SECURE ACT AND TSP ROLLOVER to 401k at 70.5

Submitted by Gerri Fehst on Sat, 2019-07-20 23:02

1) I am 70.5 as of Jan. 4, 2019. IF the Secure Act passes effective Dec. 31, 2019, will I be able to skip my first RMD if I delay taking it from my Federal Thrift Savings Plan (TSP, the Federal 401k plan) until April 1, 2020?
2) I have a part time job that offers a 401k option and the new manager of the account on October 1, 2019 will be Fidelity, not ADP, so annual expense fees are expectedto be low. If I do a direct transfer from my TSP to the workplace 401k under Fidelity before the end of 2019, will I be able to NOT take my RMD in 2019?
3) Will the Secure Act passage change that answer for #2?
4) Is there a requirement that I work 1,000 hours a year as a part time employee in order to qualify for the ability to postpone taking my RMD after 70.5 if I do a direct transfer my TSP to the new employer’s 401k plan?
5) If the answer to #4 is yes, what is the source of the 1,000 hour rule. Is it a law? A regulation? An IRS requirement?
Thanks for the help.



Submitted by Alan - IRA critic on Sun, 2019-07-21 00:22

  1. It is impossible to predict what version of these plans will pass, if indeed any of them pass. However, I doubt very much that the effective date would be retroactive due to the time needed for employer plans and IRA custodians to adjust to the dramatic changes. Accordingly, the earliest effective date is likely to be later than 2019. So it looks like you will likely had to take your 2019 RMD, and once RMDs start for a plan they must continue. Finally, the RBD (4/1) can be ignored as effecting when RMDs apply or not, as they only provide an extension to take the first RMD, they do not determine whether or not you will have an RMD for the RMD distribution year.
  2.  This is one of the employer adjustments I referred to earlier that needs to be made. Congress and interested parties will try to avoid retroactive changes that would trigger rollover requests for amounts that did not turn out to be RMDs due to legislation. Therefore, a direct rollover to the new plan will require an RMD be distributed for 2019 from the TSP.  However, if you are still working for the new employer you will likely be able to avoid RMDs starting in 2020 on what WAS the TSP balance as long as you qualify for the “still working exception” with the part time employer. 
  3. Passage of the proposed legislation would likely not affect the above answer.
  4.  Your new plan determines what hourly, weekly or other minimum measure applies to be considered “still working” and to be able to participate. Plans have the authority to make this determination. You would have to consult with them as to work schedule.

Submitted by Gerri Fehst on Sun, 2019-07-21 14:33

I really appreciate you taking the time to respond, especially in my format, so I understood everything.  I feel more settled now.  I will wait to hear what Fidelity offers and says regarding work/hours requirements to postpone RMDs.  

Submitted by Gerri Fehst on Sun, 2019-07-21 14:41

Regarding my TSP withdrawal, about $20,000 of my $800,000 plus account is in a Roth, the rest is Traditional.  I1)f I take out 30,000 as an RMD, what amount will be from the Roth? 2)Of that Roth amount, how much would be the principle invested and how much would be earnings (and thus taxable)?  I’ve only had the Roth since Jan. 1, 2016, so I haven’t made the five-year holding requirement yet.  3) . I am in the 24% tax bracket, married filing jointly.  If I converted ~$100,000 from Traditional TSP to Roth TSP under current tax laws, does that mean I would have to pay $24,000 in taxes that year?  4) Must I direct transfer from a Tradional TSP to a Traditional IRA before I can then convert the Traditional IRA to a Roth IRA?   (I could be wrong but I don’t think the TSP allows conversions from Traditional TSP to Roth TSP while in the program.  I believe it is only new money that can be put in the Roth TSP while you are still working for the Federal Government.  I am retired).  

Submitted by Alan - IRA critic on Sun, 2019-07-21 16:54

  1. With the 9/15/2019 changes to TSP withdrawal options, you will be able to take your RMD totally from the pre tax, Roth, or proportionately from each  if you wait till 9/15 passes before taking the RMD.  Before that date it has to be proportionate. So this change will allow you to elect to take your full RMD from the pre tax balance. That will avoid being taxed on Roth gains which will otherwise eventually be tax free once your Roth IRA becomes qualified. 
  2.  At present I doubt if your Roth TSP balance is more than 25% earnings, and earnings are pro rated for each dollar of Roth TSP you distribute. Perhaps your statement shows the actual breakdown between contributions and earnings. But you can avoid any Roth distribution by waiting for 9/15 to pass.
  3. The TSP does NOT provide in plan Roth rollovers (conversions) as you thought. If it did, then the taxes would be 24,000. and IRMAA surcharges might also come into play.
  4. After completing the TSP RMD, you could either do a rollover directly to your Roth IRA or roll to a TIRA and convert from there. Since if you convert at all, you would probably do incremental amounts to keep your tax rate from spiking, probably best to roll the pre tax TSP to a TIRA. Of course, your Roth TSP must go to your Roth IRA as a direct rollover, so that is two direct rollovers.
  5. Obviously, several choices to juggle. Whether you will work enough hours for the 401k to qualify and if the plan expenses and options are good enough to warrant moving the TSP there (instead of to IRA) to stop RMDs on that balance needs to be determined. The Roth TSP should go to a Roth IRA to permanently eliminate further RMDs on that balance and start the Roth IRA 5 year clock if you do not have a Roth IRA. The conversion decision requires a detailed analysis of the rate you will pay vrs what you expect to pay on that money when you eventually would take RMDs if you do not convert.

Add new comment

Log in or register to post comments