To close a TSP account, you have to separate from federal or uniformed service first, then submit a full withdrawal request through the My Account portal at tsp.gov, choosing whether the money rolls over to an IRA or another employer plan or comes to you as cash. Once the disbursement goes out, it cannot be reversed, and the tax consequences depend on your age, your balance type, and how the money leaves the plan.
You Have to Separate From Service First
Federal law ties a full distribution to one event: leaving government service. Retirement, resignation, termination, and the end of a military obligation all qualify. While you’re still on a federal payroll, you cannot empty the account.
After you leave, your former agency or branch reports the separation to the TSP. That notification can take up to 30 days to arrive, and until it does, the system will not let you submit a full withdrawal. Log in and confirm the separation has been recorded before you start.
Spousal Consent if You’re Married
A married participant can only take a lump sum or installment payments if the spouse waives, in writing, any right to a survivor annuity. For FERS and uniformed services participants with a vested balance above $3,500, the default benefit is a joint life annuity with a 50 percent survivor benefit, and choosing anything else requires your spouse’s notarized signature on the withdrawal form. If your spouse cannot be located or exceptional circumstances make consent inappropriate, you can apply to the TSP for a waiver.
This is the main reason a withdrawal sometimes generates a paper form. The online system handles most of the process but cannot accept digital signatures for the legal waiver. If a paper form is required, print it, get it notarized, and mail it in. Notary fees usually run between $2 and $25 depending on your state.
What It Will Cost You in Taxes
The largest cost of closing a TSP account is the tax bill, and how big it gets depends on three things: your age at distribution, whether the balance is traditional or Roth, and whether you roll the money over or take cash.
Twenty Percent Withholding on Cash Distributions
If you take a full distribution paid directly to you rather than rolling it into an IRA or eligible employer plan, the TSP must withhold 20 percent of the taxable portion for federal income taxes. That applies to the entire traditional balance and, for Roth balances, to the earnings portion of any distribution that doesn’t qualify as tax-free. You reconcile the actual tax owed when you file your return, but the 20 percent comes off the top first.
The 10 Percent Early Withdrawal Penalty
If you’re under 59½ when the distribution goes out, the IRS generally charges an additional 10 percent tax on the taxable amount. That stacks on top of your regular income tax.
An important exception applies to federal employees and service members: if you separate from service during or after the calendar year you turn 55, the 10 percent penalty does not apply. For qualified public safety employees, including certain federal law enforcement officers, firefighters, customs and border protection officers, and air traffic controllers, the age threshold drops to 50.
Other exceptions that may eliminate the penalty include:
- A total and permanent disability.
- A series of substantially equal payments calculated based on your life expectancy.
- Unreimbursed medical expenses exceeding 7.5 percent of your adjusted gross income.
- A qualified birth or adoption, up to $5,000 per child.
- Distributions after a physician certifies a terminal illness.
- Certain distributions to military reservists called to active duty.
Roth Balances
Contributions you made to a Roth TSP balance come out tax-free and penalty-free regardless of your age, because you already paid taxes on that money. The earnings are only tax-free if two conditions are met: at least five years have passed since January 1 of the year you made your first Roth TSP contribution, and you’ve reached age 59½, become permanently disabled, or died. If your distribution doesn’t meet both, the earnings portion gets taxed as ordinary income and may trigger the 10 percent penalty.
Direct Rollover vs. Cash: The Decision That Changes Your Tax Bill
How the money moves from the TSP to its next destination changes what gets withheld and when.
A direct rollover sends the money straight from the TSP to your IRA or new employer plan without passing through your hands. No taxes are withheld, no penalties apply, and you owe nothing until you eventually withdraw from the receiving account. This is the cleanest way to close the account if you want to keep the money in a tax-advantaged vehicle.
An indirect rollover sends the money to you first. The TSP withholds 20 percent of the taxable portion before cutting the check, and you then have 60 days to deposit the full original amount into an IRA or eligible plan. To roll over the entire distribution, you have to come up with the 20 percent out of pocket, because the withheld portion won’t arrive until you claim it as a refund on your tax return. Anything you fail to roll over within 60 days gets taxed as income and may also face the 10 percent penalty.
You can split a distribution, sending part as a direct rollover and taking the rest as cash. The online system lets you specify percentages for each destination.
Pay Off Any Outstanding TSP Loan First
If you have an unpaid TSP loan when you separate, the clock starts. The TSP will notify you of your repayment options, and you can continue making payments by check or direct debit from a personal bank account. If you don’t begin repayments or pay off the loan by the deadline in that notice, the remaining balance plus accrued interest becomes a loan foreclosure.
A foreclosure is treated as a taxable distribution. The TSP reports it on a 1099-R, you owe income tax on the outstanding amount, and if you’re under 59½ without an exception, the 10 percent early withdrawal penalty applies too. One saving grace: if the foreclosure happens after you’ve separated, you can roll over the taxable amount to an IRA or eligible plan using personal funds, as long as you complete the rollover by the due date for your federal return for the year of the foreclosure, including extensions.
Closing your TSP account while carrying a loan balance creates an extra taxable event on top of the distribution itself. Paying off the loan before requesting the withdrawal avoids that.
Submitting the Withdrawal Request
Once the separation notice appears in the TSP system, the process is mostly digital:
- Log in to My Account and confirm your mailing address and direct deposit details are current. Any new address or bank account must be on file for at least seven days before it can receive a payment.
- If you’re rolling money into an IRA or another employer plan, gather the receiving institution’s name, address, and account number. For direct deposit of cash, you’ll need your bank’s routing number and your account number.
- Use the withdrawal tool in My Account. No paper form is needed to begin. Select a full withdrawal and choose your distribution method: lump sum, installment payments, a life annuity, or a combination.
- If the system generates a paper form for your spouse’s notarized signature, print it, get it signed, and mail it to the TSP.
- Review the summary screen showing your distribution elections, tax withholding, and destination accounts, then submit.
When the Money Arrives
The TSP processes withdrawal requests each business day. Requests entered by noon Eastern are ordinarily processed that night; anything submitted after noon rolls to the next business day. Your account shares are liquidated at the closing share prices on the processing day, so your funds stay invested in whatever allocation you had until that point.
If you chose direct deposit, the payment typically reaches your bank within a few business days after processing. Paper checks take longer, and the TSP warns that lost, stolen, or damaged checks can take six weeks or longer to replace. The TSP sends a confirmation once the disbursement is complete, and your account closure is final when the portal shows a zero balance across all funds.
Required Minimum Distributions Don’t Go Away
If you’re at the age when the IRS requires you to start drawing down tax-deferred accounts, closing the TSP and rolling into an IRA doesn’t eliminate that obligation; it moves it. Under current rules, RMDs begin the year you turn 73, and that threshold is scheduled to increase to 75 starting in 2033.
If you’ve separated, are over 73, and haven’t taken the year’s RMD, the TSP will calculate and distribute it automatically. Missing an RMD triggers a 25 percent excise tax on the amount you should have withdrawn, dropping to 10 percent if you correct the shortfall within two years.
You cannot roll over an RMD. If you’re in an RMD year, the TSP satisfies the RMD first and then processes the rollover of the remaining balance. The RMD portion comes to you as taxable income.
Coming Back to Federal Service
Closing your TSP account doesn’t permanently bar you from the plan. If you’re rehired by a federal agency after a break of 31 or more calendar days, you’ll be automatically re-enrolled. If your break is shorter than 31 days and you were contributing before, your contributions resume automatically. Uniformed service members reentering after a break of 31 or more days who weren’t in the Blended Retirement System won’t be auto-enrolled but can start contributing at any time.
The new account starts fresh. Money you previously withdrew and spent is gone, and you won’t get credit for prior balances. But agency matching contributions for FERS employees kick in immediately.