TSP Withdrawal Rules at 55 vs. IRA at 59½: The Smarter Withdrawal Strategy for Federal Retirees

If you’re a federal employee nearing retirement, it’s crucial to understand how withdrawal rules differ between the Thrift Savings Plan (TSP) and an Individual Retirement Account (IRA).

Read: RIFs, VERA, and VSIP in 2025: What Happens to Your TSP, FEHB, and Pension in a Federal RIF?

This can impact when—and how—you access your money without penalties.

Whether you're in law enforcement, civil service, or another federal role, here's what you need to know before moving your TSP funds or making withdrawals.

Key Difference: TSP vs. IRA Early Withdrawal Rules

• TSP Rule of 55: If you retire in the year you turn 55 or older, you can withdraw from your TSP without a 10% early withdrawal penalty—this is a major advantage.

• IRA Rule: If you roll over your TSP into an IRA, you lose this benefit. IRA rules typically don’t allow penalty-free withdrawals until age 59½, unless you qualify for limited exceptions (such as certain medical expenses or first-time home purchases).

That means timing your rollover can affect your access to funds.

Roth TSP vs. Roth IRA: What About Tax-Free Withdrawals?

There’s a big difference between Roth IRAs and Roth TSPs when it comes to accessing funds:

• Roth IRA:

  • You can withdraw your contributions at any time, tax- and penalty-free.

  • To withdraw earnings tax- and penalty-free, the account must be open at least 5 years, and you must be 59½ or older (or meet other qualified exceptions).

• Roth TSP:

  • The TSP does not allow you to choose whether withdrawals come from contributions or earnings—they’re taken proportionally.

  • However, the Rule of 55 still applies to the Roth TSP. If you retire at 55 or later, you can withdraw your Roth TSP balance without the 10% penalty—even if you're not yet 59½.

This makes the Roth TSP more restrictive than a Roth IRA but still penalty-friendly under TSP-specific rules.

Best Withdrawal Strategy: Know Your Options

You have three main choices at retirement:

1. Keep your money in the TSP

   • Best if you plan to access your money between ages 55–59½

   • Lets you avoid early withdrawal penalties under the Rule of 55

2. Move funds to an IRA

   • Offers more investment control and flexibility for Roth conversions

   • Best if you're 59½ or older, or you don’t need the money right away

3. Use a blended approach

   • Leave some money in the TSP for penalty-free access

   • Transfer the rest to an IRA for broader investment choices

Final Takeaway

If you’re retiring before 59½, the TSP gives you more flexibility, thanks to the Rule of 55.

But if you’re looking for investment control or plan to delay withdrawals, an IRA may offer long-term benefits—especially if you understand the differences between Roth TSP and Roth IRA rules.

Before making a move, talk to a financial advisor who understands federal benefits.

With the right plan, you can maximize your retirement income and avoid costly mistakes.

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