How to Transfer Your TSP to a Gold IRA

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With the inflation ravaging people's savings, economic uncertainty, and major wars, more and more government employees are looking to protect their wealth with physical gold.

No one wants to work hard, and have automatic deductions taken out of their paycheck for years so they can build a comfortable nest egg, to see it all get eroded away as they reach retirement age.

In this article we will explain everything you need to know for folks that are interested in having their saving protected with physical precious metals by converting their TSP to a gold IRA.

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What is TSP?

A TSP is a retirement saving and investment plan for federal government employees and uniformed service members. TSP was established by Congress in the Federal Employees Retirement System Act of 1986.   

A Thrift Savings Plan provides the same type of savings and tax benefits that most private corporations offer their employees. For example, a 401(K).  

Since TSP is a contribution plan, the retirement income you receive from your TSP account will depend on how much money you put into the account during the years you were actively working and the earnings you've accumulated during these years.   

There are several benefits of having a TSP. For instance, individuals will have automatic payroll deductions so they don't have to worry about contributing to their accounts.  

Additionally, a TSP offers a wide range of investment options like individual funds and lifecycle funds. There are also low administrative and investment expenses and some individuals may even have access to their money even while they're still working.  

While there are several advantages of having a Thrifts Savings Plan, there are a few reasons why some individuals may want to switch to a self-directed IRA.  

As of right now, a TSP only offers a few investment options compared to other options available. Individuals can invest in three stock funds and two bond funds. Here is a closer look at your investment options with a TSP:

  • The Common Stock Index Investment (C) Fund: The C fund holds all stocks that consist of the S&P 500.
  • The Small Capitalization Stock Index (S) Fund: These are stocks of small to medium-sized U.S. companies. 
  • The International Stock Index Investment (I) Fund: The I fund holds common stocks of all companies represented in the EAFE index. 

Reasons to Transfer Your TSP to a Self-Directed IRA

A gold IRA is a self-directed IRA known as an individual retirement account and is a common investment option for those interested in expanding their portfolios. 

A self-directed IRA holds several types of alternative assets that are usually prohibited from regular IRA accounts. With a self-directed IRA, there must be a custodian or trustee to administer the account.

However, the account is still directly managed by the account holder. For this reason, it is considered a self-directed account type.   

There are several types of benefits to converting your TSP to a self directed gold IRA account. For starters, a self-directed IRA provides investors with greater flexibility in their investment choices.  

Compared to other options, a self-directed IRA will provide you with the greatest range when it comes to what you choose to invest in.

Whether you're interested in rare coins, precious metals, cryptocurrency, or real estate assets, a self-directed IRA will allow you to achieve your financial goals. 

In addition to this, there are several built-in tax breaks on the earnings from your investments. This is a great financial choice for investors who are looking to preserve their funds and avoid excessive tax fees, especially as your account continues to grow.   

Additionally, a self-directed IRA account allows you to select investments that can lead to a higher potential for appreciation. If growth is your goal, this type of IRA gives you the freedom to experiment and make the best investment choices for your needs.  

When looking at the difference between a TSP and a gold IRA, a gold IRA offers the best solutions for long-term investors. A Thrift Savings Plan has a decent range of investment options but only has 5 investment choices overall.

In the grand scheme of things, a TSP does not provide investors with many choices at all. 

Additionally, a TSP does not have matching funds for military personnel. Matching funds come out of personnel budgets, which ultimately limits the service branches' ability to match effectively.  

It's also difficult to track gains with a TSP because the website does not provide an opportunity to track them. This makes it difficult to monitor your investments without manual intervention.  

As a result, many individuals find that they prefer the benefits of having a self-directed IRA account that gives them freedom, flexibility, and a better sense of control over their investment choices.  

If you're interested in converting your TSP to a gold IRA, continue reading for an overview of what options you have available to you. 

How to Transfer Your TSP to a Self-Directed IRA

Once you retire or you choose to leave the government service, you will be able to transfer your TSP assets, according to the TSP terms.

These assets can be transferred to your new employer's plan or you could also choose to do a tax-free rollover into an IRA account. If you would like, you could also do an in-service partial withdrawal of vested assets.

This type of withdrawal is possible once you reach age 58 and a half. Keep in mind that if you would like to own gold or silver bullion directly, you'll need to work with an IRA firm that specializes in self-directed IRAs.  

Once you've opened your account with a self-directed IRA administrator or custodian, they will then refer you to a third-party vaulting or storage provider to hold your physical assets.

Note that you cannot take direct possession of IRA gold or precious metals. This is a violation of prohibited transaction laws. If the IRS discovers that you are holding assets, the IRS can disqualify your IRA and charge you income taxes.

Before making any investment decisions, always speak with a trusted advisor who can educate you on common IRA rules and ensure that you are making the best decision for your portfolio.  

With that said, here is a look at two methods you have when converting your TSP to an IRA:

The Rollover Method

With the rollover method, you will essentially roll over the funds in your TSP into your self-directed IRA. You must request a lump sum for withdrawal and then deposit those funds into your new IRA account within 60 days. 

When making your deposit into your new IRA account, don't forget to designate it as a rollover from another investment plan and not as a new contribution. If you forget this step, your new IRA custodian or administrator won't know the difference. 

It's important to note that annual contributions to IRA accounts have a limit of $6,000 or less with an additional $1,000 allowed in what is known as 'catch-up' contributions for individuals that are 50 or older.

Note that married couples can contribute up to twice this amount than single taxpayers.  

If you don't roll over your assets within the 60-day deadline, you will be liable for income taxes and any early withdrawal penalties because the IRS will treat it as a withdrawal versus a rollover.

Therefore, you must not miss this deadline to preserve your assets. Missing the deadline can cost you thousands in taxes and penalties and there are no exceptions to this rule.

  • What You Should Know

There are several pros and cons of using the IRA rollover method. For starters, the rollover method allows you to avoid immediate taxes and your retirement savings will continue to go tax-deferred.

On the other hand, some investors don't like the idea of potential tax penalties if they miss the 60-day deadline. As a result, some people may prefer a safer option. 

Trustee to Trustee Transfer Method

The second method that you can use is the trustee-to-trustee transfer method. When using this method, the money will never actually touch your hands like it will when you choose to do a rollover. 

Instead, you'll open an account with a self-directed or gold IRA provider. Once the account is set up and you have your account number, the provider is ready to receive the funds on your behalf.  

From there, you'll need to contact the TSP and fill out a transfer request form, and specifically state where you need to send the money. Once your request is in, the TSP will wire your money directly to your new self-directed IRA. 

After the funds have been placed in your self-directed IRA account, you will need to specify how you would like to invest your money and everything is complete. 

  • What You Should Know

When it comes to transferring funds using the trustee-to-trustee method, this is the safer option compared to an IRA rollover.

Since the money won't be touching your hands and will only be wired from one account to the next, you won't need to worry about a potential penalty if you miss the 60-day period.  

If you are 59 and a half years or older and would like to easily withdraw some of your funds, you may prefer the IRA rollover method as you can choose how much money you want to put into your account without facing an early withdrawal penalty.

However, if you have no plans of withdrawing your assets, the trustee-to-trustee transfer method is the easiest and best way to open your self-directed IRA account and avoid unnecessary fees.

Tips for Converting a TSP to a Gold IRA

Here are a few tips to help you successfully convert your TSP to a gold IRA account:

  • Choose the best custodian

Your custodian plays a crucial role in your self-directed IRA account. It's essential to choose one that is experienced, transparent, and reliable to handle all of your investment needs. 

  • Ensure your gold IRA custodian does TSP transfers

All custodians are not created equal. Ensure that your gold IRA custodian supports TSP Transfers to avoid unnecessary issues. 

  • Know the Rules

Be sure to read and understand the rules of your Thrift Savings Plan before initiating a rollover. This ensures that you are complying with all regulations and will also ensure that you avoid any fines and penalties that you may face due to violating laws. 

  • Think About Fees

You may be charged a fee for transferring TSP funds to your gold IRA. Know these fees before initiating any transfers. 

  • Know Transfer Procedures

There is a certain procedure that you will need to follow to conduct your transfer without tax consequences. Learn these procedures and talk with a trusted advisor if necessary before moving forward with any rollover.

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