Transferring TSP to Roth IRA?

[OhWell]

I'll be retiring after 40 years in September, and I am considering slowly moving at least half of my conventional TSP holdings over to a Roth IRA I'll set up with TD Ameritrade. Since I'm CSRS I don't expect to need the money being moved to the Roth for a while. I plan on moving the money staying below the next tax bracket and paying the 25% tax as I do (if it doesn't move before I'm done) because there only going to go up. Should be able to move around $50K a year for at least 4 years, maybe 6.

Has anyone else tried this? If so any lessons learned? Pitfalls?

 

[RazorCat]

This link my help.
TSP Roth Conversion | CSRS & FERS Retirees

 

[Maricar19]

This link my help.
TSP Roth Conversion | CSRS & FERS Retirees

Thanks for the very good info. However, I am not sure what the excerpt below meant. Does it mean that if I roll over my Traditional TSP to a Roth IRA, there will be no tax withheld at the time of roll over? I am 57 years old, retired. I have a mixed traditional and Roth TSP (big mistake on my part). I have held my Roth TSP for over 15 years, but age wise, I don't qualify yet. Will my rollover be considered eligible/qualified distribution? I know I should call TSP, but I just want to have your insight.

[FONT=&quot]"..Will the TSP withhold money for taxes when I transfer funds from the TSP to a Roth IRA?[/FONT]
[FONT=&quot]No. Because your Roth IRA transfer is an eligible rollover distribution, we do not withhold any taxes on the transfers. So be sure that you have the funds to cover the tax liability you will incur as a result of the transfer..."[/FONT]

 

[OhWell]

That was a good start, thanks!

 

[Skorcher]

Thanks for the very good info. However, I am not sure what the excerpt below meant. Does it mean that if I roll over my Traditional TSP to a Roth IRA, there will be no tax withheld at the time of roll over? I am 57 years old, retired. I have a mixed traditional and Roth TSP (big mistake on my part). I have held my Roth TSP for over 15 years, but age wise, I don't qualify yet. Will my rollover be considered eligible/qualified distribution? I know I should call TSP, but I just want to have your insight.

"..Will the TSP withhold money for taxes when I transfer funds from the TSP to a Roth IRA?
No. Because your Roth IRA transfer is an eligible rollover distribution, we do not withhold any taxes on the transfers. So be sure that you have the funds to cover the tax liability you will incur as a result of the transfer..."

There will be no tax withheld if you move your traditional TSP to a ROTH IRA. For example, you convert $100K of your traditional TSP to a ROTH IRA in 2016. That could bump you up to the 28% or 33% federal tax bracket. By April 15, 2017 you will have to pay the IRS about $25K to $33K in addition to state income tax. If you have a ROTH TSP there will be no tax on that portion of the rollover since you met the five year requirement. The other downside is that you can't touch the ROTH IRA until age 59.5 without penalty.

 

[Skorcher]

Correction to my prior response. After you transfer your traditional TSP to a ROTH IRA you can make withdrawals before age 59.5 without the 10% penalty. Only ROTH IRA earnings are subject to the age 59.5 year rule.
From Why You Need a Roth IRA-Kiplinger

 

[uscfanhawaii]

Thanks for the very good info. However, I am not sure what the excerpt below meant. Does it mean that if I roll over my Traditional TSP to a Roth IRA, there will be no tax withheld at the time of roll over? I am 57 years old, retired. I have a mixed traditional and Roth TSP (big mistake on my part). I have held my Roth TSP for over 15 years, but age wise, I don't qualify yet. Will my rollover be considered eligible/qualified distribution? I know I should call TSP, but I just want to have your insight.

There are a couple of (related) questions in this thread, so the answers are different for the different situations. The stated references are good ones. But a couple of observations here.

Direct Rollovers, in general, are not restricted, nor do they prompt penalties. It is always better to do a direct rollover rather than take a cash distribution and then re-deposit in another account.

Traditional to Roth rollovers will generate a tax liability. If not deducted, make sure you plan for the tax bite.

Withdrawals from TSP are very limited, which is unlike most other retirement accounts. TSP says they are going to increase the flexibility, but as of now, that is NOT the case. You may have to rollover traditional TSP to traditional IRA just to be able to (for instance) take out $50K chunks later on for rollover to Roth IRA.

And remember, if you have both traditional and roth TSP, you cannot just withdraw one or the other. You must withdraw from both, in proportionate shares. (Again, I hope to see better withdrawal options from TSP in the future. But I wouldn't hold my breath.)

Bottom line, check with TSP AND the IRA custodian before starting any transfer of funds.

 

[Maricar19]

Thanks Skorcher and uscfanhawaii for taking the time to respond.

I have read a lot of TSP publications, and yet up to now I don't have concrete answers. I thought I knew it all and every time a question comes up, I am always second guessing myself , "what was that again?" The future of aging...

 

[Maricar19]

Since we are talking about rollovers, how many times can I a roll over funds from TSP to an IRA?
I s it a one time shot or can I do it multiple times until I deplete my TSP?

 

[OhWell]

There will be no tax withheld if you move your traditional TSP to a ROTH IRA. For example, you convert $100K of your traditional TSP to a ROTH IRA in 2016. That could bump you up to the 28% or 33% federal tax bracket. By April 15, 2017 you will have to pay the IRS about $25K to $33K in addition to state income tax. If you have a ROTH TSP there will be no tax on that portion of the rollover since you met the five year requirement. The other downside is that you can't touch the ROTH IRA until age 59.5 without penalty.

That is my plan exactly. At present with my CSRS annuity I will be in the 25% income tax bracket. Moving $50K a year will ensure I don't push into a higher bracket. I assume I will need at much as $12,500 laying around to pay the tax each year I make the move. Once I have the monies in the Roth any withdrawals are tax free.

The only question is, how long will the organized crime family (government) let it stay that way?

My fear is the criminals will capitalize all retirement savings under the guise of protecting us from loss. Yea right, the criminals that are raping and robbing me are the ones I want protecting me from loss (Capone would be jealous).

I even had the crazy idea of taking all the TSP cash and slowly buying gold under the radar. What they don't know about they can't touch. I had a good stash at one time, but lost it all in a boating accident, very upsetting.

 

[RazorCat]

Thanks Skorcher and uscfanhawaii for taking the time to respond.

I have read a lot of TSP publications, and yet up to now I don't have concrete answers. I thought I knew it all and every time a question comes up, I am always second guessing myself , "what was that again?" The future of aging...

I don't have first hand experience rolling over from a no-Roth TSP account to a Roth IRA. But, I know what you mean. The TSP tax publication is about as clear as mud. I do know when I retired I moved part of my TSP to a traditional (tax deferred) IRA. I also took a lump sum one time distribution which was taxed at 20%. Here's the publication I referenced. https://www.tsp.gov/PDF/formspubs/tsp-536.pdf
In one section it says
A traditional IRA is any IRA that is not a Roth IRA, aSIMPLE IRA, or an education IRA. Tax-deferred moneythat is transferred from the TSP to a traditional IRA isnot subject to tax until it is withdrawn from the IRA.



A Roth IRA accepts only after-tax dollars, but providestax-free growth. If you transfer your TSP traditional(non-Roth) balance to a Roth IRA, you must pay taxeson the funds for the year of the transfer.
In the next section it states

• The entire transfer of your traditional (non-Roth)balance to a Roth IRA will be taxed in the currentyear. No income tax will be withheld at the time ofthe transfer. However, you may need to pay estimated taxes to mitigate your tax liability.
  
  
  

 

[OhWell]

I think the easiest way is to transfer to a traditional IRA and some time thereafter convert to Roth. I my case this will be with TD Ameritrade. Each transfer would come with a 25% tax bill for that year. Assuming of course I stay below the top of the bracket.

 

[uscfanhawaii]

I think the easiest way is to transfer to a traditional IRA and some time thereafter convert to Roth. I my case this will be with TD Ameritrade. Each transfer would come with a 25% tax bill for that year. Assuming of course I stay below the top of the bracket.

Since we are talking about rollovers, how many times can I a roll over funds from TSP to an IRA?
I s it a one time shot or can I do it multiple times until I deplete my TSP?

OhWell's method is the best for a series of traditional to roth rollovers. The problem with TSP is the withdrawal limitations again (as previously noted, they SAY they will be loosening up on the requirements. WHEN is the question.). When you retire, you can withdraw (or rollover) a lump sum, but you will only have one more shot at the withdrawal. And if you took an in-service withdrawal, it already counts as your first withdrawal. Either way, you would then be able to only a) Withdraw total remaining, b) Withdraw equal amounts monthly till gone, or c) Buy an annuity to pay you for the rest of your life (or some combination of A,B, and C). Only change after that would be Req'd Min Distributions (RMD's) starting at 71.5. (No choice on the latter.)

Make sense? Or still clear as mud?!? :1244:

 

[Maricar19]

Make sense? Or still clear as mud?!? :1244:

A tad clearer. Thanks for finding time to respond.

 

[Scout333]

OhWell's method is the best for a series of traditional to roth rollovers. The problem with TSP is the withdrawal limitations again (as previously noted, they SAY they will be loosening up on the requirements. WHEN is the question.). When you retire, you can withdraw (or rollover) a lump sum, but you will only have one more shot at the withdrawal. And if you took an in-service withdrawal, it already counts as your first withdrawal. Either way, you would then be able to only a) Withdraw total remaining, b) Withdraw equal amounts monthly till gone, or c) Buy an annuity to pay you for the rest of your life (or some combination of A,B, and C). Only change after that would be Req'd Min Distributions (RMD's) starting at 71.5. (No choice on the latter.)

Make sense? Or still clear as mud?!? :1244:

Thanks for the analysis! Clearer but still a little muddy. I selected monthly withdrawals from my TSP and I have wondered if I could roll those monthly payments into a Roth IRA to gain all of the ROTH advantages instead of into a savings account. Has anyone done this or do you know if it is feasible? I realize that the withdrawals would be taxable either way and that I would have to wait the five years to gain all of the ROTH benefits. Thanks!

 

[Maricar19]

I realize that the withdrawals would be taxable either way and that I would have to wait the five years to gain all of the ROTH benefits. Thanks!

yea, I was wondering anout that , too. On a different note, I read that the five year time frame applies for each Roth conversion.

 

[uscfanhawaii]

Thanks for the analysis! Clearer but still a little muddy. I selected monthly withdrawals from my TSP and I have wondered if I could roll those monthly payments into a Roth IRA to gain all of the ROTH advantages instead of into a savings account. Has anyone done this or do you know if it is feasible? I realize that the withdrawals would be taxable either way and that I would have to wait the five years to gain all of the ROTH benefits. Thanks!

Theoretically, yes. But I'm not sure you would want to. Referring back to my previous post, the best way to go from TSP to Roth IRA is the way OhWell suggested. 12 rollovers a year is VERY unwieldy. Even worse for paperwork if you take a withdrawal and then roll it to a Roth IRA within 60 days (I believe it is 60...may be 30). Now you have 24 pieces of paper that the IRS will be looking at every year. Again, possible, but what a paperwork headache. Not to mention if you happen to miss a rollover deadline!

TSP may be willing to set up the monthly rollovers for you...not sure. I don't see anything in the instructions about that. (Personally, I would doubt that the TSP would want to do it, because of the aforementioned paperwork headache.) You can check with them. That would be the only way I would even consider this method. Even then.......:ugh1:. And, what if you wanted to actually withdraw one or two, and NOT roll them over. The whole concept makes my head spin.

 

[Scout333]

Theoretically, yes. But I'm not sure you would want to. Referring back to my previous post, the best way to go from TSP to Roth IRA is the way OhWell suggested. 12 rollovers a year is VERY unwieldy. Even worse for paperwork if you take a withdrawal and then roll it to a Roth IRA within 60 days (I believe it is 60...may be 30). Now you have 24 pieces of paper that the IRS will be looking at every year. Again, possible, but what a paperwork headache. Not to mention if you happen to miss a rollover deadline!

TSP may be willing to set up the monthly rollovers for you...not sure. I don't see anything in the instructions about that. (Personally, I would doubt that the TSP would want to do it, because of the aforementioned paperwork headache.) You can check with them. That would be the only way I would even consider this method. Even then.......:ugh1:. And, what if you wanted to actually withdraw one or two, and NOT roll them over. The whole concept makes my head spin.

I agree. The only reasonable way would be if TSP would send the withdrawals directly to your ROTH IRA. Hmmm. May well be too much trouble. Thanks for your analysis!

 

[uscfanhawaii]

Update on TSP changes coming down the pike. Alternative 'window' investments, and increased post retirement withdrawal options.

http://news.fedweek.com/t/296876107/9092797/5216/30/

Go TSP! (finally!)

 

[evilanne]

I selected monthly withdrawals from my TSP and I have wondered if I could roll those monthly payments into a Roth IRA to gain all of the ROTH advantages instead of into a savings account. Has anyone done this or do you know if it is feasible? I realize that the withdrawals would be taxable either way and that I would have to wait the five years to gain all of the ROTH benefits. Thanks!

I don't think it is feasible. The biggest problem I see would be that Roth contributions have to be earned income, which you may be able to do if you retire in middle of year or if you work part time after retirement. I know many people talk about back door Roth IRAs but am not familiar with details and I believe it is while they are still employed.

Rather than a savings account, you could always invest in a Municipal Bond Fund to get tax free earnings.