Q. I am thinking about starting to put my TSP contributions into the new Roth TSP. I already have an adequate amount in the regular TSP, and I am thinking the amount going into the Roth will go to my kids after my wife and I are gone. I understand the inherited Roth TSP will be tax-free to them — is that right?
I am disappointed I cannot transfer my Roth IRAs into the new Roth TSP — why is that?
A. This is basically correct, if you’re talking about federal income tax. There are rules that must be obeyed, however, and circumstances under which taxes may have to be paid on earnings, anyway. All in all, I don’t find this a compelling reason to forgo the tax savings now so that it will be avoided later, unless you know that the tax rate on the other end will be significantly higher than it is today. There is no inherent advantage to paying taxes now so they won’t have to be paid later. It all depends upon the tax rates.
I agree that it would be nice to be able to move an existing Roth IRA balance into the TSP, and I can’t tell you why they imposed that restriction.
2 Comments
I was thinking about doing the same thing, but found out two things: (1) Required Minimum Distributions (RMDs) are manditory after age 70 and 1/2 for the Roth TSP (not Roth IRAs), and (2) I have to pay state income tax on Roth contributions before I retire, but not on distributions from my regular TSP after I retire (since my state doesn’t tax pensions – yet anyway!). These two factors considerably reduced my enthusiasm for the Roth TSP. Distributions from Roth IRAs and the Roth TSP are still subject to state and federal estate taxes (if you are rich enough), but not income taxes.
You can already designate your kids as beneficiary to your Roth IRA and it will be tax free to them. So there is no need to move even if you could have.
IRS Pub 590 > Roth IRAs > Rollover From a Roth IRA: “A rollover from a Roth IRA to an employer retirement plan is not allowed.”
IRS does not permit a Roth IRA to Roth TSP rollover.