Q. I understand that you can transfer funds into and out of your Thrift Savings Plan from either eligible pretax plans and/or after-tax plans. However, withdrawals (loans, withdrawals and interfund transfers) are made proportionately from both the traditional and Roth. Thus, you cannot specify withdrawals from only the traditional or the Roth. This is seen as a major drawback for some who would like to participate in the Roth option only or make withdrawals from only the traditional or the Roth option.
Would it be possible, at or near retirement, to transfer a major amount of your TSP balance — for example, 90 percent of your TSP (which would take 90 percent of both the Roth and traditional balances on the day of the transfer — leaving 10 percent in each) to a traditional IRA and Roth IRA outside of the TSP, then later transfer from the traditional IRA back into the traditional TSP? This would result in a small Roth TSP balance and restore the traditional TSP balance.
Doing that would provide greater flexibility for accessing the tax-free funds in the Roth (with the possibility of leaving those tax-free funds to your heirs) and still taking advantage of the lower management costs associated with the TSP for the traditional balance.
A. It seems to me that this will work as long as the traditional IRA does not contain any after-tax money when it’s time to move it back into the TSP.