Uncle wants to convert $700K in TPS to ROTH – Advice please?
Hello,
My uncle (age 63) has expressed an interest in converting $700K of TPS funds to his Roth IRA. He already has $300K in a ROTH. He does not need the funds for living expenses, as his pension and social security cover those. I thought he would likely face significant taxes if he converts all of it at once, and advised converting a smaller amount each year. Is there a better option?
What do you advise?
Thank you.
Permalink Submitted by Alan - IRA critic on Sun, 2025-02-23 13:48
Are you referring to the TSP? In any event very large Roth rollovers will increase the tax rate for the rollover year, so if funds are to be moved into Roth IRAs, there should be a plan to do it gradually over time. There are at least 11 years left before RMDs, but better to convert more before SS is claimed, and more in lower income years than higher.
Therefore, this should be carefully planned based on his entire tax situation, so that the higher brackets do not apply to the extent possible.
Permalink Submitted by Mary Price on Sun, 2025-02-23 14:46
Yes, TSP, sorry for the typo. He’s already claimed early Social Security and between that and his pension he doesn’t need the funds. However, he would like to avoid RMDs down the road. Thank your for your advice, I’ll send it along to him.
Permalink Submitted by Alan - IRA critic on Sun, 2025-02-23 15:43
If he plans to make future charitable donations, he should maintain a sufficient balance in his IRA (perhaps after a rollover from the TSP), as he would still be able to do QCDs, which cannot be done from the TSP.