Limit not 17.5k? (After-tax Traditional TSP Contributions)

[Tony]

Does anyone know if/how after-tax contributions can be made to my TSP account? As I understand the tax code cited below, contributions after the $17,500 limit can be made until the total annual balance has reached $51,000. That would mean I can contribute $33,500 after-tax dollars as extra into the TSP Traditional account. Please see citation below:

Employee contribution limit of $17.5k/yr for under 50 in 2013; $23k/yr for age 50 or above; limits are a total of pre-tax Traditional 401(k) and Roth 401(k) contributions. Total employee (including after-tax Traditional 401(k)) and employer combined contributions must be lesser of 100% of employee's salary or $51k ($56.5k for age 50 or above). There is no income cap for this investment class.

Source:
http://en.wikipedia.org/wiki/Comparison_of_401(k)_and_IRA_accounts

Another Explanation:
http://www.bogleheads.org/wiki/After-tax_401%28k%29

Know I know what you are thinking. "Why on earth would you want to get taxed twice?!" Well... as I understand it, TSP happens to allow for in-service distributions/rollovers" after a certain vesting period. I could, in theory, roll over that $33,500 into my Roth IRA, bypassing the $5,500 annual limit (Because it would be a rollover). Yes, the $33,500 would be after-tax dollars, however, I would be able to contribute them to a Roth IRA instead of a brokerage account.

Any thoughts? I guess my question is whether or not TSP enables these extra contributions.

EDIT: Fixed URL

[skiehawk11]

Tony,

I'll need to read your source which is what I am doing, but I'd like to see Relevant's take on this.

[Relevant]

The key words from your source are in bold below:

Contributions are usually pre-tax; but can also be post-tax, if allowed by plan. Distributions are taxed as ordinary income (except any post-tax principal).

TSP does not allow post-tax contributions above the standard limits. Also note that even if TSP did allow it, the earnings on post-tax contributions would still be taxed as ordinary income.

Bottom Line - I don't see the benefit even if it were allowed.

[Tony]

TSP does not allow post-tax contributions above the standard limits. Also note that even if TSP did allow it, the earnings on post-tax contributions would still be taxed as ordinary income.

Bottom Line - I don't see the benefit even if it were allowed.

The benefit would be the fact that you could quickly roll-over the post-tax principal (33.5k) to a Roth IRA instead of investing it in a typical brokerage account. You could withdraw this principal relatively soon without penalty, or just let it make free capital gains. A typical brokerage account would result in capital gains tax down the line, and the TSP account essentially locks up the money until retirement age.

Not that it matters. As you said, it seems that TSP does not offer the ability to contribute to traditional TSP past $17,500, even with after-tax money. Something to keep in mind for the private sector, though.

Oh well

[crondanet5]

Are there capital gains taxes in a Roth account? Also I am not sure how you could quickly withdraw Roth funds from a TSP account. I believe you would be better off figuring out how to roll this money into a brokerage Roth IRA where you could trade it more frequently than the TSP permits.

[chief04010]

As long as we are on the topic I would like to get some advice from the experts here on an idea I have been kicking around. I have both Roth and Traditional TSP savings. When I retire in about 4 1/2 years I would possibly like to roll the Roth money into a Roth IRA, reading the rules on the TSP website has given me the impression that I will have to withdraw an equal amount of Traditional money and possibly roll that over to a Traditional IRA. Is this correct and if so are there any unforeseen problems that anyone knows of?

[BigMike]

......TSP happens to allow for in-service distributions/rollovers" after a certain vesting period. I could, in theory, roll over that $33,500 into my Roth IRA, bypassing the $5,500 annual limit (Because it would be a rollover)........EDIT: Fixed URL

Tony I would advise checking this out carefully before pulling the trigger. I believe you may have a misunderstanding about how in-service distribution/rollovers work. As far as I understand TSP In-Service Withdrawls are a one time shot. Meaning you cannot make more than one In-Service Withdrawl during your entire service career. I believe the same is true for post service partial withdrawls. You can only do that once (and only if you never had an In-Service Withdrawl). If you request a second withdrawl (In-Service or Post Service) it must be for the balance of your TSP.

Someone please tell me if I have this correct? Relavent, maybe you can confirm?

BigMike

[Relevant]

......TSP happens to allow for in-service distributions/rollovers" after a certain vesting period. I could, in theory, roll over that $33,500 into my Roth IRA, bypassing the $5,500 annual limit (Because it would be a rollover)........EDIT: Fixed URL

Tony I would advise checking this out carefully before pulling the trigger. I believe you may have a misunderstanding about how in-service distribution/rollovers work. As far as I understand TSP In-Service Withdrawls are a one time shot. Meaning you cannot make more than one In-Service Withdrawl during your entire service career. I believe the same is true for post service partial withdrawls. You can only do that once (and only if you never had an In-Service Withdrawl). If you request a second withdrawl (In-Service or Post Service) it must be for the balance of your TSP.

Someone please tell me if I have this correct? Relavent, maybe you can confirm?

BigMike

That is how I understand it as well.

[flight23]

Couple of things being mixed up here.
First, the $17,500 limit is not set by the TSP that limit is set by the IRS as the maximum EMPLOYEE contribution. The wording above regarding after tax contributions only refers to the plan itself, whether or not there is a Roth vs Traditional option as there is with the TSP. This does not mean that the TSP powers-that-be have the option of allowing us to contribute up to the 51k limit if we want, we can only contribute 17.5k max. ONLY the employER can contribute that last 33.5k.

On top of that, Tony your plan would not work even if you could contribute the 33.5k. You could take the one time distribution but you could not roll that into a Roth IRA. Once you leave service however if you have been contributing to your Roth TSP you can likely roll that into a rollover Roth IRA.