Since Roth IRAs became first available in 1998, many federal employees have contributed to Roth IRAs. While there are no income benefits when contributing to a Roth IRA (contributions to a Roth IRA are always made with after-tax money), the real benefit resulting from contributing to an IRA is tax-free account growth and withdrawals.
The one downside to a Roth IRA is there are adjusted gross income (AGI) limitations for contributing to a Roth IRA. Each year, the IRS imposes AGI limits for contributing to a Roth IRA. The result is that over the years, many federal employees have been ineligible to contribute to a Roth IRA because of their AGI.
SEE ALSO: How Does a Roth TSP Rollover to a Roth IRA Work?
Since 2012, federal employees have had the option of contributing to the Roth TSP. Unlike contributing to a Roth IRA, there are no AGI limitations for contributing to the Roth TSP. Upon retiring from federal service, a Roth TSP participant has the option of rolling over their Roth TSP account to a Roth IRA. There are a variety of reasons for a Roth TSP participant to rollover a Roth TSP account to a Roth IRA, perhaps the most common is that the Roth IRA has more investment options than the Roth TSP.
While logistically easy, the Roth TSP rollover to a Roth IRA is also one of the most complicated with respect to federal and state income taxes. That is because a Roth TSP rollover to a Roth IRA involves two five-year holding periods. In particular, one for the Roth TSP rollover and the other one for the eventual Roth IRA distribution.
3 Critical Pieces of Roth TSP to Roth IRA Rollover
This column explains the Roth IRA distribution rules when a rollover Roth IRA contains Roth TSP contributions and Roth TSP accrued earnings. There are three pieces of the rollover that need to be considered, namely:
(1) Roth TSP contributions that were rolled over;
(2) Earnings on Roth TSP contributions that were rolled over; and
(3) Earnings on the rolled-over amounts that were generated after the rollover. Each piece of the rollover is discussed.
Rolled-Over Roth TSP Contributions
When federal employees contribute to the Roth TSP, employee contributions are deducted from the employee’s after-tax salary. Upon the rollover to a Roth IRA, the Roth TSP contributions retain their after-tax status and will not be taxed again when they are withdrawn from the Roth IRA. That is why the Roth TSP contributions when rolled over to the Roth IRA are always available for withdrawal — at any age and for any reason from the Roth IRA without tax and not subject to the 10 percent early distribution penalty.
Accrued Earnings on Roth TSP Contributions Rolled Over
This is the most complex issue to discuss; namely, the possible taxation of accrued earnings on Roth TSP contributions rolled over to a rollover Roth IRA and subsequently withdrawn. In order for these accrued earnings not to be taxed when withdrawn from the rollover Roth IRA, the Roth TSP participant must meet two conditions. They are:
- First, the Roth TSP participant must have been at least age 59.5 or disabled when he or she received the “rollover” Roth IRA distribution.
- Second, the Roth TSP participant must have satisfied a five-year holding period for the Roth TSP. The five-year holding period for the Roth TSP starts on January 1st of the year of the Roth TSP participant’s first Roth TSP contribution, or Roth TSP in-plan conversion.
Note the following:
(1) Roth TSP contributions became available to federal employees in May 2012; and
(2) Roth TSP in-plan conversions became available to TSP participants (employees and retirees) starting on January 28, 2026.
If the Roth TSP participant did not satisfy both of the conditions, then the rolled-over Roth TSP accrued earnings can be withdrawn income tax-free from the rollover Roth IRA only if the eventual rollover Roth IRA meets two slightly different conditions. The first is that the Roth TSP participant/rollover Roth IRA owner must be at least age 59.5 years (or disabled) when a withdrawal is made from the rollover Roth IRA. The second is that the Roth TSP participant’s “rollover” Roth IRA must satisfy a five-year holding period that begins on January 1st of the year the Roth IRA owner made his or her first Roth IRA contribution (or Roth IRA conversion). For that reason, Roth TSP participants who are interested in rolling over parts of their Roth TSP to a “rollover” Roth IRA should open a Roth IRA when they are younger and first eligible to contribute, even with as little as $100 in order to get the Roth IRA five-year clock running. The following example illustrates:
Candice, age 62, recently retired from federal service on December 31, 2025. Candice has contributed to the Roth TSP since it became available to her in 2013. As of January 31, 2026, she has about $250,000 in her Roth TSP account. She is interested in rolling over about $50,000 of her Roth TSP account to a “rollover” Roth IRA. She is doing that in order to diversify her Roth retirement portfolio.
On February 4, 2026, Candice requests that $50,000 of her Roth TSP be directly rolled over to a “rollover” Roth IRA. Candice has never contributed to a Roth IRA. She asks her tax advisor how long she will have to wait in order to make tax-free withdrawals from her “rollover” Roth IRA. Her tax advisor tells her that since she is over 59.5, she can withdraw any of the rolled over Roth TSP contributions at any time with no penalty or tax consequences.
With the accrued earnings on the Roth TSP contributions, her tax advisor informed her that she will have to wait until January 1,2031 to withdraw any of the accrued earnings income tax-free. Her tax advisor also tells her that if she makes a Roth IRA contribution for the year 2025 between now and April 15, 2026, the Roth IRA contribution will be considered as a 2025 Roth IRA contribution. The start of Candice’s five-year clock with respect to the Roth IRA contributions will then be January 1, 2025. In so doing, Candice will move up the date for making tax-free withdrawals of Roth TSP accrued earnings to January 1, 2030.
SEE ALSO: Tax Rules for Roth TSP to Roth IRA Rollovers
Earnings on the Rolled-Over Amounts Generated After the Rollover
The earnings that are generated after the Roth TSP is rolled over to a Roth IRA can always be withdrawn from the rollover Roth IRA if both conditions described in the preceding paragraph; that is, being at least age 59.5 or disabled and having a Roth IRA holding period of at least five years, are satisfied.
In summary, if a Roth TSP participant wants to withdraw from a rollover Roth IRA, then the participant can always withdraw Roth TSP contributions out first without tax or penalty. On the other hand, the Roth TSP participant may have to wait several years before the rolled over accrued earnings from the Roth TSP, as well as the earnings generated after the rollover, are not subject to federal and state income taxes and penalty-free.
Roth TSP participants who are interested in performing a rollover of Roth TSP funds are advised to consult with a knowledgeable tax professional before initiating a rollover of any portion of their Roth TSP account. The rules are complex, and a tax professional who has experience in Roth conversions will be able to suggest what needs to be done and how in order to avoid any unnecessary penalties and taxes.
