On a side note, before blanket statements are made comparing Roth to Regular TSP you must know EXACTLY how the state you work in now taxes the pension of a federal civil servant. Approx. 9 states that normally have income taxes (e.g. NY and PA) consider the TSP "part of" their civil servants pension and DO NOT tax it on withdrawal in retirement. This is significant because if you work in one of these states (and assuming you will retire there) and contribute to the regular TSP - you can escape state taxes altogether (which are not insignificant in states like NY) by contributing to the regular TSP. As unbelievable as it seems the money is not state taxed going into the regular TSP AND it is not state taxed when withdrawn as it is considered "part of" the civil servants pension in these states. However - if you contribute to the Roth TSP - you will pay state taxes on the money going in. Everything else being equal- you are actually losing money by contributing to the Roth TSP instead of the regular TSP in these states.
@@Tkh21209 The latest list I have only includes 8 - Alabama, Hawaii, Illinois, Kansas, Louisiana, Mississippi, New York and Pennsylvania - though I am pretty sure there is a 9th state. Best thing to do is find out the rules for your state for taxing civil servants pensions and how they treat the TSP. I am just an expert on NY - and I have the 3 advisories from the NY State Tax Court ruling on this subject if anyone wants them.
I love comments like this that really make you think outside the box. One little detail like that may make a or break your entire thinking and planning. Also many Fed employees are veterans and may get other benefits in that regards.
I am approaching retirement in two years. Once I retire I appreciate your insight and videos. Question for you-I will get several thousand dollars from unused leave. If I work a couple weeks in January 2025, can I deposit the full amount into the TSP for 2025? Would I still get the matching dollars on the total?
Take a realistic look at what your income is likely to be on the date that RMD's are required. Unless you have a TON of money in your account it's probably not likely that your RMDs are going to push you into the 32% bracket. We can't predict future tax brackets but it would probably behoove most of us to stay in the traditional IRA or TSP.
But I don't think one can take money out of their TSP to transfer to a traditional IRA unless they are retired or leave federal service for some reason, correct Dallen?
@@tenawoods Google search a TSP fact sheet "TSPFS10(9/2019)" . In the article it says once 59 1/2, there can be 4 age-based in-service withdrawals per year, while still employed by your government agency.
Haven't thought about the timing of the conversion (other than tax bracket considerations) when it comes to executing the transfer in an up market vs. down market. That can be a very valuable strategy. Thanks!
BIG question: WHY do I need to roll funds over funds to a Traditional IRA in order to get it to ROTH IRA (vs. straight from the TSP traditional side to an external ROTH IRA)? I've heard different, conflicting answers. Discriminate from someone working towards retirement and someone retired. Thanks!
If I were to do a Roth conversion, when do I pull money from the Roth bucket? Is it better to use it the next year (while doing more conversions in that 2nd year), or wait until after I have converted all that want to convert before dipping into the Roth bucket? -- Dallen, I get lots of great info from you on YT and articles you write for Fed papers. I appreciate that you keep your videos brief and to the point/topic at hand. Thank you.
Great questions. We would love to sit down with you and answer these questions and any others you have. Feel free to schedule a meeting with us here: app.hawsfederaladvisors.com/whatservicemakessense
I plan on transferring my entire TSP sum into a Vanguard IRA after 60. And over 4 years, rolling over maybe 40% into a Roth IRA. Does anybody know of a reputable financial planning company that will make this as seamless as possible? I saw GEBA now has a financial planning side to their business. Has anybody used them? And I wonder if the tax bill for such rollover can just be taken from the TSP sum and not paid out of pocket?
You should be able to complete this easily by yourself. The staff at Vanguard should be able to assist if you have any questions as to what forms to use. As for taxes, roll the amount you want from the tIRA to the rIRA. Take a distribution from either account for the amount needed for taxes.
Hey John, Here is a shameless plug :) We are a financial planning company that helps with that sort of thing all the time. Feel free to book an appointment here if interested: hawsfederaladvisors.com/work-with-us/ Have a great day!
@@RickMartinUA-cam I just spoke with a Vanguard CFP. They said they they would convert my funds to Roth accounts and save the expected taxes due, and pay them at the end of the year.
That proposal seems to have gone away for now so you will probably have more time then that. Besides, it rarely makes sense to convert everything over in the same tax year.
I always thought that Roth IRAs (and Roth TSP) are for people who expect to be living on a much higher income when they retire. They are mainly for new people just coming into the service. A regular IRA (or TSP) is better if you expect your income to go down after retirement. With compounding growth of your contributions over time, you will have a lot more money in your account if you put it into the regular TSP. Granted, you'll have to pay taxes on it when you take it out. But if you take it out slowly the tax hit wont be as bad (you might even get money back from the IRS). I'd like to see a side-by-side chart of the growth between the two. Please do the math.
I've done the math and anyone in the 22% or higher tax bracket while working has a pretty hard time exceeding the amounts needed to optimally withdraw in retirement for a Roth to be worth it. If a married couple were to withdraw about 100k a year in retirement, they'd need about 3 million in traditional 401k etc. They'd pay about 9k in taxes and take home about 90k which is way higher than what most people even at gs13 or higher take home while working. Once you factor in pension, it's about a million or so less that is needed. To max out 22% and 24% it's a pretty hefty amount needed even if you do have a pension. A Roth is with it for people in their teens and 20s and people that have already maximized traditional accounts
Can you start this transfer of funds from Traditional TSP to Traditional IRA (taxfree/penalty free) before you retire? I realize the benefit of this would be based upon your own circumstances.
Hello, thank you for the work you do. What happens when you have a Roth TSP but your employer matches the Roth TSP into a traditional can you bring it into your Roth?
As I understand it, you can move your TSP to a traditional and Roth IRA. Someone like me has a mix of both Roth TSP and traditional TSP. Another person that is 59 and a half, which is older than me, but has a mix of both Traditional and Roth TSP did just that : they are over 59 and a half and had his TSP transferred to Fidelity. One part went to his IRA and the other part of his Roth TSP, went into his Roth IRA at Fidelity. Ask your financial advisor for more details 👍
@@PlanYourFederalBenefits I watched it again , it was even better the second time. Yep $10 in a Roth certainly better than $10 in Traditional IRA (or in my case Traditional TSP). So if I transfer $12K (IN ONE YEAR) from Traditional TSP to Traditional IRA. And then in the same year towards the end of the year I convert the $12k Traditional IRA to Roth IRA which would = $12k minus effective tax rate of 16% equals $12K - (0.16 X $12K) equals $12K - $1.92K = $10.08K. Now after a year of Roth money if grows a 10% , Roth would now = $11.08K CASH TAX FREE. That's what I'm talking about. Once again thanks !!
you don't have to start over you can start today or next paycheck and change your contributions to Roth TSP... the matching will only and automatically go to the traditional TSP but your funds you add will all go into the Roth TSP you just change it in your paycheck online but you do pay taxes so if you use Traditional TSP for a tax savings to lower your salary then you have to weigh what is better... if you max out 750 a paycheck that is about $200 a paycheck (not science just what it felt like when I did for a short period of time this year)
So, is what you describe in this vid a "Roth Conversion"? How about a "Back-Door Roth Conversion"? I have my terms mixed up. I had thought I would, during the course of my upcoming retirement, slowly convert my TSP to Roth in small increments year- to- year until the whole shebang was Roth.
@@rappwash being the same age, I doubt it. Besides, the TSP is not the deal it was some 15-20 years ago. Fidelity, Schwab and Vanguard have all dropped their expense ratios to a level below that of the TSP. The TSP has some hoops you have to go through to make withdrawal changes if you are married. Also, upon death, the transfer of assets to a no spouse are much more punitive than an IRA. Outside of the G fund, IRA's have better conditions. It may be wise to roll the TSP into an IRA after leaving federal service. Leaving some money in the G fund so that you can move money back if you want.
@@rogerdoger9939 thanks i am no longer working for the government and your right bunch even if your single ; looks into fidelity think i possible for 0% exp ratio if i get index fund and i can do a ladder approach moving money into a roth ira
@@rappwash Fidelity's answer to the C fund would be the FXAIX, Fidelity® 500 Index Fund. With an expense ratio of 0.015. The C fund's expense ratio is 0.51. That would be 1.5 cents/$1000 vs 51 cents/$1000 Or $.75/$50,000 and $25.5/$50,000. If I can do math correctly.
When 59.5 you can move w/o penalty out of traditional tsp to traditional ira. Then convert to Roth IRA and pay the tax. Also, move your Roth TSP too before you retire as Roth TSP is subjected to RMD where traditional Roth are not required to have RMD. At 59.5, you move it slowly any pay the tax for conversion or whatever works best for your needs
I thought, the most you can put into a roth ira was 6000 or 7000 depending on age, and that it had to be earned income. You can't just put 30K into roth so I thought.
Good question, that is the limit for normal contributions to a Roth IRA but there is no limit for Roth conversions (moving money from Traditional IRA to Roth).
Two questions: 1. If I start a Roth TSP account now does that start the 5 year restriction clock? 2. Does the money that you moved from tsp to the IRA have to sit there for some amount of time before you can move it to the Roth TSP? Thanks!
Question 1: Yes. I recommend you put at least a token amount in TSP roth at age 54 to satisfy the 5 year clock by age 59 1/2, when you can take in-service withdrawals from traditional TSP without the 10% penalty. You are then ready to get tax free earnings from your TSP roth. Question 2: You can move some of traditional TSP money to a traditional money market IRA after age 59 1/2. Once in the money market IRA, you can withdraw $26,000/yr from the MM traditional IRA in 2021, live off of this supplemental money, and deposit $26,000 back into you TSP roth through your paycheck. This assumes you have the money to pay taxes on the 26,000 extra income for that year. If you do not have the money to pay the taxes, deposit less back into TSP roth. Be sure to max out the 12% tax bracket for each year after 59 1/2. There does not need to be any waiting period. In retirement with a pension and social security, a 10,000 withdrawal from a traditional IRA or traditional TSP will be taxed at 12% = 1200. Also your social security is often taxed at 10,000 X 0.85 X 12% = 1020. So the total IRS tax is 1200 + 1020 = 2220 on a 10K traditional withdrawal. So much for taxes going down in retirement. Run a sample tax return using turbotax to see if all of you social security is going to be taxed in retirement. Input your yearly pension and expected social security. Vary the amount of traditional TSP or IRA withdrawals to see the changes in your IRS taxes. Each person's taxes are different, so study your own personal situation.
@ *MV* "Does the money that you moved from tsp to the IRA have to sit there for some amount of time before you can move it to the Roth TSP?" That process TSP to IRA to Roth TSP is not a valid or permitted process. You are not allowed to move money from Roth IRA to Roth TSP. Only way to get money in Roth TSP is by pay roll contribution.
In my opinion a person should participate in the traditional TSP and get the immediate tax break if they expect their income in retirement to be less than it when working. I f you expect your income in retirement to be MORE than it is while working then you should participate in the ROTH TSP.
I like your show. I'm wondering why you do not mention that after retirement, a person can transfer from a Traditional TSP directly to their Roth IRA in just one step instead of the two steps of TSP to traditional IRA then to Roth IRA as you described. I have done it both ways and I liked doing the simple just direct to Roth IRA transfer. The two steps would make sense if the person wanted to take all of their TSP saving completely out and move it to an traditional IRA then slowly move to the Roth IRA. However, I want to keep the traditional TSP because of the low expense ratio compared what is available in most IRAs. I then slowly move directly to my Roth IRA each year from my TSP. I think it's a much better method... it involves less paper work and also when it comes time to do taxes, I will only have one 1099-R distribution form to deal with vs. two 1099-Rs. The following is a quote from the TSP publication called, Transfers From the Thrift Savings Plan to Eligible Retirement Plans. Is the TSP authorized to make transfers to eligible retirement plans? Yes. Participants may transfer eligible rollover distributions from their TSP accounts to a qualified trust or an eligible retirement plan (as defined in IRC § 402(c)(8)). See 5 USC§ 8433(c)(2). An eligible retirement plan can be either an IRA or an eligible employer plan. Note 5. An IRA is any individual retirement account that is not a SIMPLE IRA... see note 5 Note 5: Any portion of a distribution from a participant's traditional balance (other than tax-exempt contributions) that is transferred to a Roth IRA will be taxed in the current year.
I think he did mention you can make one single move to a Roth the two steps is simply to save on income taxes. I have a roth at TDAmeritrade and have no annual fees , I think most self directed IRA's do not have fees. If you go with a full service broker you do have fees. Are you saying that you will keep your accounts at the TSP even after you retire? In that case the fees are the lowest I think anyone could ask for. I am considering changing more of my TSP contribution from traditional to roth because it don't seem to save me a huge amount on my current income taxes anyways.
@@terryneal5569 He really didn't mention it or give the complete picture as he made it sound as if it was an all or nothing, of which is not the case. He said about 4:20 that going from Traditional TSP to Traditional IRA to Roth IRA was the cleanest way, but I didn't hear him say go directly from Traditional TSP to a Roth IRA. Yes, I have retired. I have a Roth IRA at TD also. My first year after I retired I did the two step but only a small amount to establish my Roth IRA. However I didn't like that come tax time, I had two 1099R distributions that made it look like I had double distributions, as I didn't know that was going to happen like that. It also was a pain of having to do more paperwork at TD besides TSP to transfer from traditional IRA to Roth IRA. The fees even though they are low at TD depending on what you have are not anyway near as low what they are at TSP. As I said, I'm saving on taxes too as I'm only moving a small enough amount from TSP directly to my Roth IRA (and not my Traditional IRA) that will keep me in the lowest tax bracket for each tax year and will do so until I sign up for Soc Sec. ...and that is what I meant about him not really talking about it.
@@terryneal5569 if your traditional tsp account doesn't have several million in it, putting more towards Roth isn't worth it if you are a higher grade. To optimally withdraw and max out the 10% or 12% tax brackets, it still needs a pretty substantial amount and sadly based on statistics, not many people have a lot saved for retirement
Why do we Americans tax money that we already tax for when we got paid. Just for transferring from account to account. 🤷♂️ Every new transaction is a taxable transaction 😂. Just saying
On a side note, before blanket statements are made comparing Roth to Regular TSP you must know EXACTLY how the state you work in now taxes the pension of a federal civil servant. Approx. 9 states that normally have income taxes (e.g. NY and PA) consider the TSP "part of" their civil servants pension and DO NOT tax it on withdrawal in retirement. This is significant because if you work in one of these states (and assuming you will retire there) and contribute to the regular TSP - you can escape state taxes altogether (which are not insignificant in states like NY) by contributing to the regular TSP. As unbelievable as it seems the money is not state taxed going into the regular TSP AND it is not state taxed when withdrawn as it is considered "part of" the civil servants pension in these states. However - if you contribute to the Roth TSP - you will pay state taxes on the money going in. Everything else being equal- you are actually losing money by contributing to the Roth TSP instead of the regular TSP in these states.
Where is the full list of the 9 states
@@Tkh21209 The latest list I have only includes 8 - Alabama, Hawaii, Illinois, Kansas, Louisiana, Mississippi, New York and Pennsylvania - though I am pretty sure there is a 9th state. Best thing to do is find out the rules for your state for taxing civil servants pensions and how they treat the TSP. I am just an expert on NY - and I have the 3 advisories from the NY State Tax Court ruling on this subject if anyone wants them.
I love comments like this that really make you think outside the box. One little detail like that may make a or break your entire thinking and planning. Also many Fed employees are veterans and may get other benefits in that regards.
I am approaching retirement in two years. Once I retire
I appreciate your insight and videos. Question for you-I will get several thousand dollars from unused leave. If I work a couple weeks in January 2025, can I deposit the full amount into the TSP for 2025? Would I still get the matching dollars on the total?
Take a realistic look at what your income is likely to be on the date that RMD's are required. Unless you have a TON of money in your account it's probably not likely that your RMDs are going to push you into the 32% bracket. We can't predict future tax brackets but it would probably behoove most of us to stay in the traditional IRA or TSP.
Thank you for sharing simple content for us to understand☺️
But I don't think one can take money out of their TSP to transfer to a traditional IRA unless they are retired or leave federal service for some reason, correct Dallen?
correct
What if I am 59 1/2?
@@tenawoods Google search a TSP fact sheet "TSPFS10(9/2019)" . In the article it says once 59 1/2, there can be 4 age-based in-service withdrawals per year, while still employed by your government agency.
You can at age 59.5.
Haven't thought about the timing of the conversion (other than tax bracket considerations) when it comes to executing the transfer in an up market vs. down market. That can be a very valuable strategy. Thanks!
Glad it was helpful!
Very clear and solid advice. Thanks.
My pleasure!
BIG question: WHY do I need to roll funds over funds to a Traditional IRA in order to get it to ROTH IRA (vs. straight from the TSP traditional side to an external ROTH IRA)? I've heard different, conflicting answers. Discriminate from someone working towards retirement and someone retired. Thanks!
Got it. Though the whole idea of tying up my $ for 5 years is less appealing at 67. A younger option..
If I were to do a Roth conversion, when do I pull money from the Roth bucket? Is it better to use it the next year (while doing more conversions in that 2nd year), or wait until after I have converted all that want to convert before dipping into the Roth bucket? -- Dallen, I get lots of great info from you on YT and articles you write for Fed papers. I appreciate that you keep your videos brief and to the point/topic at hand. Thank you.
Great questions. We would love to sit down with you and answer these questions and any others you have. Feel free to schedule a meeting with us here: app.hawsfederaladvisors.com/whatservicemakessense
I currently have a Roth IRA that i opened in 2022. If i transfer Roth TSP money into it next year does the 5 year rule apply to the money added?
I am maxing my traditional tsp plus over 50 catch up. I am also putting money in Roth tsp. Is this ok?
I plan on transferring my entire TSP sum into a Vanguard IRA after 60. And over 4 years, rolling over maybe 40% into a Roth IRA. Does anybody know of a reputable financial planning company that will make this as seamless as possible? I saw GEBA now has a financial planning side to their business. Has anybody used them? And I wonder if the tax bill for such rollover can just be taken from the TSP sum and not paid out of pocket?
You should be able to complete this easily by yourself. The staff at Vanguard should be able to assist if you have any questions as to what forms to use.
As for taxes, roll the amount you want from the tIRA to the rIRA. Take a distribution from either account for the amount needed for taxes.
Hey John, Here is a shameless plug :) We are a financial planning company that helps with that sort of thing all the time. Feel free to book an appointment here if interested: hawsfederaladvisors.com/work-with-us/
Have a great day!
I learned today that you can't use money from the conversion to pay the tax. That you'd have to pay from your other accounts/cash.
@@RickMartinUA-cam
I just spoke with a Vanguard CFP. They said they they would convert my funds to Roth accounts and save the expected taxes due, and pay them at the end of the year.
can i move money from the Traditional TSP straight into a ROTH IRA. I just have about $4000 to move, why do i need to move to a Traditional IRA
The law may be changing in Dec. Do I have to convert the entire amount to a Roth IRA before then?
That proposal seems to have gone away for now so you will probably have more time then that. Besides, it rarely makes sense to convert everything over in the same tax year.
I heard that this is going to be a thing come 2026 moving traditional tsp to Roth tsp
I always thought that Roth IRAs (and Roth TSP) are for people who expect to be living on a much higher income when they retire. They are mainly for new people just coming into the service. A regular IRA (or TSP) is better if you expect your income to go down after retirement. With compounding growth of your contributions over time, you will have a lot more money in your account if you put it into the regular TSP. Granted, you'll have to pay taxes on it when you take it out. But if you take it out slowly the tax hit wont be as bad (you might even get money back from the IRS). I'd like to see a side-by-side chart of the growth between the two. Please do the math.
Good point, that is a good topic for a future video
I've done the math and anyone in the 22% or higher tax bracket while working has a pretty hard time exceeding the amounts needed to optimally withdraw in retirement for a Roth to be worth it. If a married couple were to withdraw about 100k a year in retirement, they'd need about 3 million in traditional 401k etc. They'd pay about 9k in taxes and take home about 90k which is way higher than what most people even at gs13 or higher take home while working. Once you factor in pension, it's about a million or so less that is needed. To max out 22% and 24% it's a pretty hefty amount needed even if you do have a pension. A Roth is with it for people in their teens and 20s and people that have already maximized traditional accounts
@@calvinlim9485I agree avoid the taxes now and find a way to avoidnit later 😂
But... what about taxes on Social Security and Medicare?
Can you start this transfer of funds from Traditional TSP to Traditional IRA (taxfree/penalty free) before you retire? I realize the benefit of this would be based upon your own circumstances.
No you have to leave federal service first
I am wondering the same
This was your best video yet!
Great to hear!
So how do I open the Roth? I have traditional..gonna retire in 2 years have 175000to move base salary 74000
You have to contact the TSP to open a Roth TSP
Hello, thank you for the work you do. What happens when you have a Roth TSP but your employer matches the Roth TSP into a traditional can you bring it into your Roth?
No. The 5% GOV match goes toward your traditional TSP balance and cannot be converted to your Roth TSP balance.
@@alrocky Thank you for the response.
So this dosn't apply to retires? If we are retired we can't do it.
I think that's the only way to do it.
You certainly can do it as retirees
As always great I formation. I am 59 1/2, but have not left Fed Service, can I move TSP money to Traditional IRA?
As I understand it, you can move your TSP to a traditional and Roth IRA. Someone like me has a mix of both Roth TSP and traditional TSP. Another person that is 59 and a half, which is older than me, but has a mix of both Traditional and Roth TSP did just that : they are over 59 and a half and had his TSP transferred to Fidelity. One part went to his IRA and the other part of his Roth TSP, went into his Roth IRA at Fidelity. Ask your financial advisor for more details 👍
The matching goes to Traditional, right?
Correct
Great thank you so much !!!
My pleasure, Have a great day!
@@PlanYourFederalBenefits I watched it again , it was even better the second time. Yep $10 in a Roth certainly better than $10 in Traditional IRA (or in my case Traditional TSP). So if I transfer $12K (IN ONE YEAR) from Traditional TSP to Traditional IRA. And then in the same year towards the end of the year I convert the $12k Traditional IRA to Roth IRA which would = $12k minus effective tax rate of 16% equals $12K - (0.16 X $12K) equals $12K - $1.92K = $10.08K. Now after a year of Roth money if grows a 10% , Roth would now = $11.08K CASH TAX FREE. That's what I'm talking about. Once again thanks !!
If I have 200k in my TSP would I miss out on future growth if I drop my contributions down to 5% and start over in a Roth TSP?
you don't have to start over you can start today or next paycheck and change your contributions to Roth TSP... the matching will only and automatically go to the traditional TSP but your funds you add will all go into the Roth TSP you just change it in your paycheck online but you do pay taxes so if you use Traditional TSP for a tax savings to lower your salary then you have to weigh what is better... if you max out 750 a paycheck that is about $200 a paycheck (not science just what it felt like when I did for a short period of time this year)
So, is what you describe in this vid a "Roth Conversion"? How about a "Back-Door Roth Conversion"? I have my terms mixed up. I had thought I would, during the course of my upcoming retirement, slowly convert my TSP to Roth in small increments year- to- year until the whole shebang was Roth.
A back door Roth is a little different but pretty similar
This is what I want to do
Do you think the TSP will ever change their "NO" policy on Traditional tsp conversion to Roth tsp in our lifetime?
Well, how old are you?
@@rogerdoger9939 51
@@rappwash being the same age, I doubt it.
Besides, the TSP is not the deal it was some 15-20 years ago. Fidelity, Schwab and Vanguard have all dropped their expense ratios to a level below that of the TSP. The TSP has some hoops you have to go through to make withdrawal changes if you are married.
Also, upon death, the transfer of assets to a no spouse are much more punitive than an IRA.
Outside of the G fund, IRA's have better conditions. It may be wise to roll the TSP into an IRA after leaving federal service. Leaving some money in the G fund so that you can move money back if you want.
@@rogerdoger9939 thanks i am no longer working for the government and your right bunch even if your single ; looks into fidelity think i possible for 0% exp ratio if i get index fund and i can do a ladder approach moving money into a roth ira
@@rappwash Fidelity's answer to the C fund would be the FXAIX, Fidelity® 500 Index Fund. With an expense ratio of 0.015. The C fund's expense ratio is 0.51.
That would be 1.5 cents/$1000 vs 51 cents/$1000 Or $.75/$50,000 and $25.5/$50,000. If I can do math correctly.
Good info
Glad it was helpful!
How can i change my traditional tsp to a tsp roth? i dont see the setting in tsp to where i can change that. thanks
Its in mypay all the way at the bottom
I thought you can only deposit upto $7000 a year into a Roth IRA?
Agreed. I thought there was a limit. What’s the catch.
The $7000 is how much you can "contribute" out of your "earnings".
The "conversion" from traditional to Roth is not a "contribution".
Could you then rollover your Roth IRA TSP into your Roth TSP?
The obvious question. He forgot the fourth block, "TSP Roth".
I have the same question.
@ Jay* D* "Roth IRA -TSP- into your Roth TSP?" No you cannot move your Roth IRA to your Roth TSP.
When 59.5 you can move w/o penalty out of traditional tsp to traditional ira. Then convert to Roth IRA and pay the tax. Also, move your Roth TSP too before you retire as Roth TSP is subjected to RMD where traditional Roth are not required to have RMD. At 59.5, you move it slowly any pay the tax for conversion or whatever works best for your needs
Just make sure your roth ira is at least 5 years old before 59½
Honestly just take your RMD from tsp and invest in a Roth ira with it.
After you leave federal service, you can move the money out of a TSP into an IRA with out penalty. No mater what age you are.
@@Mc.flyyy11 Only if you have "earned income".
@@rogerdoger9939 my step dad has done it for 3 years now. Not sure how he gets it done but that's what he said he does.
I thought, the most you can put into a roth ira was 6000 or 7000 depending on age, and that it had to be earned income. You can't just put 30K into roth so I thought.
Good question, that is the limit for normal contributions to a Roth IRA but there is no limit for Roth conversions (moving money from Traditional IRA to Roth).
Two questions:
1. If I start a Roth TSP account now does that start the 5 year restriction clock?
2. Does the money that you moved from tsp to the IRA have to sit there for some amount of time before you can move it to the Roth TSP?
Thanks!
Question 1: Yes. I recommend you put at least a token amount in TSP roth at age 54 to satisfy the 5 year clock by age 59 1/2, when you can take in-service withdrawals from traditional TSP without the 10% penalty. You are then ready to get tax free earnings from your TSP roth.
Question 2: You can move some of traditional TSP money to a traditional money market IRA after age 59 1/2. Once in the money market IRA, you can withdraw $26,000/yr from the MM traditional IRA in 2021, live off of this supplemental money, and deposit $26,000 back into you TSP roth through your paycheck. This assumes you have the money to pay taxes on the 26,000 extra income for that year. If you do not have the money to pay the taxes, deposit less back into TSP roth. Be sure to max out the 12% tax bracket for each year after 59 1/2. There does not need to be any waiting period.
In retirement with a pension and social security, a 10,000 withdrawal from a traditional IRA or traditional TSP will be taxed at 12% = 1200. Also your social security is often taxed at 10,000 X 0.85 X 12% = 1020. So the total IRS tax is 1200 + 1020 = 2220 on a 10K traditional withdrawal. So much for taxes going down in retirement.
Run a sample tax return using turbotax to see if all of you social security is going to be taxed in retirement. Input your yearly pension and expected social security. Vary the amount of traditional TSP or IRA withdrawals to see the changes in your IRS taxes. Each person's taxes are different, so study your own personal situation.
@ *MV* "Does the money that you moved from tsp to the IRA have to sit there for some amount of time before you can move it to the Roth TSP?" That process TSP to IRA to Roth TSP is not a valid or permitted process. You are not allowed to move money from Roth IRA to Roth TSP. Only way to get money in Roth TSP is by pay roll contribution.
@@dunesmom7990 Thanks for the clarification.
Great video
Thanks for the support!
In my opinion a person should participate in the traditional TSP and get the immediate tax break if they expect their income in retirement to be less than it when working. I f you expect your income in retirement to be MORE than it is while working then you should participate in the ROTH TSP.
I like your show.
I'm wondering why you do not mention that after retirement, a person can transfer from a Traditional TSP directly to their Roth IRA in just one step instead of the two steps of TSP to traditional IRA then to Roth IRA as you described. I have done it both ways and I liked doing the simple just direct to Roth IRA transfer. The two steps would make sense if the person wanted to take all of their TSP saving completely out and move it to an traditional IRA then slowly move to the Roth IRA. However, I want to keep the traditional TSP because of the low expense ratio compared what is available in most IRAs. I then slowly move directly to my Roth IRA each year from my TSP. I think it's a much better method... it involves less paper work and also when it comes time to do taxes, I will only have one 1099-R distribution form to deal with vs. two 1099-Rs.
The following is a quote from the TSP publication called, Transfers From the Thrift Savings
Plan to Eligible Retirement Plans.
Is the TSP authorized to make transfers to eligible retirement plans?
Yes. Participants may transfer eligible rollover distributions from their TSP accounts to a qualified trust or an eligible retirement plan (as defined in IRC § 402(c)(8)). See 5 USC§ 8433(c)(2). An eligible retirement plan can be either an IRA or an eligible employer plan. Note 5. An IRA is any individual retirement account that is not a SIMPLE IRA... see note 5
Note 5: Any portion of a distribution from a participant's traditional balance (other than tax-exempt contributions) that is transferred to a Roth IRA will be taxed in the current year.
I think he did mention you can make one single move to a Roth the two steps is simply to save on income taxes.
I have a roth at TDAmeritrade and have no annual fees , I think most self directed IRA's do not have fees. If you go with a full service broker you do have fees.
Are you saying that you will keep your accounts at the TSP even after you retire? In that case the fees are the lowest I think anyone could ask for. I am considering changing more of my TSP contribution from traditional to roth because it don't seem to save me a huge amount on my current income taxes anyways.
@@terryneal5569 He really didn't mention it or give the complete picture as he made it sound as if it was an all or nothing, of which is not the case. He said about 4:20 that going from Traditional TSP to Traditional IRA to Roth IRA was the cleanest way, but I didn't hear him say go directly from Traditional TSP to a Roth IRA.
Yes, I have retired. I have a Roth IRA at TD also. My first year after I retired I did the two step but only a small amount to establish my Roth IRA. However I didn't like that come tax time, I had two 1099R distributions that made it look like I had double distributions, as I didn't know that was going to happen like that. It also was a pain of having to do more paperwork at TD besides TSP to transfer from traditional IRA to Roth IRA.
The fees even though they are low at TD depending on what you have are not anyway near as low what they are at TSP. As I said, I'm saving on taxes too as I'm only moving a small enough amount from TSP directly to my Roth IRA (and not my Traditional IRA) that will keep me in the lowest tax bracket for each tax year and will do so until I sign up for Soc Sec.
...and that is what I meant about him not really talking about it.
@@terryneal5569 if your traditional tsp account doesn't have several million in it, putting more towards Roth isn't worth it if you are a higher grade. To optimally withdraw and max out the 10% or 12% tax brackets, it still needs a pretty substantial amount and sadly based on statistics, not many people have a lot saved for retirement
Why do we Americans tax money that we already tax for when we got paid. Just for transferring from account to account. 🤷♂️ Every new transaction is a taxable transaction 😂. Just saying