Q. I am CSRS and will be retiring next year. I will be making a contribution (after-tax) to the Voluntary Contributions Program before retiring. I have an existing Roth IRA (after-tax), reflecting contributions I have made over the years. I do not have a traditional IRA (pretax). I do, however, have money in the Thrift Savings Plan (pretax). I plan on converting the VCP contributions (after-tax) to my Roth IRA (after-tax) at retirement. Any interest earned (pretax) in the VCP will be transferred to the TSP at retirement.
After doing some research on this and reading IRS Pub 590, it seems to me that I will be able to do this transfer with no tax liability. Am I correct on this? Does the fact that I have a TSP account have any impact on whether any portion of the transfer is taxable? With regard to a taxable event, it seems the primary consideration is whether the transfer is made to a traditional IRA (not a Roth IRA) containing a mix of both deductible and nondeductible amounts.
A. Generally, a direct rollover from a Voluntary Contributions Program account to the TSP is not a taxable event. A conversion of assets from a Voluntary Contributions Program account to a Roth IRA is only taxable in the current year to the extent that the money has not already been taxed. Your planned transactions should be possible without triggering any current tax, but you should check with your tax preparer to be sure. If they can’t, or won’t give you advice, find another tax preparer.