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Convert TSP to roth on retirement?
Old 10-14-2018, 11:07 AM   #1
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Convert TSP to roth on retirement?

Howdy folks,

I have a tsp account, and use it (and the G fund) for the bond portion (40%?) of my portfolio. For those of you who aren't familiar with the TSP, and the G fund, it has very low expenses (.033%?), and relatively high risk free returns (esp in a rising interest rate environment). When I retire, I've given some thought to rolling it over to a traditional IRA, and converting it in chunks to a roth IRA and paying taxes on it. I'm still 5-10 years out from retirement, but I want to think this over well before, as there's preparation that needs to be done if I decide to do this.



I don't want to get into a political debate here, but I think it's reasonable to assume that tax rates are historically low now, and will be higher in the future, given that the debt / deficit has to be reigned in at some point in the future right?



The g fund is a pretty good deal, and I'm conflicted as to whether it makes sense to roll it over into a roth or let it be. I know there are a number of retired feds on this board. What would you do?
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Old 10-14-2018, 11:15 AM   #2
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You can partially roll it over for Roth conversion. My husband has a TSP account and that’s how I know. Plus there was something on FedSoup about not leaving money in 401k because once you’re gone, your benefiaries like your heirs, but not your spouse, might not be able to stretch it like the regular IRA. That’s was my recollection of reading it years ago.
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Old 10-14-2018, 11:33 AM   #3
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Since you are 5-10 years from retirement, things may change before you have to make the decision.

Until earlier this year, the TSP had rules which restricted the withdrawals more than a 401K. You were only allowed one lump sum withdrawal, then if you needed money after that you had to start regular periodic withdrawals (i.e. monthly withdrawals).

A new law was passed earlier this year that should allow multiple lump sum withdrawals (so multiple Roth conversions, as I understand it). However, though the law was passed, the fund management hasn't figured out how to make it happen. Who knows how long that will take. Hopefully it's figured out by the time you retire.

DH has a TSP, and we never even considered any Roth conversions because it would've been one and done. Now that we (in theory anyway) can take multiple lump sums, we might consider some conversions next year. But until the people managing the TSP get their act together there's nothing we can do.
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Old 10-14-2018, 02:06 PM   #4
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I transfer a chunk from 401k to Rollover IRA to any brokerage and slowly do the conversion from there. I currently do that through Vanguard. I think it’s a headache to convert small chunk yearly and Roth convert. I’m not sure I want to do that year with Vanguard anyway.
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Old 10-14-2018, 02:11 PM   #5
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I did something similar to what you're proposing. I estimated how much I wanted to convert to a ROTH over a 5 year period and transferred that amount (plus a little extra if things changed) from my TSP to a T-IRA. I left the remaining amount in the TSP because I like the fund choices and low fees. As the other poster noted the TSP is making much needed changes to the withdrawal options, I read a recent article that stated the changes will start in 2019. Whether ROTH conversions make sense depends a lot on your tax situation. In my case it seemed to make sense since I am in a lower tax bracket during the early years of retirement but that will change when my pension and SS kick in. I calculate every year how much of a ROTH conversion I can do without causing my income to jump into a higher tax bracket. Need to be more careful now because the new tax law did away with the ability to re-characterize your ROTH conversion.
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Old 10-14-2018, 03:58 PM   #6
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I'm planning to transfer the stock portion of my TSP to a traditional IRA, then Roth convert that when taxes are low. Planning to keep my bond allocation inside TSP in the G fund as you do, but keeping some there for access to G specifically down the road. Changes to the TSP withdrawal options may change that plan. We'll see.
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Old 10-15-2018, 12:22 AM   #7
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During accumulation phase I had some C, S, and I fund. But a couple of years before retiring I put my entire TSP in the G Fund, and have kept it there ever since. This has been a good place to keep much of my bond allocation. (I have taxable accounts at Vanguard, too.)

Now that I am retired, I have set up equal monthly withdrawals for living expenses. It's working out very nicely for me.
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Old 10-15-2018, 05:13 AM   #8
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My only advice is keep the money in TSP as long as you can. You won't find lower fees anywhere. I structured my retirement accounts to touch TSP last. I'll draw from mine/DW trad IRAs for Roth ladder until mandatory withdrawals from TSP at 71.
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Old 10-15-2018, 06:16 AM   #9
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i'm leaving my money in TSP until RMD, required distributions. L2020 and C fund for me.
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Old 10-15-2018, 08:27 AM   #10
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A more simplistic question. If TSP allowed you to "convert" money from TSP traditional to TSP Roth (and pay the taxes now) would you do it?
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Old 10-15-2018, 02:22 PM   #11
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Why not start Roth TSP contributions now ?
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