Roth TSP to Roth IRA Rollovers Trigger Two Separate Five-Year Holding Periods

Roth TSP contributions are made with after-tax dollars and can be withdrawn tax-free and penalty-free at any time. Earnings from Roth TSP contributions can only be withdrawn tax-free and penalty-free if the distribution is qualified. A qualified Roth TSP distribution requires the participant to be at least age 59.5 and to have satisfied a five-year holding period starting January 1 of the year of the first Roth TSP contribution. A separate five-year holding period applies to the Roth IRA, beginning January 1 of the year of the first Roth IRA contribution or conversion. If the Roth TSP distribution is not qualified, only contributions can be withdrawn tax-free and penalty-free from the Roth IRA immediately. Earnings from the Roth TSP rolled into the Roth IRA can only be withdrawn tax-free and penalty-free if the Roth IRA distribution is qualified. Post-rollover earnings in the Roth IRA are subject to the same qualified distribution rules as any other Roth IRA earnings. The Roth TSP five-year holding period does not count toward the Roth IRA five-year holding period. Federal employees who roll over Roth TSP funds to a Roth IRA must manage two distinct five-year holding periods to avoid tax liability on earnings.