rollover.
You’ll encounter a lot of people with ideas about what you should do with your retirement. You may be able to get a lot of information from someone in your HR department or customer service people in general, but in the end, you are ultimately in charge of what happens with your money. You should double check the information your given to ensure the people you’re talking to are well informed so that you can weigh all your options. Perhaps even working with some financial planner would help to make sure that the transfer is completed right.[/vc_column_text][/vc_column][vc_column width=”1/3″][vc_single_image image=”36278″ img_size=”292×285″ style=”vc_box_shadow”][/vc_column][/vc_row]
