Thread: Roth IRA Option For TSP Coming soon?

Originally Posted by CountryBoy

Thanks for the warning, it appears to be geared to folks leaving service.

"Under the soon-to-be announced new option, TSP investors who are eligible to withdraw TSP funds either as part of an age-based in-service withdrawal or as a post-separation withdrawal, will have a third choice. In addition to putting that money in a traditional IRA, or into another eligible employer plan, they will also be able to put the money into a Roth IRA."
CB

Hi Country,
If you hear more on this Roth IRA option, I'd REALLY appreciate hearing more...
From what you quoted, eligibility may be "as an age-based in-service withdrawal."
As such, it might apply for those folks, maybe age 50 and up (since this is already an age they have established for these folks to add an extra 5K/year as a "Catch-Up" Contribution).
If this would be an in-service option (upon reaching, say age 50), this might be a REALLY terrific option for folks to consider!!
Thanks for posting!
I hope dubyah can get like this passed!!
VR

Originally Posted by hessian

Hi Country,
If you hear more on this Roth IRA option, I'd REALLY appreciate hearing more...
From what you quoted, eligibility may be "as an age-based in-service withdrawal."
As such, it might apply for those folks, maybe age 50 and up (since this is already an age they have established for these folks to add an extra 5K/year as a "Catch-Up" Contribution).
If this would be an in-service option (upon reaching, say age 50), this might be a REALLY terrific option for folks to consider!!
Thanks for posting!
I hope dubyah can get like this passed!!
VR

First of all, "Dubya" has nothing to do with this.

Secondly, no information has been formally released on the Roth thing that I know of.

What I DO know is this- one of the TSP employees went on a radio talk show last week (federalnewsradio.com) and said they are going to allow a "roth" option for those who are LEAVING federal service.

Here is the link:
http://federalnewsradio.com/?sid=1335853&nid=169


The way that it sounded to me (with NO real details anywhere), was that they were going to do it this way:

1. For someone who wanted to do it- and ONLY those no longer employed could do it, it SOUNDED like what they were going to do is have the employee say they wanted a "Roth".

2. Then, the TSP would figure out what the balance was on that day, and write them a note that their balance was now a "taxable event", being convereted to a Roth, and from that day forward would be a Roth.

It still would be in the TSP, just like always, except they would pay the taxes on the conversion, and then would have the money in the TSP as a Roth TSP account rather than a conventional one.

They could not, however, put any more money into it- and there is no software set up yet to distinguish the account as a Roth seperately from a conventional one.

It's a no-brainer for someone who has no other income, and a large balance to trasnfer over. But for a lot of people they will have to look carefully with a tax advisor and see if it makes any sense for them to convert to a Roth.

And here is what Federalnewsradio.com wrote about it:

By Dorothy Ramienski
FederalNewsRadio
There are changes coming to the Thrift Savings Plan.

On Monday's Daily Debrief, Penny Moran, Director of Participant Services at the TSP, told Amy Morris about the new Roth IRA option.


"Currently, participants who are eligible, to withdrawal their TSP accounts as an age-based in-service withdrawal or a post-separation withdrawal, can transfer their funds to a traditional IRA or another eligible employer plan, like another 401k. . . . Within the next few weeks, we're going to be adding a third option, or third destination, if you will, and that is to a Roth IRA."
The difference, Moran notes, is that, unlike a transfer to a traditional IRA or other eligible employer plan, Roth IRA's have strict restrictions regarding who can transfer money into the accounts. There are also immediate tax consequences.


"For those folks who are thinking about Roth IRA transfers, we are strongly, strongly encouraging them to talk to a tax advisor to look at the benefits and make sure that they understand the eligibility requirements and the tax consequences before they request the transfer."
But why transfer TSP funds into a Roth IRA in the first place?


"Roth IRA's do provide the advantage of tax-free growth on, essentially, after-tax dollars. So that may help folks with their tax situations in the future, but it's a very individual kind of a situation and they need to understand where they think they're going to be in terms of their tax situation down the line."
Moran says not everyone is eligible to do this, however.


"You're not eligible for a Roth transfer if either one of the following conditions apply: your modified adjusted gross income is over $100,000 or you're married and file a separate return."
Even if a federal employee is eligible, there are some constraints.


"If you transfer that money, you're going to have to pay the taxes on that money either way. For example, if you transfer your money from the TSP to a Roth IRA this year, when you file your tax return in 2009, you're going to have to pay the taxes on the amount of money that you transferred to that Roth IRA. It's very similar to taking a traditional IRA and converting it to a Roth IRA."
Moran says no one at the TSP wants to encourage or discourage this type of transfer. Her job, she notes, is to simply make sure that TSP participants know this is an option.


"For some folks, it might be a really good idea. We just want to make sure that they have it right before they do it. . . . If you pay the taxes on it now, and, in the future, you're in a higher tax category, then you basically have tax-free growth on all of that money as long as you leave it in the Roth IRA for five years."
The bottom line: talk to your tax advisor or financial planner. He or she can give you the best options and let you know what's right for your situation.

The TSP will have some FAQ on their website about this new transfer program, but, Moran says, please remember that the TSP does not give tax advice to participants.

The change is expected to come in mid-February. Stay tuned to FederalNewsRadio AM 1050 for continuing updates.

Hi James,
Thanks for taking time to post all that info.

I guess the "good news" is just that there seems to be an actual idea being kicked around.
Where this idea actually ends up sounds very much "up-in-the-air," so I will want to continue to monitor. (Have to just wait and see what shakes out.) You're right though, at this point it sounds like anyone's guess.

Best, IMO, might be to be able to transfer (at some designated age), a portion of our regular TSP to a Roth IRA - while still keeping some portion in regular TSP, I suppose, and being able to continue contributing. All this is speculation of course, I suppose, but we can hope!

If we do eventually see something, their advice is sound - still need to talk to a tax advisor / financial planner...for the best options for your specific situation.
VR
Thanks for the following link, it does seem be best source to monitor this:
http://federalnewsradio.com/?sid=1335853&nid=169

Simply establish your Roth IRA outside of TSP and do a Roth rollover. TSP is not doing anyone any favors. This is part of new regulations and it's perfect for my daughter when she returns from her next Iraq deployment. She will not have an AGI for tax purposes.
She will roll from TSP into her current Roth IRA tax free.

CB,

I read the article. It is going to be an option to roll your account over to a Roth after you retire or separate from the Agency. You will already have your matching funds. I don't have to worry about this for about 17 more years.

Just as an FYI....

The TSP.gov site has a main page item, and FAQ on this new option....

Stoplight...