Ask The Experts: Money Matters

By Mike Miles

Reversal of TSP action

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Q. I sent TSP Form 77 to the Thrift Savings Plan requesting that funds be withdrawn from my account and sent to a non-TSP IRA. When I returned from overseas, I discovered that a mistake had been made on the forms and instead of all of the requested funds going to the IRA, TSP sent 50 percent of the funds to the IRA and 50 percent to me less a hefty amount to the Internal Revenue Service. I asked for a reversal of the action, but the Federal Retirement Thrift Investment Board turned me down, saying that TSP had not made a mistake. How can I get them to reverse the action and send 100 percent to the IRA?

A. I can’t tell you how you can force the TSP to correct your mistake. If you can manage it, you may want to make up the tax withholding with other funds and roll over the gross distribution to the IRA within the 60-day time limit to do so. You’ll recover the tax withholding when you file your 2013 tax return. It would be smart to seek the help of a CPA to make sure don’t make any costly mistakes.

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Simple IRA and rollover

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Q. I am retired at age 63 from the Postal Service. Can I roll over my Thrift Savings Plan funds to a simple IRA without any penalties before I reach 70½?

A. Only simple IRA money can be rolled into a simple IRA.

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TSP

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Q. I’m planning to retire Jan. 2 and would like your suggestions as to what to do with the $165,000 in my Thrift Savings Plan account. I thought about transferring the money from the TSP, buying an IRA and letting it remain there for a couple of years since do not think I will need the money at the present time. I am 63 years old and covered under CSRS. Any suggestions as to what to do with the money and the best company or companies to purchase an IRA would be greatly appreciated.

A. The TSP is the best retirement savings and investment account you’ll find. Leave your money there and manage it for as long as possible. You’ve proposed no good reason to move it away.

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IRAs for retired military

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Q. My IRA was started when active-duty personnel were permitted to contribute to an IRA with after-tax dollars. I am 66 and want to begin planning for the required minimum distribution with a little long-term projecting.

Here is the dilemma. In trying to compute the cost basis and taxable amount, I have to distinguish between the military years “after-tax dollars invested” and the “before-tax dollars investments” contributed during my post-active-duty working years.

I found out that for some of the active years, no IRS Form 8506 was filed (showing the contributions for some years). How can I substantiate for the IRS that contributions for those years were “after-tax dollars”?

A. This question is beyond the scope of this forum. You should consult a CPA to help you with this.

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CSRS redeposits and taxes

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 Q. If I take money out of an IRA to make a redeposit into CSRS, do I have to pay taxes on the money taken out of the IRA?

A. Yes.

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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.

Read the rest of this entry »

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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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