RMD and Roth IRA and taxes


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contributions must be made with after-tax money, so you can’t defer taxes on Roth IRA contributions until the money is withdrawn.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.





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Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to fedexperts@federaltimes.com and view his blog at money.federaltimes.com.

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