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Retiring Reservist awaiting pension. What to do with the TSP?
Old 07-09-2008, 09:38 PM   #1
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Retiring Reservist awaiting pension. What to do with the TSP?

Spouse and I came to the TSP relatively late in our careers. When I retired, one day a TSP check arrived in the mail-- kicking me out for my puny balance-- so I never had to deal with the distribution rules. I rolled the check into an IRA and haven't had to make a TSP decision since then.

Spouse's TSP account has a slightly larger balance. It's enough that the TSP won't kick her out, but it's not enough to make a difference to our lifestyle or our AA or our SWR. In fact we could give it away, although I'm not familiar with the new tax rules on donating IRA RMDs to charity.

She's retiring in December but she won't start drawing her Reserve pension until 2022. She won't turn 70 until 2032, so there's plenty of time to ruminate over our options.

The default would be to do nothing for a while. As I understand the TSP rules (http://www.tsp.gov/uniserv/forms/tspbk02.pdf), she can leave her shares there until the year she turns 70. At that point she has to start RMDs, or withdraw it all (for example, roll it over to another IRA or take a distribution & tax hit), or buy an annuity. Since our pensions are already coming from the federal govt, I think we're going to skip the annuity option.

Anytime after she hits 59 she could start penalty-free withdrawals. Anytime after this December she could withdraw a chunk of money from the TSP, roll it over to an IRA, and start 72(t) SEPPs. Since we don't need the money, I think we're going to skip these options.

Anytime after this December she could roll her TSP over to an IRA. However the TSP funds have been lowering their expense ratios and are now at 0.03% (just three basis points) so I doubt that we'd do better anywhere else. Skip.

Anytime after this December she could roll her TSP over to an IRA and convert it to a Roth IRA. All the money in the TSP is pre-tax salary so there'd be some minor taxes-- and then we'd be paying higher expense ratios in whatever else we invested in. Although it would avoid RMDs and further taxes, this is an option that might not be worth the effort. Probable skip.

I need to research the tax rules, but as I understand it an IRA RMD can be contributed to charity without being taxed. That means spouse could leave her TSP alone until she turns 70, roll it all over to an IRA, and start donating it to charity. Due to the small balance of her account, its tiny expense ratio, and the zero hassle factor, this seems to be the best option. Of course a lot can change in 24 years.

I'm intrigued by the pamphlet's claim that we could roll her conventional IRA into the TSP. That would immediately cut her IRA expense ratio from about 0.58% to 0.03%. However that IRA balance is only about 8% of our ER portfolio. It's nothing to sneeze at, but it's another account whose RMDs could be donated to charity. Has anyone transferred money into the TSP from their IRA? Any unexpected problems we should be aware of?

Any options or issues that I've missed?
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Old 07-10-2008, 08:55 AM   #2
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I'm intrigued by the pamphlet's claim that we could roll her conventional IRA into the TSP. That would immediately cut her IRA expense ratio from about 0.58% to 0.03%. However that IRA balance is only about 8% of our ER portfolio. It's nothing to sneeze at, but it's another account whose RMDs could be donated to charity. Has anyone transferred money into the TSP from their IRA? Any unexpected problems we should be aware of?
I did it last year when I read the same thing. I had about $100K in one of the old, original IRAs where you could contribute $2K/yr pre-tax. The process was fairly simple but I can't remember the details. I think I downloaded some form from the TSP site and mailed that to the IRA holder. In any event, it all flowed over smoothly.
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Old 07-10-2008, 10:42 AM   #3
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I spent last year rolling all of my IRAs and former 401Ks into the TSP. When I retired from the National Guard last June I rolled my uniformed service account into my civilian TSP account.

Biggest issue I had was the fact that most banks and financial institutions wouldn't write my SSN on the check. The TSP rollover paperwork required it written on the check, but they use account numbers now so you may avoid that.

I just had them send me the check, and I wrote my SSN on it before sending to TSP. I'd call and verify the transferring into the TSP, especially now that she is retired.
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Old 07-10-2008, 06:08 PM   #4
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I still haven't decided what to do with the TSP (~250K). Will probably start distributions in 2010.
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Old 12-09-2009, 04:05 AM   #5
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Originally Posted by Nords View Post
Anytime after this December she could roll her TSP over to an IRA and convert it to a Roth IRA. All the money in the TSP is pre-tax salary so there'd be some minor taxes-- and then we'd be paying higher expense ratios in whatever else we invested in. Although it would avoid RMDs and further taxes, this is an option that might not be worth the effort. Probable skip.

Any options or issues that I've missed?
Curious what option you took on your wife's TSP. I'm considering incrementally converting my balance (approx $95k) to a Roth and paying taxes on the conversion (over several years). With the current gov't stimulus spending, you've got to figure our federal income taxes will significantly increase over the next decade and beyond.
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Old 12-09-2009, 05:44 AM   #6
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Even Ed Slott is wrong about Roth IRA conversions - The Wealth Preservation Institute - on ProducersWEB.com

Interesting article against conversion.

I've recently listened to Ed Slott, IRA guru, on PBS who recommends conversion to pay taxes now, rather than later when taxes will likely increase for the avg taxpayer.

Bottom line: "Let me make the general statement that, if your clients are in the same or lower tax bracket when in retirement, converting to a Roth IRA is not going to make economic sense for most of them."
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Old 12-09-2009, 08:58 AM   #7
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Wow, I didn't know that I could roll over a Traditional IRA into the TSP! I'll have to factor that into my IRA planning. Though right now I'm doing Roth conversions as long as I can stay in the 15% tax bracket. What also complicates things is that I have a basis in my Traditional IRA that I can't eliminate until the last penny is withdrawn from the T-IRA. Just downloaded my free copy of TurboTax (thanks TRowe Price) and will start the end of year conversion planning today.

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Old 12-09-2009, 11:50 AM   #8
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When I retired from the National Guard I rolled my TSP into my federal job TSP. Now I only have one account, instead of one for uniformed and 1 for civil service.

I also rolled all my misc 401Ks, IRAs, etc, into the TSP.
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Old 12-11-2009, 05:19 AM   #9
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I haven't consolidated my accounts into the TSP and, since most people here are far more savvy in investing than I am, maybe it is a mistake. I started to do this a few years back and changed my mind. But here was my thinking:

First, I am nearing retirement and do not like the not-so-versatile rules on withdrawal.

Second, (and this one seems to have failed me), at the time the TIAA was returning more than the G fund. I was invested about 35% TIAA, 30% Cref Stock and the rest low-risk bond. It was a small part of my investments and making more money than the index TSP funds (still true except TIAA rates are dropping fast). I planned to delay SS and use the 10-year payout annuity to replace it since it would have taken 10 years minimum to transfer the TIAA portion to TSP anyway.

Third, when I left MSF for someone else, I just transferred my husbands and my old small IRAs to Vanguard. At the time I wanted access to Wellington and TIPS with more money than we were allowed to put in our Roths at Vanguard.

And finally, at the time my husband was not donating enough to his defined compensation plan at Fidelity. After discovering this, I started dumping as much as was allowed into it. If this account had had more savings, I would have done the consolidation of my accounts to TSP since the Fidelity account has many options to entertain me. (Despite low rates, I still don't like having only one international fund in the TSP.)

If I could change anything about the TSP I would allow people to RMD into the new Roth option and I would allow pre-RMD people to withdraw by their own plan based on their own needs. The taxes get paid so what would be the problem?
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Old 12-11-2009, 09:58 AM   #10
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I haven't consolidated my accounts into the TSP and, since most people here are far more savvy in investing than I am, maybe it is a mistake. I started to do this a few years back and changed my mind. But here was my thinking:

First, I am nearing retirement and do not like the not-so-versatile rules on withdrawal.
The big withdrawal benefit with TSP is that you if you retire at 55 you can start taking penalty free withdrawals right away, with an IRA you will have to wait until 59.5.
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Old 12-11-2009, 11:01 PM   #11
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I rolled a couple IRAs into the TSP several years back. When I retired I did a onetime roll over of about 1/3 of my TSP into a Wells Fargo IRA. I did this to capture some asset classes the TSP is missing (REITs, foreign bonds and other ETFs/stocks that interested me) and to be in a position to turn some of it into a Roth if that looks like a good idea. Nice thing about keeping some $$ in the TSP is you have good, cheap index funds, good target retirement type funds and the G fund, which may be the only bond fund you need to hold.
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