Federal TSP Transfer to Inherited Roth IRA

Submitted by Gary Snider on Fri, 2013-02-15 11:47

My sister died in 2011. I was the beneficiary of her Thrift Saving Plan (TSP) Account, and requested that the money be transferred to an Inherited Roth IRA. (I had to write in “Roth” since their form didn’t specify type of Inherited IRA.) They did the transfer to the Inherited Roth IRA in 2012. Two weeks ago I received a 1099-R from them where they showed the distribution code as 4G, but showed the taxable amount as zero. This implies that they think they transferred the money into a Traditional Inherited IRA.

I called their 800 number and requested a corrected 1099-R, and was told this was how they do things. I don’t think the person really understood the issue, and there seems to be no way to get a referral to someone more knowledgable. In reviewing documents on the TSP website I can’t find any acknowledgment of transfers to inherited Roths for non-spousal beneficiaries (although Publication TSP-536 discusses such transfers for spouse beneficiaries).

The tax info for non-spouse beneficiaries in contained in TSP-583. Unfortunately, although this publication was updated in May 2012 it doesn’t include any explicit discussion of transferring non-spouse inherited money to a Roth Inherited IRA. Their discussion on transferring to inherited IRAs implicitly refers to Traditional IRAs due to what they are saying about taxes.

Can someone point me to documentation regarding the obligation of the Federal Government TSP specifically to transfer non-spouse beneficiary money to Inherited Roth Accounts, and how the 1099-R should be filled out (I think the only change required is in box 2a to show all the money as taxable, with the distribution code still as 4G). Or better yet an actual name and telephone number of someone at the Federal TSP who is knowledgable about this issue.



Submitted by Alan - IRA critic on Fri, 2013-02-15 19:07

  • First, you should know that I am the same person who responded to your post in another forum. While the TSP is treated as a qualified trust under Sec 401a and has adopted most optional portability allowed under the tax code, and since WRERA made transfers to inherited IRAs mandatory in 2010, I did not even consider the possibility that the TSP would stop there and not offer a non spouse beneficiary a transfer to an inherited Roth IRA. Am not in position to debate the legality of this transfer, but now your two options are to try to get the TSP to make a choice of reversing this transfer and re doing it to an inherited TIRA or revising the 1099R to include the Box 2a taxable amount. If you don’t want to deal with them anymore, you could enter the 2a taxable amount in your tax program and pay the taxes. The Roth custodian should issue a matching 5498 for the rollover contribution. What you need to avoid is taking money out of the inherited IRA (either type) because you cannot roll it over and the IRS is very unlikely to provide an exception.
  • I have never dealt with the TSP, so cannot provide you with a resource there, but if you want to get them to make a decision, you need to get to their tax unit or other senior resource. They made an error by ignoring your request for a Roth transfer and not contacting you before acting if they would not offer a Roth transfer. What you do should be based on the amount of time and effort vrs the amount of the distribution and how badly you want the inherited Roth. This is a very odd sequence of events, and there is no simple template to follow to resolve it, unless by chance the TSP has run into this a few times before. Having just read a few of their forms, they do things very differently than private sector plans with respect to non spouse beneficiaries and their forms make no effort to high light the differences, such as a non spouse beneficiary not being considered a beneficiary participant.

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