Q. I will be retiring in 2012 and must also take a required minimum distribution from my TSP in 2012. I would like to do a partial withdrawal in the amount of the RMD prior to the date I retire, to be followed by monthly payments upon retirement. My question is whether I can rollover the RMD into a Roth IRA, so that I would be paying income tax on the Roth IRA withdrawals as the withdrawals are being done, rather than on the entire amount of the RMD.
If I read the TSP material correctly, it appears that this can’t be done, and that the partial withdrawal of the RMD amount from TSP has to be done in a separate step, with taxes withheld, prior to my setting up the Roth IRA and my transferring the RMD (minus the taxes withheld) into the Roth. If this is what I have to do, is there any limitation upon the amount of the Roth IRA?
A. This is really a question for a CPA, but I’ll take a stab at it. First, your age-based, in-service withdrawal will be subject to mandatory 20 percent withholding. Second, all Roth IRA contributions must be made with after-tax money, so you can’t defer taxes on Roth IRA contributions until the money is withdrawn. Third, I’m not sure that you’ll be allowed to consider an amount converted to a Roth IRA as your RMD for the year – in fact, I doubt it. In short, I don’t think that what you’re planning will work, but you should consult a CPA to be sure.
