Q. I will have 40 years with the IRS in 2012 and plan to retire either this year or in 2013. I have been contributing to both the TSP and the Voluntary Contributions Program. I plan to leave the TSP contributions to the G Fund alone and just let it grow. The VCP is another matter. I have a Roth IRA with Vanguard and would like to transfer all of the VCP to the Vanguard Roth IRA.I know I am required to pay tax on the interest the VCP has earned in the year received. The question is how do I do this transfer? There seems to be a lot of information about the TSP, but I am finding it difficult to find information about the VCP.
A. You can convert the post-tax money in your VC account to a Roth and have the earnings rolled over to your TSP account. Use form RI 38-124 to request a split distribution and follow the advice of your tax adviser for converting the contributions to a Roth IRA.
VCP Transfer to Roth IRA
I did this in 2010, and while the result was OK, getting there was not easy. Two complicating factors:
1. The actual rollover on the government side can take some time. I was not retiring in 2010, but OPM staff seemed to assume I was, which complicated matters.
2. I use Turbotax to file my taxes. TT had some issues with how I would pay my taxes. I wanted to pay the entire tax on the roll-over in the 2010 tax year- but TT would not allow that- it just assumed that I wanted to take advantage, in 2010, of the option to pay that tax over 2 years, and made me do so. Had I not, I would have had to do my entire tax return over. As a result I will be paying the 2nd half of the tax resulting from the roll-over in the 2011 tax year- a “benefit” I did not want!
I understand that the Roth cannot be a pre-existing Roth and you must open a NEW Roth IRA account to transer your VCP too.
Yes, Conversion of a VC to a ROTH requires a lot of thought and paperwork. The problem is that moving it to a “Roth” is viewed as a taxable event if you have other existing IRAs.
The amount taxed depends on the value of all your IRAs which can get get rather complicated to compute.