Goverment Trift Savings Plan (TSP) roll Self Directed Roth
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If a 60 year old Government retiree chooses to convert his TSP account to a self directed Roth:
1. Is there a five-year requirement for the Roth account before funds can be withdrawn:
2. If the Roth is in effect at a bank but is not self-direct and then is moved to company that allows self direction does the five-year requirement effect the move to a self-directed Roth.
3. When cash in a TSP account is rolled over to a Roth IRA is the deposit of the after tax funds immediately available.
Permalink Submitted by Alan Spross on Tue, 2009-08-11 03:50
No, the 5 year holding period for Roth conversions ends at age 59.5. If this is the first Roth IRA, then there is a 5 year holding period for earnings to be tax free, but since earnings come out LAST, this rarely becomes an issue. The Roth would be almost all conversion amount dollars that can be distributed the very next day tax and penalty free.
The TSP may include after tax contributions, whether cash or not. When these are converted there is no tax due on them. So called self directed Roths (holding real estate or other alternative investments) are subject to the same tax rules as other Roth accounts.
SInce the TSP is likely to be considerable in size, care should be taken to avoid converting so much in a single year that the tax bracket is inflated. While a conversion in 2010 is split between 2011 and 2012 for tax purposes and this definitely helps, it could still be a large tax hit if the TSP is large. A direct Roth conversion can still be recharacterized if the tax hit is too much OR for this year if the employee is not under 100,000 MAGI, the recharacterization cannot go back to the TSP. It would have to be sent to a TIRA instead. Many alternative investments are not liquid, so I would be very careful doing a large direct conversion that ended up in illiquid investments that made recharacterization difficult.
Q2 – No
Q3 – Yes, all funds are immediately available unless the self directed investment itself is illiquid.
If the retiree wants to move the after tax amounts to a Roth and some or all the pre tax amounts to a TIRA, there are some unresolved regulations that the IRS has not yet clarified in doing that and avoiding the pro rate rules.