Question 1
I’m about 8 years from retirement. As soon as the Roth was available I converted my TSP to it. About 1/3 of my total TSP is conventional. When it comes time to start withdrawing, how do you deal with the two different types?
Answer 1
Any time you take money out of your TSP you are able to choose whether it comes from the traditional TSP or Roth TSP or a mixture of the two.
So you will be able to try to reduce your taxes as much as possible year by year by adjusting to the changes in tax law. For example, you can try to plan your taxable income to stay in a certain tax bracket or to not pay any extra in Medicare part B premiums.
However, as a general rule it is nice to let your Roth money grow tax-free as long as you can.
Just keep in mind that once you turn 72 RMD’s (required minimum distributions) will affect both your Roth and traditional TSP so you may want to consider moving your funds to IRAs at that point.
Question 2
Hi Dallen. I am 50 years old and about half way through my federal career. Like most federal employees, I have all of my retirement money in the regular TSP. Now that you’ve taught me about the Roth TSP option, I am considering putting some money in the Roth TSP also. How should I do it? Should I start from scratch and send new contributions to the Roth TSP? I assume shifting $100K from the regular TSP to the Roth TSP would have a huge tax consequence, right?
Answer 2
Unfortunately, you can’t move money from the regular TSP to the Roth TSP so the only option you have at this point is to start contributing into the Roth TSP.
However, if you retire and move your money to an IRA then you would be able to transfer money from a traditional IRA to a Roth IRA.
Question 3
Listening to your great YouTube videos…there was one about a month old where someone was asking how long you might have to wait to get paid…you suggested if over 59 1/2 that you could make a TSP in service withdrawal. Is that still considered a loan from your TSP? If so, I was under the impression that if you have a loan it has to be repaid before you leave service? Thanks for setting me straight.
Answer 3
An in service withdrawal is not considered a loan so you don’t (and actually can’t) pay it back. Obviously you don’t want to take money out of your TSP unless you really need it but it can be nice to get some cash available right before you retire if you are over 59 and ½.
