Transfer to TSP from Traditional IRA

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Q. I am a federal employee contributing the maximum to TSP (Traditional). I currently own a Traditional IRA and a Roth IRA, and my wife owns a Roth IRA. As our combined income will soon exceed the threshold for the standard approach to contribute to our Roths, I am investigating strategies to utilize the back door approach to making Roth contributions. The fact I still have a traditional IRA is the issue — it is comprised of $12,000 of after-tax contributions, and $48,000 of pretax earning thus far. If I use the back door approach, I would have a large tax bill when converting between Traditional and Roth IRAs. So my goal is to eliminate the Traditional IRA most efficiently so I can eventually execute the back door approach with no tax bill.

After doing some research, it looks like I am allowed to transfer the pretax earnings in my Traditional IRA ($48,000) to my TSP (Traditional), and then I could transfer the remaining after-tax contributions to my Roth IRA. I think I am only at one transfer per year, thus I suppose this would have to occur simultaneously as a single transaction with a split distribution. What are your thoughts on the matter?


A. You may split the money in your Traditional IRA, but not in a single transaction. You must first transfer the pretax money from the IRA to your TSP account. You are permitted to deem this money to have come from the pretax contents of your IRA. Once that has been accomplished, you may then covert the remainder to a Roth IRA. There is no limit, that I am aware of, on the number of direct transfers you may complete in a given year. You should do these things with the help of a CPA who will handle your tax returns for the effected year or years. In fact, in my opinion, everyone who can afford one should have a CPA prepare their tax returns every year.

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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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