TSP Partial Rollover and Distribution Rules for Roth vs. Traditional
Client is 56 and has approximately $2 million in my TSP, split between Traditional and Roth balances. They have separated from service.
Can they take a partial rollover of $1.5 million into a Traditional IRA and Roth IRA, while leaving $500k in the TSP for the Age 55 Rule? If they do, can they choose what category of funds to roll out (take all the Roth funds and roll to Roth IRA, and some of the pre-tax funds and roll to IRA)? Or does a rollover have to be proportionally from both Roth and Traditional?
Thanks in advance.
Permalink Submitted by Alan - IRA critic on Mon, 2025-06-09 11:20
The TSP site indicates that partial distributions are allowed including partial direct rollovers to different IRA types. But it appears that any single distribution must be either all pre tax, all Roth, or pro rata based on the relative balances in each. If client wants a different proportion, more than one direct rollover or distribution will probably be required.
Since the Roth account is not yet qualified, any distribution from that account must include pro rata gains. To avoid unnecessary taxes on those gains, it would be beneficial to limit Roth distributions to direct rollovers to the Roth IRA until age 59.5.
However, if a Roth distribution is taken before 59.5, it would be possible to determine how much of that amount is gain, then roll the gain portion to the Roth IRA as a 60 day rollover. In a 60 day rollover the gain portion is treated as the first amounts rolled over. But 20% mandatory federal withholding would be taken on the gain amount which would have to be replaced to have a full rollover, making this strategy tricky to properly execute.