TSP cash-out vs. rollover calculator
Leaving the service? See what cashing out your Thrift Savings Plan would cost in tax, penalties and withholding, compared with a direct rollover that costs nothing.
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Cashing out vs. rolling over: what actually happens
When you leave the service you can leave your TSP where it is, move it to an IRA or another employer plan, or take it as cash. The money is the same, but the tax bill is very different.
If you cash out (the TSP pays you)
- Income tax: every dollar of traditional TSP money is added to your taxable income for the year, except tax-exempt contributions from combat-zone pay. Earnings on those contributions are still taxable.
- 10% early withdrawal penalty: if you are under 59½, the IRS adds 10% on the taxable part, unless an exception applies (see below).
- 20% mandatory withholding: for a partial or full distribution paid to you, the TSP must withhold 20% of the taxable part for federal tax. You can raise it but not lower it. That 20% is a down payment, not your final bill. If your real tax plus penalty is higher, you owe the rest when you file.
- State tax: the TSP does not withhold state tax, but it reports the payment to your state of residence. You may owe state tax at filing.
- Roth money: your Roth contributions always come out tax-free. Roth earnings are tax-free only if the payment is “qualified”: 5 years have passed since January 1 of the year of your first Roth TSP contribution and you are 59½, permanently disabled, or deceased. Otherwise the earnings part is taxable and may get the 10% penalty. You cannot choose to withdraw only contributions; every Roth withdrawal includes earnings in proportion.
If you do a direct rollover (the TSP pays the IRA)
The TSP sends the money straight to a Traditional IRA (traditional money) and a Roth IRA (Roth money), or to a new employer's plan. Nothing is withheld and nothing is taxed. If you have both balances, you can send each part to the matching account. After it lands, you choose the investments.
An indirect rollover is different: the TSP pays you (withholding 20%), and you have 60 days to deposit the full amount, including the 20% you never received, from other money. Anything you do not deposit is taxed and may be penalized.
Penalty exceptions most relevant at separation
- Age-55 rule: no penalty on TSP payments made after you separate during or after the calendar year you turn 55. Separating at 54 and waiting until 55 does not qualify. The rule does not carry over to an IRA: if you roll the money to an IRA first, IRA withdrawals before 59½ are penalized unless another exception applies.
- Public-safety employees: age 50 (or 25 years of service under the TSP) for employees defined in IRC section 72(t)(10)(B)(ii).
- Total and permanent disability (IRS definition; you must justify it to the IRS on your return), death, a court order, substantially equal payments, and several others listed in the TSP tax booklet.
- Reservists called to active duty for more than 179 days may qualify for a separate exception.
Leaving it in the TSP is also a choice
You do not have to move anything when you separate. The TSP keeps very low costs, and you can roll money out later. Moving to an IRA gives you more investment choices. Neither choice is taxed.
How this calculator works
federal tax = tax(other income + taxable − standard deduction) − tax(other income − standard deduction)
penalty = 10% × taxable, if age < 59½ and no exception applies
state tax = state rate × taxable
withheld at payout = 20% × taxable
cost of cashing out = federal tax + state tax + penalty
Federal tax uses the 2026 brackets and standard deduction from IRS Rev. Proc. 2025-32 and assumes you take the standard deduction and have no credits. Your real bill can differ: credits, itemized deductions, other income, state rules (some states add their own early-withdrawal penalty), and the exact tax-exempt or Roth basis on your statement all matter.
The projection grows the full balance at the rate you choose. It ignores future contributions, fees, and the tax you will eventually pay on traditional money.
Sources and data year
- TSP: Tax Information About TSP Payments (booklet tspbk26) — withholding table, penalty exceptions, Roth rules
- TSP: Leaving the uniformed services — options when you separate
- TSP: Traditional and Roth contributions — qualified Roth earnings (5 years + 59½)
- IRS Rev. Proc. 2025-32 (tax year 2026 rate tables and standard deduction) — 2026
- IRS: Topic no. 558, Additional tax on early distributions
- IRS: Rollovers of retirement plan and IRA distributions — 60-day rule, 20% withholding
- IRS Publication 721 (TSP withholding)
Frequently asked questions
Can I take my TSP out without paying tax when I leave the military?
Not as cash. Every cash withdrawal of traditional money is taxed, and before 59½ the taxable part usually gets a 10% penalty too. A direct rollover to a Traditional IRA (and Roth IRA for Roth money) moves the money with no tax and no penalty, but it stays in a retirement account.
Why does the TSP only withhold 20% if I owe more?
Federal law requires 20% withholding on eligible rollover distributions paid to you. It is a prepayment, not a final tax. Your actual federal tax plus the 10% penalty can be more than 20%, and the difference is due when you file.
Does the age-55 rule apply to military members?
The TSP lists it as an exception for anyone who separates from service during or after the year they turn 55. It applies to payments from the TSP itself, not to money you first roll into an IRA.
Are my Roth TSP contributions taxed if I cash out early?
No. Contributions are never taxed or penalized. The earnings part of a Roth withdrawal is taxable, and may be penalized, unless the payment is qualified (5 years since your first Roth contribution year and age 59½, disability, or death).
What about my combat-zone (tax-exempt) contributions?
Tax-exempt contributions from combat-zone pay are not taxed or penalized when paid out, but the earnings on them are. If you roll that money to an IRA, ask the receiving firm how they track it, since IRS Form 8606 basis rules apply.