New Federal Retiree TSP Roth Conversion?

[jgman]

Getting ready to retire from federal government service next month at age 56. Anyone have advice on whether to begin converting my taxable TSP to a Roth (how much and when). I will be in the 24 percent tax bracket.

 

[RE2Boys]

https://www.myfederalretirement.com/tsp-to-ira/ provides some good guidelines. Note that the age for RMDs is now 72. Essentially, it comes down to what tax brackets you estimate you will be in when you are in when you anticipate taking withdrawals

 

[teej1985]

If you are going to be in the 24% bracket, why are you considering this? That's choosing to pre-pay a fair amount of tax.

 

[jgman]

Thanks this is good info! Sounds like it makes sense to do ASAP to the top of my marginal tax bracket so the money has more time to grow tax-free.

 

[pb4uski]

What tax bracket do you expect to be in once your pension, SS (if applicable) and RMDs are going if you don't do any conversions?

If the answer is 24% or less then conversions at 24% don't make sense. If the answer is more that 24% then yes.

 

[jgman]

What tax bracket do you expect to be in once your pension, SS (if applicable) and RMDs are going if you don't do any conversions?

If the answer is 24% or less then conversions at 24% don't make sense. If the answer is more that 24% then yes.

probably the same bracket so therefore no reason to convert

 

[jgman]

If you are going to be in the 24% bracket, why are you considering this? That's choosing to pre-pay a fair amount of tax.

Got it thanks. Ill keep it in a traditional IRA

 

[TheWizard]

What tax bracket do you expect to be in once your pension, SS (if applicable) and RMDs are going if you don't do any conversions?

If the answer is 24% or less then conversions at 24% don't make sense. If the answer is more that 24% then yes.

I don't agree. I've been in the 24% federal bracket the last few years and have been doing modest Roth conversions up to just under the next IRMAA tier.
This is part of my AGI leveling strategy.

I start RMDs in January, so this is my last year of doing significant Roth conversions...

 

[jgman]

Im 56 so trying to figure out what my tax bracket will be when I'm 72 is difficult. May be a good idea to convert some now

 

[Amethyst]

We don't know what will happen to tax brackets themselves, but with all the new government debt, having brackets go down seems unlikely.

Also, for those who file MFJ, there's the possibility of widowhood and Single filing (much higher bracket) to ponder.

 

[jgman]

Also, if I rollover my TSP into a Fidelity traditional IRA can I access that money now penalty-free since im only 56?

 

[jazz4cash]

Also, if I rollover my TSP into a Fidelity traditional IRA can I access that money now penalty-free since im only 56?

No, but if you leave it in the TSP you can take penalty free withdrawals if you separate employment at 55 or more.

https://www.fedsmith.com/2021/05/13/early-tsp-withdrawals-without-penalty/

I wouldn’t be in a hurry to take funds out of TSP. It’s as good as it gets wrt employer sponsored deferred savings plans. Only if you are compelled to buy individual stocks or do some exotic trading should you leave TSP

 

[pb4uski]

I don't agree. I've been in the 24% federal bracket the last few years and have been doing modest Roth conversions up to just under the next IRMAA tier.

This is part of my AGI leveling strategy.



I start RMDs in January, so this is my last year of doing significant Roth conversions...

Just because you did it doesn't mean that it has been beneficial. If you pay 24% now or 24% later, where is the benefit?

 

[jgman]

No, but if you leave it in the TSP you can take penalty free withdrawals if you separate employment at 55 or more.

https://www.fedsmith.com/2021/05/13/early-tsp-withdrawals-without-penalty/

I wouldn’t be in a hurry to take funds out of TSP. It’s as good as it gets wrt employer sponsored deferred savings plans. Only if you are compelled to buy individual stocks or do some exotic trading should you leave TSP

Got it. Upon doing further research it sounds like it makes good sense to stay in the TSP at least for the G fund

 

[old medic]

We don't know what will happen to tax brackets themselves, but with all the new government debt, having brackets go down seems unlikely.
Also, for those who file MFJ, there's the possibility of widowhood and Single filing (much higher bracket) to ponder.

The other benefits to a Roth... No RMDs, and your Heirs get up to 10 years of tax free money over a one time chuck that THEY owe tax on.

 

[jazz4cash]

Got it. Upon doing further research it sounds like it makes good sense to stay in the TSP at least for the G fund

Yes G Fund is a unique option within TSP but checkout the L Income fund too. It is the most conservative L fund. The L (Lifecycle) funds are TSP’s target date strategy funds. L Income is ~70% G Fund plus some equity (23%) and the rest is F Fund. Very solid conservative balanced allocation.

 

[sengsational]

I've been following this financial planner for years. Actually met the main guy's dad on a cruise (doing a financial lecture series). Anyway, there's a recent blog post that I thought might be of interest to those who are researching Roth conversions: https://www.marottaonmoney.com/four-simple-but-effective-conversion-target-calculations/ I figured I'd just post it on what I think might be a recent Roth conversion thread.

The article talks about a detailed analysis for the firm's paid clients, but offers some pretty good advice, I think, about how to go about thinking through your own, independent, Roth conversion strategy. It seems that most of the scenarios they talk about, doing at least some conversions are worthwhile. They've got a linked blog post where they name some strategies. Most of us that swim in the conversion pond will recognize these forces:

• Top of Your Future Bracket
• Rip the Band-aid
• Wait for It
• Feed Yourself First
• Make Room for Gains
• Seize the Day
• Let It Slide
• 10% is More Savings Than 3% Costs

 

[deserat]

We don't know what will happen to tax brackets themselves, but with all the new government debt, having brackets go down seems unlikely.

Also, for those who file MFJ, there's the possibility of widowhood and Single filing (much higher bracket) to ponder.

^^^^+1000

I think the only time we saw tax brackets go down was under the last administration. And, if one is single, 24% bracket is not a super high level of income as compared to MFJ (the top of the brackets are double). To the top of 22% would be a no brainer for a lot of singletons who were professionals, with 24% being palpable especially if you have some pension as well as SS streams of income in the mix of your income projections. Even small conversion amounts over time can make a difference.

Now, if they change the rules on the Roth, well, that would be another bucket of worms.....

 

[deserat]

I've been following this financial planner for years. Actually met the main guy's dad on a cruise (doing a financial lecture series). Anyway, there's a recent blog post that I thought might be of interest to those who are researching Roth conversions: https://www.marottaonmoney.com/four-simple-but-effective-conversion-target-calculations/ I figured I'd just post it on what I think might be a recent Roth conversion thread.

The article talks about a detailed analysis for the firm's paid clients, but offers some pretty good advice, I think, about how to go about thinking through your own, independent, Roth conversion strategy. It seems that most of the scenarios they talk about, doing at least some conversions are worthwhile. They've got a linked blog post where they name some strategies. Most of us that swim in the conversion pond will recognize these forces:

• Top of Your Future Bracket
• Rip the Band-aid
• Wait for It
• Feed Yourself First
• Make Room for Gains
• Seize the Day
• Let It Slide
• 10% is More Savings Than 3% Costs

Thank you for this link - very informative and her rules of thumb are good ones for those who are spreadsheet junkies....