Ask The Experts: Money Matters

By Mike Miles

IRA rollover

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Q. I am a retired federal employee. I was forced to retire at age 51 due to some health issues. I was a wild land firefighter so I had the luxury to retire at a younger age. I still have my TSP, which has done very well in the past two years due to dumb luck and a bit of forethought. My question is; After retirement can I roll IRA money over into my TSP account?

A. Yes, as long as the money you transfer was not part of a nondeductible contribution.

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IRA and IRS

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Q. In your response to a question titled “Converting Traditional IRA to TSP and Roth” which was submitted on March 10, 2010, you pointed-out that any distributions from a traditional IRA in which there is a basis, would ordinarily be considered by IRS to consist of taxable (earnings) and nontaxable (basis) amounts; therefore, making tax-free distributions of the earnings in a traditional IRA to the TSP and converting the remaining basis to a Roth IRA would not be possible. However, in IRS publication 590, page 23, paragraphs titled: “Kinds of rollovers from a traditional IRA and Tax treatment of a rollover from a traditional IRA to an eligible retirement plan other than an IRA,” it seems IRS is stating that the part of a traditional IRA distribution you can roll over to the TSP (“tax-free”—really just tax deferred) is the part that would “otherwise be taxable”, i.e., earnings only. The IRS goes on to explain this “special rule” for IRA distributions to qualified plans (e.g., TSP) as including only taxable amounts if the amount you leave in your IRA or do not otherwise roll over is at least equal to your basis. It seems one could then convert the remaining basis in your traditional IRA to a Roth IRA. My head begins to spin when I read IRS publications, so am I missing your point and misinterpreting the IRS? If so, could you provide a little clarification?

A. You are correct. I forgot about this exception when I wrote my answer. I’ve revised my answer to the previous question. Thanks for the help. You’ve earned the “expert” designation on this one!

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Converting traditional IRA to TSP and Roth

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Q. If I have a traditional IRA worth $100,000 with a basis (post-tax contributions) of $20,00, can I roll over $80,000 to TSP and the other $20,000 convert to a Roth? Would these two actions result in a tax-free transaction?

A. Yes, a special rule allows for this to be done.

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Investment return

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Q. I am an E-3 in the Army and I have been putting 6 percent of my income in the TSP for over a year. I just got my first summary of the account and what I have made and it’s showing only a return of about $5. Why is it so low? Should it be higher?

A. Your return will depend upon how and how long you invest the funds. You should spend some time at www.tsp.gov familiarizing yourself with the investment choices offered by the TSP.

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Roth TSP option within the TSP

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Q. Can you find out an answer to the following question? My wife and I are 60 and retired federal employees. We have not yet started to withdraw funds from our TSP accounts. We understand that in early 2012 a Roth TSP option will be implemented. Will this Roth TSP option be designed so that retirees like my wife and me can reinvest our TSP withdrawals back into the Roth TSP option after paying taxes on the withdrawals?

A. Not unless you have earned income on which to base the Roth IRA contributions.

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Mandatory withdrawals from TSP at retirement

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Q. Currently, I am 79. I had planned on retiring on April 30, 2011. My boss has asked me to extend another year because of the inability to replace my talent. If I retire on April 30, 2012, I will have a total of 33 years service. I am a FERS employee. Needless to say, since I have always contributed the max I am allowed under the IRS rules, the amount deposited has become fairly large.
My question is simple: “What amount of money or percentage thereof will I be required to withdraw from my TSP account each year? Will it be based upon my life expectancy? Am I required to take an annuity account with MetLife or may I leave the funds in the TSP? Is there a penalty if I do not take an annuity account? My reason for asking is my wife is 22½ years younger than I and I had hoped to leave the major balance of the account to her after I pass.

A. Your required minimum distributions will be based upon your life expectancy and your account balance each year. You are not required to purchase an annuity with your balance and may leave your funds in the TSP. I suggest that you spend some time at www.tsp.gov to, at least, familiarize yourself with the basic rules and options related to withdrawing your money after you separate.

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TSP withdrawals at 70 1/2 years of age

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Q. I recently retired from the USPS and plan to leave my TSP funds untouched until age 70 1/2. At the time I select monthly annuity withdrawals, does my TSP remainder continue to grow in the funds I had previously selected or is the total fund amount at that age frozen and become the total of my annuity to withdraw?

A. If you use part or all of your TSP balance to purchase an immediate annuity through the TSP, you forfeit your control of those funds and are entitled only to the income payments promised.

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TSP

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Q. I regularly but infrequently watch the stock market. I am investing in the L2030 TSP fund. Is there a ticker I can set my iPhone to determine how this basket of goods does on a regular basis? If not, is there an index I could use as a substitute?

A. Not that I know of.

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TSP contributions from IRAs

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Q. Can I add lump sums of money to the TSP from other IRA sources? I am a current federal retired employee.

A. Yes, as long as the money does not include nondeductible contributions or other basis amounts.

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TSP fund balance

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Q. I currently have my TSP funds allocated: C Fund 50 percent, S Fund 30 percent and I Fund 20 percent. I’m currently 41 years old, and have about $200,000 in my account. I would like to achieve a 9 percent to 10 percent return each year or the most I can without jeopardizing my money. I’ll be eligible to retire at 57. Should I be putting some into G and some into the F to reduce risk? I balance my account once a year on my birthday back to C Fund 50 percent, S Fund 30 percent and I Fund 20 percent. I know there is some Monte Carlo simulation program that might be able to answer this question but thought I would see what your comment is.

A. When in doubt, you should be invested in all five basic TSP funds, all the time.

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