Hi all. I have been searching thru the archives about information on the TSP to ROTH TSP conversion.
I haven't looked for it, but I wonder if such a thing even exists.
The reason I doubt its existence is because I read the blogs of about 75 personal-finance geeks who, if this idea was in effect, would be endlessly debating it.
I haven't seen any real clear thoughts or recommendations for those of us that are 6 to 12 months from active duty retirement (mandatory based on years of service). I will retire in July 2013 and have a bit less than 200K in the account while my wife has already retired and only about 30K in hers. Does it pass the common sense test to convert either or both of these to the ROTH TSP or leave the way it is?
As SamClem says, it's a question of "Pay taxes now or pay more taxes later." If both of you are receiving pensions then when you reach RMD age then you'll probably be in the 25% tax bracket, and it might make sense to start converting a little every year now from TSP--> tIRA--> Roth IRA to the top of the 15% tax bracket.
You could guess that future taxes are more likely to be higher than current taxes. But a couple of years ago if you'd asked me to predict interest rates then I would've assured you that they'd be higher today.
I think it makes sense to leave your funds in the TSP and pay only the 0.025% expense ratio. The downside is RMDs and higher taxes. But one of the ideas on my 10-page list of blog posts is an analysis of when (if ever) it makes sense to leave the TSP to roll over and convert to a Roth IRA in an asset with a higher expense ratio.
If your asset allocation includes bonds (which is not necessarily a good idea) then you could move all of your TSP assets into the "G" fund, freeing up your other accounts to hold other asset classes. I'm pretty sure the "G" fund will be a good fixed-income investment no matter where interest rates move.