Roth TSP to a Roth IRA
I have a client that has been contributing money to his Roth TSP account. He plans to retire at age 56. He was told that he would have to wait until age 59 1/2 to access his Roth funds tax free and avoid the 10% penalty. However, I understand that you can pull contributions from your Roth IRA at any age, you just can’t touch the growth until age 59 1/2 or 5 years (whichever is longer). My question is, could he rollover his Roth TSP dollars to a Roth IRA at age 56 and access the contributions portion without the 10% penalty? Or, would he have to wait until age 59 1/2 regardless?
Permalink Submitted by Alan - IRA critic on Thu, 2016-04-28 18:46
This is not just about the penalty, but ordinary taxes as well. If he took a distribution from the Roth 401k, there would be some earnings included based on pro rating earnings with contributions, so some portion of the distribution would be subject to both tax and penalty. However, if he instead rolled the Roth 401k to a Roth IRA, they he could take out the amount that he contributed to the Roth 401k first before any earnings were distributed. Chances are good that his contributions are much greater than his earnings, so he could distribute from the Roth IRA a fairly large portion without tax or penalty.