How to Transfer a TSP to an Annuity
Jason Stolz CLTC, CRPC
How to Transfer a TSP to an Annuity is a key question for federal employees and military retirees who want more income flexibility than the standard Thrift Savings Plan payout options allow. When done correctly through a direct transfer (trustee-to-trustee), your TSP funds can move into a qualified annuity with no taxes, penalties, or loss of compounding. This guide explains how to complete a TSP rollover, what rules to follow, and how an annuity can convert your federal savings into predictable retirement income.
At Diversified Insurance Brokers, our advisors help government and uniformed-service employees nationwide transfer their TSP balances to fixed or indexed annuities designed for long-term growth, safety, and guaranteed lifetime income. We handle all transfer paperwork to ensure your funds remain tax-deferred and properly coded for compliance.
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Why Transfer a TSP to an Annuity?
While the federal TSP offers low-cost investment options, it provides limited income choices in retirement. Rolling your TSP into an annuity lets you customize your payout structure, control your beneficiaries, and reduce exposure to market risk.
- Guaranteed income: Replace uncertain TSP withdrawals with a guaranteed monthly check for life.
- Market protection: Fixed and indexed annuities preserve principal even in downturns.
- Flexible access: Add penalty-free withdrawal or nursing-home riders for extra liquidity.
- Estate planning control: Designate beneficiaries directly and bypass delays or government limitations.
- Tax-deferred growth: Funds continue compounding without current taxation until distributed.
How the TSP-to-Annuity Transfer Works
The safest way to move your TSP is through a direct rollover (trustee-to-trustee transfer). This means your TSP administrator sends the funds directly to your chosen annuity carrier—without issuing a check payable to you personally. Here’s what that process looks like:
| Step | Action | Benefit |
|---|---|---|
| 1. Request TSP transfer forms | Obtain Form TSP-70 or TSP-77 depending on whether you’ve separated from service. | Starts the rollover request officially with the Thrift Board. |
| 2. Choose annuity type | Select fixed, indexed, or immediate income annuity options based on your goals. | Tailors your payout method to your needs. |
| 3. Direct transfer of funds | TSP sends the check payable to the insurance company—not to you personally. | Avoids the 20% mandatory withholding on indirect rollovers. |
| 4. Annuity contract issued | Funds are deposited, and your new annuity begins accruing guaranteed or indexed interest. | Your retirement income plan officially begins. |
Estimate Lifetime Income from Your TSP
Tax Rules for TSP Transfers
TSP balances can be rolled into a traditional or Roth IRA annuity, depending on whether your TSP contributions were pre-tax or Roth. A direct rollover keeps the funds qualified and avoids withholding or penalties. However, if you receive the check personally, the IRS requires a 20% withholding and may apply additional penalties if not redeposited within 60 days.
Always confirm with your new annuity carrier that the account is titled properly as a qualified rollover. Our advisors assist federal employees in completing every step to preserve tax treatment and ensure compliance.
Benefits of Transferring Your TSP to an Annuity
- Income certainty: Convert a portion of your TSP into guaranteed lifetime payments.
- More flexibility: Unlike TSP’s fixed payout options, private annuities allow tailored income schedules and beneficiary protection.
- Protection from loss: Fixed and indexed annuities eliminate downside risk.
- Tax-deferred accumulation: Continue compounding without current taxation.
- Survivor control: Design payouts for your spouse or heirs instead of default federal options.
For comparison, see How Much Income Does an Annuity Pay?
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FAQs: Transferring a TSP to an Annuity
Is transferring my TSP to an annuity taxable?
No. A direct rollover from your TSP to a qualified annuity is not taxable because the funds remain in a tax-deferred account.
Can I move my TSP while still employed?
Generally, transfers are allowed only after separation from service. However, certain in-service rollovers may be permitted at age 59½ or older.
What type of annuity is best for TSP funds?
Fixed or fixed indexed annuities are popular for TSP rollovers because they offer principal protection and optional income riders.
Does the TSP offer its own annuity?
Yes, but the TSP annuity through MetLife has limited flexibility and no death-benefit options. A private annuity often provides better control and benefits.
Are Roth TSP balances treated differently?
Yes. Roth TSP funds must roll into a Roth-qualified annuity to maintain their tax-free growth and withdrawal benefits.
Can I combine my TSP with other retirement accounts in one annuity?
Yes. Many retirees consolidate 401(k), IRA, and TSP balances into a single annuity for simplified income management.
