When you withdraw money from the TSP,
- You will owe taxes on any traditional contributions (except those that are tax-exempt) and their earnings.
You can continue to defer taxes by transferring or rolling over your payment to a traditional IRA or an eligible employer plan. You can also transfer or roll over your traditional funds to a Roth IRA, but you will have to pay taxes on the full amount in the year of the transfer.
- You will not owe taxes on your Roth contributions—you have already paid them. Roth earnings are not taxed if they are “qualified”. Roth earnings are qualified (i.e., paid-tax free) if 5 years have passed since January 1 of the calendar year in which you made your first Roth contribution and you have reached age 59 ½, have a permanent disability, or have died.
If your Roth earnings are not qualified, you will owe taxes on them. You can defer the taxes by transferring your Roth payment to a Roth IRA or Roth account maintained by an eligible employer plan.