TSP Rollover Boundaries

Submitted by Patricia Chandler on Sun, 2018-11-04 21:37

In divorce settlement a portion of my ex-spouse’s husband’s federal TSP, is in the settlement. I am not a federal employee so I am not clear of the limitations that I have to roll it over. I would like to roll over to a self-directed ROTH account for real estate investing but an advisor is steering me to an annuity. I already have an annuity account. I don’t know if I have to roll over “in kind,” mimicking the TSP funds, convert to a ROTH or an annuity without disqualifying the funds.

What steps should I take not to disqualify the TSP rollover?



Submitted by Alan - IRA critic on Sun, 2018-11-04 22:04

  • Under ERISA, an alternate payee for a QDRO (you) can only be a spouse, former spouse, child, or dependent of the participant. As none of these, there would be no QDRO. A retirement plan (TSP) is not permitted or required to comply with any court order that is not a QDRO. Yet the TSP is honoring this request?  Can you clarify further?
  • Annuities have large commissions. You are absolutely correct to question the suitability of this suggestion. Since the DOL Fiduciary rule has collapsed, annuity salepersons have once again taken to unrestricted annuity sales for obvious reasons. 
  • Using an IRA for alternate investments, particularly real estate, is risky because of the risk for prohibited transactions. You would have to depend heavily on the assistance offered by the SD IRA custodian to avoid any of the many pitfalls.
  • Even if you had a bona fide QDRO, the TSP does not have to allow you a rollover. You may have to wait until the participant was eligible for a rollover. And if you were allowed a rollover, a direct rollover to a Roth IRA would be fully taxable except for the balance that is in a Roth TSP sub account.
  • If you were allowed a rollover, the transferred assets would be cash, not any of the TSP funds.

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