Roth conversion


Q. I am a federal employee with a law enforcement (Department of Justice/Bureau of Prisons) retirement. I am planning to retire at age 51 with 23 years in my current agency, and six years and 11 months military time that has been paid back. This, along with 175 hours of sick leave, should give me a 30+ year LEO retirement.

I have been told that if I wait until age 55, I can withdraw my entire Thrift Savings Plan balance during that year and do so without a penalty (before 59½ years of age) as long as I pay the 20 percent federal tax on the money as I take it out and do it during the year I am age 55.

Is this true, and is there a way to convert my pension as well as my TSP balance to a Roth IRA?

I would much rather pay the taxes now (2016) and have tax-free retirement money in the bank.

A. What you heard is not true. You will have penalty-free access to your TSP balance for the rest of your life if you retire during or after the calendar year in which you reach age 55. There is no requirement — and probably no advantage — to withdrawing your entire account balance during that year to avoid the early withdrawal penalty. If you leave federal service earlier, you’ll be subject to the early withdrawal penalty until you reach age 59½.

There are ways to avoid the penalty before then, like using the money to buy a life annuity, or the more popular series of “Substantially Equal Periodic Payments” available under IRS code section 72(t).

You may not convert your annuity to a Roth IRA, but part of your income from the annuity will be exempt from tax since it is considered return of principal. Converting your TSP assets to Roth assets is possible, but I’m not sure why you’d rather pay taxes now than later. If you’re assuming that there is some inherent economic advantage to doing so, there’s not.


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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 and view his blog at

1 Comment

  1. We may prefer paying tax now, rather than later, if we think our government will in the future raise the tax rate to deal with the various deficit problems, and in view of our current low tax rate historically. So Roth accts are more valuable in that light, according to the tax advisor, Ed Slott. Comments?

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