Ask The Experts: Money Matters

By Mike Miles

ROTH IRA contribution

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Q. If I were to retire Dec. 31, can the payments actually received in 2015, such as my last paycheck earned in 2014, payment for unused annual leave and buyout, if any, be used to fund a 2015 ROTH IRA?

A. Paychecks constructively received in 2015 can be used as the basis for an IRA contribution to the extent that the income is earned income for this purpose. You annual leave payout is not considered earned income for this, however, and can’t serve as the basis for IRA contributions.

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Roth IRA

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Q. Can you roll an existing Roth IRA into you Roth TSP fund?

A. No.

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Roth IRA to TSP

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Q. Can you roll an existing Roth IRA into your Roth TSP fund?

A. No.

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USAA Roth and TSP contributions

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Q. I took my tax info to a professional to have them done this year. I’ve maxed out my Roth IRA with USAA. I’ve also contributed about $2500 to a traditional TSP as a uniformed service member. I’m being told I’ll be penalized for my contributions to my Roth account since I have an employer-based retirement plan. Is this accurate? Can I only contribute a total of $5500 for both accounts? I’ve always been told to contribute to both.

A. The TSP contribution limit is fixed and not contingent on any other factor. Your eligibility to contribute to a Roth IRA might be limited if your income is sufficient. In the future, I suggest that you max out your TSP contributions before you save to a Roth IRA, and then check with your tax accountant before you attempt to make any IRA contributions since your eligibility depends upon your tax return for the year. See IRA Publication 590 for the limits on IRA contributions.

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Time restrictions for voluntary contributions to private Roth

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Q. I understand that it is possible to transfer Voluntary Contribution account deposits to a private Roth IRA (with any pre-tax interest earned going to TSP), but I’ve also been told there’s a five year ‘holding’ requirement for the Roth. I currently have a private Roth account that is more than five years old. Does the five year requirement mentioned in conjunction with the VC mean that the money should be placed into a new and distinct Roth account, so that an additional five years holding can be tracked, or can the VC contributions (without interest) be added to the existing account?

I was hoping to consolidate several small taxable IRAs into my non-Roth TSP, and all my non-taxable Roth accounts into one private account to consolidate and simplify matters when I retire — but I’m still confused as to whether the newest funds (VC transfer to Roth) would have to be put into yet a third account to isolate them and leave them untouched for five additional years — or if that five year time requirement is referring to the establishment of Roth accounts in general, not the specific date various funds are deposited in it. The account is over five years old. The money is ‘new’. Is there still an additional five year holding requirement for the new funds? Is there a requirement to isolate funds in a Roth based on the date of deposit?

A. There is no requirement to isolate Roth IRA funds based on the date of retirement, but the five year rule can be tricky to navigate, and it might be a good idea to keep the converted money separate. I suggest that you review the rules in IRS Publication 590 and consult a CPA for specific advice for your situation. Someone needs to come up with a workable plan. If you’re not up to it, find someone who is and who will take responsibility for the outcomes.

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Partial TSP withdrawal

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Q. I am 60 and had to retire early due to disability. I am receiving Social Security disability and a small annuity. Can I take a small amount — say, $10,000 — from my account but then start monthly draws when/if it becomes necessary? Should I leave all of my money in this account or do a rollover into a regular or Roth IRA?

A. Yes, as long as you have not previously used your single partial withdrawal. I think you should retain your Thrift Savings Plan account for as long as possible.

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Roth IRA transfers and taxes

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Q. Can one transfer money from CSRS voluntary contribution (post-tax money) to a private Roth IRA without tax obligations? Can the interest be transferred to the Thrift Savings Plan? Is the amount transferred at retirement part of the maximum allowed ($23,000) for someone over 50?

A. Yes, the VC post-tax money can be moved into a Roth IRA without tax. Yes, the earnings can be moved into the TSP, tax-deferred. No, the amount transferred is not considered a contribution.

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TSP, Roth and IRA transfers

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Q. I understand that you can transfer funds into and out of your Thrift Savings Plan from either eligible pretax plans and/or after-tax plans. However, withdrawals (loans, withdrawals and interfund transfers) are made proportionately from both the traditional and Roth. Thus, you cannot specify withdrawals from only the traditional or the Roth. This is seen as a major drawback for some who would like to participate in the Roth option only or make withdrawals from only the traditional or the Roth option.

Would it be possible, at or near retirement, to transfer a major amount of your TSP balance — for example, 90 percent of your TSP (which would take 90 percent of both the Roth and traditional balances on the day of the transfer — leaving 10 percent in each) to a traditional IRA and Roth IRA outside of the TSP, then later transfer from the traditional IRA back into the traditional TSP? This would result in a small Roth TSP balance and restore the traditional TSP balance.

Doing that would provide greater flexibility for accessing the tax-free funds in the Roth (with the possibility of leaving those tax-free funds to your heirs) and still taking advantage of the lower management costs associated with the TSP for the traditional balance.

A. It seems to me that this will work as long as the traditional IRA does not contain any after-tax money when it’s time to move it back into the TSP.

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Roth TSP and Roth IRA combined contributions

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Q. I have a Roth IRA and Roth TSP, and I am not eligible for catch-up contributions at this time due to my age. What is the maximum I can contribute to both for FY13?

A. There is not a combined maximum, and the limits apply to calendar years, not fiscal years. The most that you can contribute to the Roth TSP for 2014 without catch-up is $17,500. The limit for Roth IRA contributions for 2014 is $5,500, but this might be reduced for you based on your tax filing status and income for the year. You should consult IRS Publication 590 for more information. These limits were the same for CY 2013.

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VCP and Roth IRA conversion

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Q. I’m a CSRS employee nearing retirement. I have read numerous articles touting the advantages of opening a Voluntary Contributions Program account with up to 10 percent of your lifetime civil service earnings and then converting it to a Roth IRA at retirement. In your professional experience, would you recommend qualified individuals follow this approach? Are there potential pitfalls I’m unaware of?

A. I certainly recommend that you consider it. I don’t know of any pitfalls other than botching up the transactions and violating some rule. I suggest that you pursue it with the help of a qualified tax adviser — the one who will prepare your return for the year.

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