Q: My husband and I want to convert all or a portion of our traditional individual retirement accounts into Roth IRAs in 2010. Our contributions have been nondeductible, and our IRA accounts are about double the investments we have made (value versus basis). So, we will be paying tax on the earnings. Then I thought about our Thrift Savings Plans. Are these considered IRAs for the purposes of this conversion opportunity? I read that the IRS will consider all IRAs; you can’t pick and choose among or within our IRAs regarding the conversion, but I certainly would not want to…
Browsing: Roth IRA
Q: Since I’m not allowed to deposit my lump-sum annual leave check into my Thrift Savings Plan account, where’s the next best place to put it? Will this amount be considered part of my 2010 income regardless? A: Generally, I prefer the following order for retirement savings deposits: TSP, deductable individual retirement account, Roth IRA, taxable brokerage account. Your income will be taxable in the year in which you constructively receive it.
Q: I am a federal employee with $60,000 in my nondeductible individual retirement account. I plan to convert it to a Roth IRA this year. I also have $120,000 in my traditional IRA which I do not plan to convert to Roth this year. To avoid the Roth conversion aggregation rule, my plan is to roll the $120,000 into my Thrift Savings Plan account before converting my nondeductible account to a Roth IRA. This way, the $120,000 will not be subject to the Roth conversion aggregation rule this year. Is this a valid way to avoid the rule? A: I…
Q: I understand that the IRS will allow TSP funds to roll over into a Roth IRA. However, that does not mean that the company that runs the TSP will allow it. I’m 46 years old and in federal service with the Federal Employees Retirement System. How can I move my TSP funds into a Roth IRA? A: You can’t.
Q: I retired from the U.S. Postal Service on Oct. 31 and received a $10,000 incentive payment in December that was counted as part of my 2009 earned income. As part of the incentive package, I will receive another $5,000 this October. This has nothing to do with my retirement annuity, so will it again be counted as earned income for 2010? If so, I will be able to contribute it to my Roth IRA, correct? A: This is really a question for your tax preparer, but I expect that income to be reported for tax year 2010.
Q: I have accumulated nontaxable (according to the Office of Personnel Management) retirement deductions that will be refunded to me shortly. I would like to roll this entire refund into a Roth Individual Retirement Account, but the “rollover information” letter they sent me is unclear. It states that I am permitted to roll over certain benefits into an IRA, but there is no mention of a Roth IRA. It also says that I can roll over the nontaxable amount into an IRA, but that I need to track the taxable and nontaxable ammounts. Because the entire amount is nontaxable, can…
Q: I am a 44-year-old Federal Employees Retirement System employee. I have a financial planner who wants to explore withdrawing part of my Thrift Savings Plan and rolling it into a Roth individual retirement account to take advantage of the two-year payout of taxes. I told the financial planner we only have two options for TSP withdrawals: One is for hardship, and the other applies if you are more than 59 1/2 years old. Because I do not meet either requirement, it appears to me that I cannot make an in-service withdrawal. Are there other options for in-service withdrawals? The…
Q. In your response to a question titled “Converting Traditional IRA to TSP and Roth” which was submitted on March 10, 2010, you pointed-out that any distributions from a traditional IRA in which there is a basis, would ordinarily be considered by IRS to consist of taxable (earnings) and nontaxable (basis) amounts; therefore, making tax-free distributions of the earnings in a traditional IRA to the TSP and converting the remaining basis to a Roth IRA would not be possible. However, in IRS publication 590, page 23, paragraphs titled: “Kinds of rollovers from a traditional IRA and Tax treatment of a…
Q. If I have a traditional IRA worth $100,000 with a basis (post-tax contributions) of $20,00, can I roll over $80,000 to TSP and the other $20,000 convert to a Roth? Would these two actions result in a tax-free transaction? A. Yes, a special rule allows for this to be done.
Q. Please advise … can I convert my existing TSP account to a Roth IRA? I would love to start a Roth but our family income is over the threshold. The rules for 2010 seem like a perfect opportunity to make it happen. I just don’t know if the TSP is one of the retirement accounts that can be converted. A. Yes, you may, but I’d advise against it in most cases. You should consider what must happen for the Roth IRA to overcome the burden of higher costs and/or risk, compared to the TSP.