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TSP Roth Conversion Update

Posted By Dennis Damp On In BENEFITS / INSURANCE,ESTATE PLANNING,FINANCE / TIP,RETIREMENT CONCERNS | Comments Disabled
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I discussed the advantages and limitations of TSP ROTH conversions [2] in my last column. THRIFT Plan participants are currently prohibited from converting their traditional TSP accounts to a ROTH. Changes may be on the way that will allow you to convert part of your TSP to a ROTH.

The President approved the American Taxpayer Relief Act of 2012, on January 2, 2013. This law allows the TSP and other qualified plans to give participants the option to convert their traditional account balances to a Roth balance.  The amount converted would be taxable to the participant. The Thrift Board is currently waiting for tax reporting guidance from the IRS and they will be studying the actions required to offer a conversion option.  After their review they will make a decision on whether to proceed.

Many readers have expressed interest in converting some of their TSP to a ROTH and currently only new contributions from plan participants can be invested in a ROTH. However, there are currently several options [3] to transfer funds from your account, if eligible, that could be used to fund a private sector ROTH. Federal employees that are age 59 ½ can make a onetime lump sum in-service withdrawal from their TSP account while they are still actively employed in Federal civilian service or the uniformed services. There are two types of in-service withdrawals: financial hardship withdrawals and age-based withdrawals [4]. Retirees can take a onetime lump sum withdrawal [5] or transfer the entire account to fund a ROTH if desired.

Hopefully the TSP will afford us the opportunity to convert at least a portion of our current TSP account to a ROTH in the near future.  For more information on investing for retirement use our comprehensive Financial Planning Guide [6].

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The information provided may not cover all aspect of unique or special circumstances, federal regulations, and financial information is subject to change. To ensure the accuracy of this information, contact your benefits coordinator and ask them to review your official personnel file and circumstances concerning this issue. Retirees can contact the OPM retirement center. Our article is not intended nor should it be considered investment advice. Our articles and replies are time sensitive. Over time, various dynamic economic factors relied upon as a basis for this article may change.

 

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