I am a Federal employee who will be retiring in January 2010 under the Civil Service Retirement System(CSRS). Under that system, employees are allowed to put after-tax money into a program called “voluntary contributions (VC)” to either purchase additional annuity upon retirement or roll the money over to an IRA at retirement. The interest earned in the account can be rolled directly to a Federal Thrift Savings Plan account which can contain only pretax money and the contributions (after-tax) can be rolled to an IRA, which is what I intend to do. The IRS says that the VC program is a QRP.

The question I have is whether the after-tax contributions can be rolled directly to a Roth IRA without paying taxes on the rollover, as seems to be indicated in a January 2009 article in Kiplinger magazine which quotes Ed Slott.

The Office of Personnel Management, which administers the progam, says in their Form RI 37-22 (July 2002) that the aftertax funds must be rolled into a traditional IRA, and can’t be rolled to a Roth IRA, but I wonder if the new tax laws have superceded that document. If not, would I have to roll the aftertax funds to a traditional IRA before converting them to a Roth IRA?

Another opinion I have read from a financial planner who specializes in Federal employee retirement matters indicates that if you have other funds in a pretax plan, such as my Thrift Savings Account, that only a portion of the aftertax voluntary contributions would escape taxes (on a proportionate basis to the total dollars in both retirement savings programs) upon rollover of the VC to a Roth.