Thread: TSP withdrawal into Roth IRA in 2010

From: http://www.rothira.com/

"On May 17, 2006, President Bush signed the Tax Increase Prevention and Reconciliation Act of 2005 into law. This tax bill included a provision dealing with conversions of traditional IRAs to Roth IRAs. Starting in 2010, the existing $100,000 income test for converting a traditional IRA to a Roth IRA will no longer apply. Conversions that occur in 2010 will be able to have half of the taxable converted amount taxed in 2011 and the other half taxed in 2012. "

The real ripoff in converting an IRA (or TSP) to a roth is that the entire distribution is taxable as income. For most of us, the majority of our money comes from trading, i.e. from capital gains. If I have after-tax money in a stock account, I pay income tax on dividends or other income and a lower capital gains rate on capital gains. But when we take our money out of an IRA or TSP, we will have to pay the higher tax rate on the whole thing, actually, no matter how we take it out. A pretty serious hidden tax, if I understand it right.