Tax Exempt Portion Inside A TSP Plan- Not Roth TSP
Greetings,
I have a client who is moving his TSP over to an IRA. Inside the plan, there is a $3100+ tax-exempt contribution when he was deployed in a combat zone. TSP will not roll this over. The employee at TSP explained that my client could cash this out with no penalty. The issue I have is my client is close to 20 years from age 59.5 and wants out of the plan. The two scenarios I have on paper are to leave it and check each year with his wife as 100% beneficiary or in my client’s shoes- I am checked out of the government and I cash it out and move it to a Roth IRA.
Any assistance would be great.
Thanks,
David in MSP
Permalink Submitted by David Mertz on Mon, 2023-09-18 22:13
After requesting and receiving a single distribution split between a rollover of the pre-tax portion to a traditional IRA and a payment of the after-tax portion to the client in cash, the client can within 60 days simply deposit the after-tax portion into a Roth IRA as an indirect rollover with no tax consequence. The client must inform the Roth IRA custodian this deposit is a rollover, not a regular contribution. The client should make sure that no taxes are withheld from the TSP distribution.