2010 Roth Conversion and Federal TSP
I am a federal employee not eligible to retire. I have a TSP account and also have deductible and non deductible IRA accounts. I’d like to take advantage of the 2010 traditional IRA conversion to a Roth.
Regarding the Pro rata rule, must I include the balance in my TSP(which I cannot roll over to a Roth until I am eligible to retire), along with the other traditional IRA balances when determining the percentage of the traditional IRA’s that would be taxed?
Additionally, to calculate the pro rata share, I add the present balances in all traditional IRA’s(which includes dividends, capital gains over the years as per my last statement) and divide this by the actual nondeductible contributions I made (not including the dividends, capital gains, etc.).
Finally, if I have a Roth IRA as well. Does this balance get included in the total(as a nondeductible IRA)?
Thank you
Joe
Permalink Submitted by Alan Spross on Wed, 2010-01-27 03:06
Joe,
Your TSP or Roth IRAs do NOT count in determining the pro rate factor for your IRA conversion or distributions. When converting a traditional IRA, the other account types that are included are limited to SEP and SIMPLE IRAs, and you do not have those. The account balance for your traditional IRAs that applies is the adjusted value at the end of the year you do the conversion, not the values on the actual day of your conversion.
After separation from service, you could also convert all or part of the TSP directly to a Roth IRA. SInce this amount would never become part of your traditional IRA balance, the non deductible amounts in your traditional IRA would not matter. If you had after tax contributions in your TSP, the pro rate factor that would apply to these direct conversions would be based on the portion of your after tax contributions in the TSP only vrs the total TSP value.
Permalink Submitted by Joseph Donnini on Wed, 2010-01-27 17:10
Alan:
Thank you very much for your explanation which is extremely helpful!
If I understand you correctly, I can do the conversion at any time during 2010, however, the 12/31/10 account balances in the deductible and non deductible accounts would be used to calculate the pro rata percentage of the non taxable amount. Am I correct in this regard?
Once again thank you for enlightening me!
Joe