Ask The Experts: Money Matters

By Mike Miles

VCP Roth conversion follow-up

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Q. This is a follow-up to a prior question. I had asked whether converting my Voluntary Contributions Program account to an existing contributory Roth IRA would be taxable in light of the fact that I had pretax money in the Thrift Savings Plan. You had advised that it appeared to be a nontaxable event but that I should check with my CPA. I do not have a traditional pretax IRA.

My CPA didn’t know anything about it, so I asked an expert in the field. The expert cautioned me not to roll over my pretax TSP into a traditional pretax IRA prior to the Roth conversion. This would make a portion of the conversion taxable.

This is an important point, as many financial planners will recommend to federal employees that they transfer their pretax TSP to a traditional IRA to provide greater control over investments and tax planning.

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IRA rollover to TSP

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Q. How long does one have to maintain a traditional IRA before rolling it over into the Thrift Savings Plan?

A. You may not transfer Roth IRA assets into the TSP.

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IRA-to-TSP transfer

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Q. I am 63 years old and still working. Is it possible to transfer IRA into the Thrift Savings Plan to consolidate?

A. Yes, as long as doesn’t contain any after-tax money (usually from contributions that weren’t tax-deductible when you made them). Use Form TSP-60.

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Transferring IRA money back into TSP

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Q. I withdrew the bulk of my Thrift Savings Plan account a couple of years ago and rolled it over to an IRA, thinking I could get better earnings on my investment. It has not worked out that way. Can I put this money back into my TSP account? I have not yet retired and am still contributing 5 percent of my earnings to my TSP.

A. As long as the IRA contains only untaxed money, you can and should transfer the money back into the TSP. Use Form TSP-60 to do this.

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Rolling over IRA into wife’s TSP

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Q. I have an IRA with Prudential Insurance. Can I roll over my IRA into my wife’s Thrift Savings Plan account with the federal government? The money would be hers, not mine. This way, when she retires in a year or two, she’d have more money in her TSP account.

I already have a pension and don’t need that money, but my wife’s retirement will be less than mine and I’d like her to have more in her TSP.

A. No.

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Periodic withdrawals from IRA

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Q. I am considering retirement at 62 (FERS) but not collecting Social Security until my full retirement age of 66. I know that once you start withdrawing from your Thrift Savings Plan account, you must continue to make withdrawals each year. To bridge the time from 62 to 66, I’m thinking of taking funds from my IRA instead. If I start taking withdrawals at 62, can I stop taking withdrawals from my IRA at 66 when I start Social Security and then resume withdrawals at 70½?

A. You’ve got the right idea, and it will work. You may start and stop IRA withdrawals any time you want to. When you reach age 66 and stop taking money from your IRA, you should transfer what’s left into your TSP account, if it’s all pretax money.

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RMD

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Q. I turn 70½ in April 2014. My required minimum distribution can be taken anytime during 2014. Is it calculated on the balance in my IRA for 2013 or 2014? If I take it in 2014, the year I turn 70½, will I also have an RMD taken out Dec. 31, 2014, on the balance in my IRA in 2014? Will I have two RMDs in 2014?

A. Your RMD amount for each tax year is calculated for each account that is subject to the RMD, and is based on the preceding year’s ending account value.

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TSP withdrawal

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Q. I am a CSRS Postal Service employee and plan to retire at the end of 2014, when I will be 55 years old with 38 years of service (including sick leave). After reading other answers, I understand that I can immediately withdraw funds from my Thrift Savings Plan without penalty but would like advice regarding those withdrawals. Considering that TSP withdrawals are subject to regular income taxation, is it beneficial to move the funds to an IRA? Would I avoid any tax? Other than future growth potential and smaller tax rate, is there any benefit to delaying withdrawals until later in life?

A. You may roll over your TSP withdrawals that are not required to an IRA and continue to defer the tax to a later time. I can’t tell you whether this will be beneficial since I don’t know enough about you and your circumstances to make that determination. Better investment performance and tax management are the only reasons I can think of for delaying your TSP withdrawals. What more reason do you need?

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TSP transfer to self-directed IRA

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Q. I am 58½ and a federal employee. Can I take all or part of my Thrift Savings Plan and move it to a self-directed IRA? Or do I have to wait until I am 59½? How much tax will I have to pay on this?

A. You may not take an in-service withdrawal for rollover to an IRA until you reach age 59½.

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Annuity to TSP

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Q. I have a variable annuity (mutual fund) with Western Reserve Life Assurance and it has been doing terribly for many years. I put $10,000 in it in 2001, and it’s only valued at $14, 500 now, 12 years later! My Thrift Savings Plan account is doing much better, and I would love to transfer or roll over this money into my TSP account. Can it be done, should I, and, if so, how?

A. It may only be done if:

1. The annuity is an IRA or other Qualified Retirement Account; and

2. All of the money it contains is taxable on distribution.

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