Transferring a TSP to an annuity is one of the most practical ways for federal employees and military retirees to convert a retirement balance into predictable income without giving up tax deferral. The Thrift Savings Plan is excellent for accumulation because it’s low-cost and easy to manage, but once you separate from service, the goal usually shifts from “How do I invest this?” to “How do I turn this into reliable monthly income that won’t disappear if markets fall at the wrong time?”

If you’re exploring a rollover, the most important concept to understand is that your TSP does not need to be “cashed out” to move into an annuity. When structured correctly as a trustee-to-trustee direct transfer, funds move from the TSP directly into a qualified annuity contract, and your retirement dollars remain in the qualified system the entire time. That’s how you preserve tax deferral, avoid unnecessary withholding, and keep your long-term compounding intact.

At Diversified Insurance Brokers, our advisors help federal and uniformed-service retirees nationwide compare annuities built for retirement income—typically fixed annuities, fixed indexed annuities, and income-focused contracts—then coordinate the paperwork so the transfer stays compliant and correctly coded from start to finish. If you want to explore annuity structures first, you can start here: annuities.

This page explains who can transfer, how the process works, how taxes are handled, what to watch out for, and how to decide whether an annuity fits your broader retirement income plan. The goal is simple: help you move from “account balance” to “retirement paycheck,” on purpose, with clarity.

Estimate Lifetime Income From Your TSP Balance

Use the calculator below to model income scenarios. This is a fast way to compare outcomes when you shift from market-dependent withdrawals to contract-based lifetime income options.

After you model income, learn how many retirees structure guaranteed income from annuities to cover essential expenses first, then layer flexible assets on top.

What a TSP Transfer to an Annuity Really Means

When people say “transfer my TSP to an annuity,” they usually mean one of two things. The first is moving some or all of the TSP balance into an annuity that can later produce lifetime income. The second is converting part of the balance into a contract that starts paying soon, often within the first year, like a personal pension replacement. The key idea is the same: you’re taking a retirement account that was built primarily for accumulation and converting it into a retirement income tool with rules you can control.

That control matters because TSP distribution options—while improved over time—still won’t fit every retiree’s needs. Many households want to coordinate income with Social Security timing, spouse coverage, expected medical costs, and the reality that retirement spending is rarely linear. A well-chosen annuity can be structured to match your income schedule, preserve principal protections, and set clear beneficiary instructions that reduce administrative confusion later.

It’s also important to understand what this strategy is not. A TSP-to-annuity transfer is not “trying to beat the market.” Most retirees who implement this are prioritizing stability, predictable income, and risk management. In other words, it’s usually an income planning decision, not an investment speculation decision.

Who Can Transfer a TSP to an Annuity?

Most TSP-to-annuity transfers happen after separation from service, but your actual eligibility depends on your employment status, your distribution elections, and the type of TSP dollars you have (traditional vs Roth). In general, if you have the ability to roll money out of the TSP, you can usually move those eligible funds into a qualified annuity using a direct transfer process.

Federal employees and military retirees typically consider this strategy when they want to simplify retirement income, reduce portfolio volatility, or create a “floor” of guaranteed income. Many people also do it when consolidating multiple accounts—especially if they have other rollovers from prior employment and want a unified retirement income plan.

If you are still deciding what the “right” next step is for a retirement plan after you stop working, you may also want to compare the broader decision framework here: what should I do with my TSP after I retire. The transfer strategy is often one branch of that decision tree.

Why Retirees Transfer a TSP to an Annuity

During your working years, the TSP’s main advantage is low-cost exposure to diversified markets. In retirement, however, the challenge is different. You’re no longer focused on accumulating shares; you’re focused on turning an account balance into paychecks while managing the risk that a market downturn occurs early in retirement—right when you begin withdrawals.

That early-retirement vulnerability is one reason annuities show up in retirement income planning. Instead of relying solely on market performance to support withdrawals, annuities can create a contract-defined income stream. This can reduce the pressure on the remaining portfolio, help stabilize monthly cash flow, and make it easier to build a budget that doesn’t depend on market returns cooperating every year.

Another reason is choice. With an individual annuity, you can compare carriers and product designs side-by-side rather than being tied to a single plan’s structure. The shopping process matters, because different contracts prioritize different things—rate strength, liquidity, income roll-ups, joint payout options, and beneficiary features. That’s why most retirees begin by reviewing today’s competitive landscape here: current annuity rates.

Finally, many retirees like the clarity. A well-structured annuity can create rules you can understand: what happens if you die, how income is calculated, what free withdrawal provisions exist, and whether a spouse can continue income. For households who value certainty, that clarity can be as important as the paycheck itself.

Which Type of Annuity Works Best for a TSP Transfer?

There isn’t one “best” annuity for every TSP transfer because retirees use annuities for different roles. Some want guaranteed growth for a period before turning income on. Others want index-linked crediting with principal protection. Others want income that starts soon and behaves like a personal pension. The right choice depends on your timeline, your risk tolerance, your liquidity needs, and whether income is intended to cover essentials or discretionary expenses.

Fixed annuities and MYGAs are commonly used when the goal is stable, contract-defined growth for a set period. These can be useful when a retiree wants to reduce market exposure without immediately annuitizing. Many people compare these options similarly to CDs, but within a tax-deferred retirement account context. If you want to see how competitive guaranteed rates look right now, review: best MYGA annuity rates.

Fixed indexed annuities (FIAs) are often used when retirees want principal protection but also want interest crediting tied to an index. These products typically include caps, participation rates, or spreads, and many can be paired with optional income riders to create lifetime income later. They can make sense when someone wants to keep upside potential while protecting the downside. For retirees focused on bonus-style FIA structures, it can be helpful to compare options here: highest bonus FIA rates.

Income-focused annuities are used when the main objective is converting a portion of the TSP into a lifetime paycheck. Some retirees want income to begin within 12 months. Others want to defer income to later ages to increase the expected payout factors. In both cases, the decision is usually about building an “income floor”—a base layer of monthly income designed to cover housing, food, insurance, and other essentials, so discretionary spending can come from flexible accounts.

Because annuity designs vary, the planning value often comes from aligning the annuity’s job with your household plan. The best outcome is when the annuity makes the rest of your finances easier—not when it forces you to rearrange everything around it.

Step-by-Step: How to Transfer a TSP to an Annuity

A successful TSP-to-annuity transfer is mostly paperwork and process discipline. The most important goal is avoiding an “indirect rollover” mistake where funds are paid to you personally, triggering withholding and creating time-pressure to redeposit. Instead, the cleanest path is a direct rollover where money moves from the TSP straight to the annuity carrier.

Step 1: Confirm what you’re moving. Start by clarifying whether your TSP dollars are traditional (pre-tax), Roth, or a blend. This matters because the tax character should remain consistent. Traditional dollars generally roll to a traditional qualified annuity structure. Roth dollars must be handled as Roth dollars to avoid creating taxable conversions accidentally. If you have both, you may transfer them into separate qualified registrations to maintain clean accounting.

Step 2: Decide the annuity’s job. Before selecting a product, decide what role the annuity will play. Is it a growth-and-protection bucket that you may tap later, or a paycheck bucket designed to start income on a specific date? Most “good” annuity matches start with this role clarity, not with a product brochure.

Step 3: Open the destination contract in the correct qualified registration. The annuity carrier will establish the receiving account and provide transfer instructions. The exact titling matters. A correctly titled qualified contract keeps the transfer clean and avoids avoidable reporting issues.

Step 4: Execute the direct rollover. This is the pivotal step: the check should be made payable to the receiving insurance company (or custodian) for your benefit—not payable to you. If you want a refresher on why direct rollovers are the gold standard for keeping transfers compliant, review: what is a direct rollover.

Step 5: Confirm deposit, allocation, and income elections. After funds arrive, the carrier issues the contract and confirms how money is allocated (fixed bucket, index strategy, or income configuration). If you’re adding an income rider or choosing a deferred income start date, those elections should be confirmed in writing, alongside beneficiary designations.

Step 6: Coordinate with your broader plan. The most overlooked step is integrating the annuity into the overall retirement income blueprint. That includes coordinating Social Security timing, expected RMDs, cash reserves, and tax brackets. A well-structured plan makes the annuity feel like a stabilizer, not a complication.

Tax Rules and Withholding: Keep the Transfer Clean

In most cases, a direct TSP rollover to a qualified annuity is not a taxable event. The transfer preserves the tax-deferred nature of the account, which means you do not owe income tax at the time of transfer and you do not trigger early withdrawal penalties simply by moving the funds. Taxes typically occur later, when you take distributions, and those distributions are generally taxed as ordinary income for traditional pre-tax dollars.

Where problems happen is when a transfer is performed incorrectly. If a check is made payable to you personally, you can accidentally convert a clean transfer into a taxable distribution (and in many cases, withholding applies). Even if you intend to redeposit funds quickly, that structure creates avoidable risk. A direct trustee-to-trustee transfer is the cleaner standard because it avoids withholding pressure and removes the “60-day clock” stress.

Another tax planning dimension is how your annuity income interacts with other income sources. Many retirees want a stable income floor but also want to avoid income spikes that push them into higher brackets. That’s one reason many households model multiple income patterns before making a final election. If you want to test different payout rhythms as part of your planning, see: annuity payout calculator.

Required Minimum Distributions and How They Work After the Transfer

Once you reach the applicable RMD age, qualified retirement accounts—including qualified annuities—must support required distributions. That doesn’t mean an annuity “doesn’t work” for retirees who are in RMD years. It simply means the annuity must be structured to allow distributions to satisfy the requirement, and your plan should treat RMDs as a predictable planning factor rather than a surprise.

For some retirees, lifetime income payments from an annuity can serve as an efficient way to satisfy annual distribution obligations because the income arrives on a predictable schedule. For others, a more flexible withdrawal structure is preferred because it allows them to manage income around other tax events, such as capital gains, Social Security taxation thresholds, or one-time retirement expenses.

Because different annuities offer different liquidity provisions, it’s wise to understand how free withdrawal features work before committing. A clear explanation of penalty-free access windows and limitations is here: annuity free withdrawal rules.

Beneficiaries, Spousal Protection, and Legacy Planning

A major reason many retirees prefer an individual annuity structure is beneficiary control. Your household plan may prioritize making sure the surviving spouse has enough income to maintain lifestyle, or it may prioritize leaving a clear financial path for children or other heirs. Annuity contracts can be designed with death benefit structures and payout rules that align with those goals, but the details matter.

Some retirees choose joint lifetime options so that income continues as long as either spouse is living. Others choose period-certain or refund features so that if death occurs early, a remaining value is paid to beneficiaries. Still others prefer income riders that preserve account value while guaranteeing a lifetime withdrawal amount. The “right” choice depends on the household’s broader income picture and whether the annuity is intended to cover essential spending or provide supplemental stability.

If you want to understand how beneficiary outcomes differ between contract designs, review this guide: annuity beneficiary death benefits. The key planning takeaway is that beneficiary outcomes should be evaluated at the same time as income outcomes, because the two are often connected.

Inflation Planning: Don’t Build a “Flat” Retirement Paycheck by Accident

One of the most common concerns retirees have about guaranteed income is inflation. A flat payment that feels comfortable today may feel tight 10 or 15 years from now. That doesn’t mean guaranteed income is a mistake—it just means the plan must account for inflation in an intentional way.

Some retirees address inflation by staggering income start dates: building a base income layer today, then adding a second layer that begins later. Others use riders or annuity structures that include increasing income features. Many also pair annuity income with a separate “growth sleeve” of assets intended to offset inflation over time. The best approach is the one that matches your retirement timeline and your household’s ability to absorb payment variability.

If you want to explore how inflation features can be used within annuity planning, see: annuity with inflation protection.

Should You Transfer All of Your TSP or Only Part?

Most retirees do not transfer 100% of their TSP into an annuity. The more common strategy is to transfer a portion intended to create a stable income floor while keeping a portion liquid for flexibility, opportunistic spending, and longer-term growth. This “split role” approach often works well because it aligns different tools with different jobs.

For example, a retiree may decide that housing, utilities, food, and basic insurance premiums should be covered by stable income sources: Social Security, a pension (if applicable), and a personal annuity income stream. Discretionary spending—travel, gifting, larger purchases—can then be funded from flexible accounts where withdrawals can be adjusted year by year.

The planning value of transferring only part is that it reduces pressure on the remaining portfolio. If markets fall, your essential income does not collapse with it, which can prevent the psychological and financial whiplash that causes many retirees to sell at the wrong time. A stable income layer gives you the option to be patient with the rest of your plan.

When you want to understand “what annuities are worth” in the context of their role—rather than as an all-or-nothing decision—this framework helps: are annuities worth it.

Common Mistakes to Avoid During a TSP-to-Annuity Transfer

Turning a direct transfer into an indirect rollover. This usually happens when a check is made payable to you personally. Even if you intend to redeposit the funds, that structure can trigger withholding and time pressure that is completely avoidable.

Choosing a product without matching the annuity’s job to the plan. The best annuity is rarely the one with the flashiest feature. It’s the one that accomplishes the job you need—income timing, principal protection, liquidity windows, beneficiary structure—without forcing compromises elsewhere.

Ignoring liquidity needs. Many annuities include surrender schedules, and even “good” free withdrawal provisions may not align with large one-time expenses. That doesn’t mean annuities are the wrong tool. It means the allocation amount and the contract design must match your cash-reserve strategy.

Overlooking spouse and survivor planning. A single-life income stream can be powerful, but if you have a spouse depending on the same income plan, survivor structures must be evaluated deliberately. A retirement paycheck that disappears at the first death can create an avoidable hardship in the second half of retirement.

Not coordinating the annuity with the rest of your accounts. The annuity should fit into a broader withdrawal sequence that considers taxes, timing, and your household’s risk tolerance. The win is not just the annuity payment; it’s the stability the payment gives your entire plan.