Q. In your response to a question titled “Converting Traditional IRA to TSP and Roth” which was submitted on March 10, 2010, you pointed-out that any distributions from a traditional IRA in which there is a basis, would ordinarily be considered by IRS to consist of taxable (earnings) and nontaxable (basis) amounts; therefore, making tax-free distributions of the earnings in a traditional IRA to the TSP and converting the remaining basis to a Roth IRA would not be possible. However, in IRS publication 590, page 23, paragraphs titled: “Kinds of rollovers from a traditional IRA and Tax treatment of a rollover from a traditional IRA to an eligible retirement plan other than an IRA,” it seems IRS is stating that the part of a traditional IRA distribution you can roll over to the TSP (“tax-free”—really just tax deferred) is the part that would “otherwise be taxable”, i.e., earnings only. The IRS goes on to explain this “special rule” for IRA distributions to qualified plans (e.g., TSP) as including only taxable amounts if the amount you leave in your IRA or do not otherwise roll over is at least equal to your basis. It seems one could then convert the remaining basis in your traditional IRA to a Roth IRA. My head begins to spin when I read IRS publications, so am I missing your point and misinterpreting the IRS? If so, could you provide a little clarification?
A. You are correct. I forgot about this exception when I wrote my answer. I’ve revised my answer to the previous question. Thanks for the help. You’ve earned the “expert” designation on this one!