Can a TSP turn into a SDIRA?

Question

Aloha BP!

Can a federal employee transfer their TSP funds into a self-directed IRA? Or would there have to be a transfer from the TSP account to a traditional IRA then into a SDIRA? I'm trying to explore my financial options to come up with future down payments. Thank you all in advance.

Dmitriy Fomichenko · Answer

@Justin Young

TSP can be rolled over directly into SD IRA (which is your Traditional IRA just with self-directed custodian). Are you still employed there or this is with the past employer?

Keith Thompson · Answer

@Justin Young Did you figure it out? There are some solutions while still employed, you will need some tax advise to remain compliant. I'm glad to see someone on the inside even asking the questions. I was unaware of the SDIRA option until after I retired, you could end up way ahead of the game with some  planning. Happy to share.

Justin Young · Answer

@Mark Nolan, are any of your clients here on BP? I'd like to chat with them on this strategy if possible.

Justin Young · Answer

@Brian Eastman thank you for the feedback. The end goal I'm trying to reach is transferring the TSP funds into an SDIRA and was under the impression that it could only be done from being in an IRA first. But it seems as though still being employed under the federal system doesn't allow that to happen unless I go through some hoops.

Brian Eastman · Answer

@Justin Young

So long as the TSP can be transferred, which it can if you no longer work for the govt. it is a non-issue.

You can move the TSP funds as a non-taxable rollover to an IRA of your choosing.  Whether that is an IRA served by a conventional bank or brokerage, or a self-directed IRA capable of investing in real estate does not matter one bit from a tax or compliance perspective.  An IRA is an IRA.

I think you are confused about the fact that Wall St makes it look like they are the only game in town.  That is not true and has never been true.  Since IRA's were created, they have had the ability to invest in non-traditional assets such as real estate, stock of privately held companies, etc.  A self-directed IRA just has a different processing model that facilitates those types of investments, but the underlying IRA is exactly the same as far as tax treatment, rollovers, beneficiaries, etc.

Mark Nolan · Answer

@Justin Young

Double check with the TSP administrator as we have had some client who have been able to process partial transfer from their TSP even while still working using form TSP Form TSP-70.

Justin Young · Answer

But would moving a TSP into a trad IRA trigger any red flags? If it doesn't, then could I transfer the trad IRA (former TSP) into a SDIRA? Or is that not even possible?

Dmitriy Fomichenko · Answer

then unfortunately they will not allow you to move those funds out

Justin Young · Answer

@Dmitriy Fomichenko I am currently still employed in the federal system and way under the age of 59 and 1/2.

Brian Eastman · Answer

@Justin Young

Yes, a TSP can be moved to any IRA of your choosing.

A self-directed IRA is not different in the administrative sense at all.  it is just like an IRA at a bank or brokerage.  With a self-directed IRA, you just have access to investments not sold by banks or brokerages such as real estate, private mortgages, etc.

The caveat is that you have to be in a position to transfer the TSP.  If you are still working for the government and under ate 59 1/2, your funds are not eligible to be moved.

Can a TSP turn into a SDIRA?

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