Also, if you have your money in traditional TSP (fully taxable when withdrawn and subject to 20% withholding), that does not mean it will be enough to cover the actual taxes. You can get a 1040 ES form to estimate your taxes for the year to see around what it will be. When you withdraw traditional TSP funds whether during retirement or as an in-service (still working /not yet retired) and meet age requirement, the withdrawal gives you option to have them withhold more to cover the taxes.
I only mention estimating your taxes Closely because you do not want to overpay IRS too much! Right now, apparently due to Covid but likely because they do not have ability for most workers to work from home, or who the hell knows why, THEY are almost a year behind in processing tax returns and refunds! I know this for sure... They have taken over a year on my return to give me my refund. They are taking 6 months to even confirm they received your return!
They also prefer electronic submissions to paper submissions, as they keep losing hardcopy submissions. If you file paper return by mail, make sure to get return receipt at post office and print the USPS delivery information online to have hardcopy proof of delivery.
Now back to TSP traditional. If you move monies to outside IRA traditional, make sure they do NOT distribute monies to you as that triggers tax. Instead make sure TSP provides the funds directly to your external IRA Traditional account...no tax triggered by doing that but then you likely have mire admin fees but more ability to invest as you like and better ability to grow your money.
If you want to convert some monies from traditional to Roth, so you can leave taxfree money to children, the tax strategy would be to move it bit by bit but keeping within your current tax bracket to not trigger higher taxes than necessary. Again the 1040ES, completed for your planning comes in handy along with tax charts in the instructions. The thought here us to move only the amount that brings you just under the next higher tax bracket. Ex. Around $80k, after you have pulled out your standard deduction, the taxes go from 12% to 22%...yikes...it almost doubles!
So, if your under that next bracket's threshold, just move funds to Roth that keep you out of the higher bracket. If you are already in 22% tax bracket...well..make sure you are not going into the next higher bracket, which I believe is around 30%.
