Rollover TSP to Roth IRA

[chuckinok]

My spouse and I have been retired 5 years. We are 64 years old. I am CSRS and she is CSRS-Offset. We have about 275K combined (185K/90K) in our traditional TSP accounts. Wondering about the feasibility of a rollover of our TSPs into Roth IRAs. We both currently have Roth IRAs with Vanguard. I know we would have to pay taxes on this money. We are in the 22% tax bracket with about 95K yearly in taxable income jointly. The upper limit of the 22% joint tax bracket is 165K. So, in theory, I believe we could rollover about 70K while remaining in the 22% bracket. This, of course would generate an additional 15K or so in taxes. If we were to do this for 4 or 5 years we could have entire TSP in our Roth IRAs. A couple reasons: 1). I really don't anticipate "needing" the TSP money and would like to avoid having to take the RMDs at age 71. 2). If and when the tax cuts expire, we could very well end up in a higher tax bracket down the road when RMDs would kick in. Wondering if anyone else has done this or considered it. Smart or dumb???

[Eliaj]

As far as I know, you have already paid the taxes on any Roth contributions that you have made towards your TSP. Also, unless you are withdrawing your earnings (vs contributions), I do not believe you will be taxed on those as long as you are only rolling them over from the Roth TSP to the Roth IRA. You would only create a taxable event if you rolled over money from a traditional TSP account to your Roth IRA (aka convert it). Someone please correct me if I am wrong.

I'll leave it to others to comment on if this is a "smart or dumb" move. Honestly, I think it is very situational.

[wingchaser]

No taxes are due if you roll over assets from a traditional TSP account to a traditional IRA, or if you roll over your contributions and earnings from a Roth TSP account to a Roth IRA. But if you decide to move from a traditional plan to a Roth IRA, you will have to pay taxes on the rollover amount you convert.

https://militarysaves.org/blog/1238-con ... vings-plan

If it were me, and it will BE soon @ 59 1/2, I would postpone the tax event as long as possible to maximize my investment potential. By doin' this, you're essentially gambling with Uncle Sam's money until such time as the two (2) of you begin drawing on your assets.

Have a great retirement & best wishes in all your (hard won) endeavors goin' forward...

[chuckinok]

The money would be coming from "Traditional" TSP accounts into Roth IRAs with Vanguard. So I know there would be taxes due upon the rollover.

[wingchaser]

Unless you roll your Traditional TSP Accounts into a Traditional IRA Account. Then, there would no tax event until you start start drawing @ 70 1/2 (i.e. $4,000.00 a month, subject to $600.00 taxes). This would allow you to keep investing your $275,000.00 into the vast array of investment choices that Vanguard affords for the next 6 1/2 years, instead of losing $41,250.00 of it to taxes. I'm tryin' to make a similar move to Fidelity Investments @ the minimum age of 59 1/2 (for similar reasons).

If you were to garner a mere 10% (ROI) a year for 6 years, you would have amassed $487,179.27 in your Traditional IRA account with Vanguard, never having had to move it into a ROTH.

Again, have a great retirement & best wishes in all your (hard won) endeavors goin' forward...

[jdeacon]

I am not sure if the question being asked is being completely answered.
Yes I personally have considered the question as posed as I am 64 years old. Once one reaches 70.5 years of age they must take RMDs from both conventonal tsp and conventional ira balances. These rmds must be taken prior to contributing money back into iras. Normally coventional ira contributions are not permitted after age 70.5 because most people at this age do not have earned income (w2) salaries. Further roth ira contributions while permissible after age 70.5 are subject to income limits.
So the question is whether one should pay the 22% marginal tax rate now by converting incrementally over the next several years or wait? Some have proposed waiting because you are still earning money tax free on the principle balance up until rmds kick in. I would debate that a 10 % return is "mere". I have been challenged by some for even using 5% as too much. Regardless, prior to this tax year I was in the marginal 28% tax bracket but under the new tax law I too am in the 22% bracket. By converting now I see a savings of 6% in tax liabilities versus last year on conventional tsp balances, but is this enough to warrant conversion? That may well depend upon where tax rates are 6-7 years from now under a new administration. I suspect marginal tax rates will be higher but I do not know that for sure. At the end of this year I must decide if I can reasonably expect to make 6% or more on my savings next year. If the answer is yes (with an already inflated stock market), I will not convert. If the answer is no, I may convert but that takes effort and I am gambling on the unknowns of future tax changes. In summary, I am not sure there is a correct answer unless one is able to predict the future.