Browsing: IRA conversion

Q. I’m a CSRS employee nearing retirement. I have read numerous articles touting the advantages of opening a Voluntary Contributions Program account with up to 10 percent of your lifetime civil service earnings and then converting it to a Roth IRA at retirement. In your professional experience, would you recommend qualified individuals follow this approach? Are there potential pitfalls I’m unaware of? A. I certainly recommend that you consider it. I don’t know of any pitfalls other than botching up the transactions and violating some rule. I suggest that you pursue it with the help of a qualified tax adviser…

Q. If, during the course of my federal career, my income (filed either individually or jointly with my spouse) exceeds the maximum allowed under the Roth IRA rules, do I have to convert my Roth to a traditional IRA? Can you maintain an existing Roth regardless of your income? A. This limit only applies to new money contributions. It does not affect your ability to maintain an existing account.

Q. What are the negatives and positives as far as changing a Thrift Savings Plan account to a Roth IRA? A. The negatives are that you have to pay taxes now and that you’ll likely incur higher investment costs, greater investment risk, or both in a Roth IRA. The positives might include an advantage if your tax rate rises sufficiently between the time you convert and the time you ultimately withdraw your money from the Roth IRA.

Q. I am a federal employee contributing to the Thrift Savings Plan. I have a traditional IRA, with a large brokerage firm, which I no longer contribute to. Would it make sense to transfer the IRA to TSP and possibly a Roth? A. The TSP is the best investment environment you’ll find, so you should maximize its use.

Q. I am a retired government worker who has contributed the maximum amount to the Thrift Savings Plan. After being retired for several years, I transferred the TSP to a traditional IRA. If I convert the traditional IRA to a Roth IRA, how do I figure my “basis” in the IRA to determine the amount that is taxable? A. If the only thing you ever put into the IRA was your traditional TSP assets, then the account has no tax basis and is all taxable upon distribution (or conversion). If you have contributed nondeductible or other after-tax money to the…

Q. I will be retiring June 30. I contributed $100,000 to my Voluntary Contribution Plan account between September 2010 and the present. I plan to roll over the $100,000 to my Roth IRA upon retirement; have the Office of Personnel Management withhold 20 percent for tax on the interest that it earned; then roll over the remainder to the Roth IRA also. Is that doable? A. The accrued interest will be considered a conversion. I believe that is doable, but you should check with your tax preparer to be sure.