Micah Shilanski 00:05
Have you ever wondered, how do you do a Roth conversion with the TSP? You can’t do it directly, but how do you do it with an outside custodian? If so, then listen to this FERS Federal Fact Check. Hi, I’m Micah Shilanski with the Plan Your Federal Retirement. I’m really excited to talk about one of my favorite discussions, tax planning. We have a great question that came in from Douglas with regards to making a transfer from the TSP to an outside custodian, in this case, fidelity, and how do you do a Roth conversion with that? So let’s listen to what Douglas has to say. I’m 60 years old with 36 years of service. I called the TSP line to help see if I can roll over money from traditional TSP directly to a Roth IRA off a fidelity, they said yes, and sure enough, would way to go to the TSP.gov website, click through those roles, roll over an amount to an IRA, Roth IRA is one of the choices for its destination, so is it true you no longer have to do a two step process when going through an IRA, then doing a rollover to a Roth, if so, what’s the gotcha? Because it seems way too easy as you click further along, there’s no federal taxes withheld by the TSP, so the whole thing appears to be going to a Roth, meaning you’re on the your own for paying the taxes would it be costly in the short term of a punitivity, or in the long term or in the near distant future. Douglas thank you so much, what a great question that comes in, so a little bit of this is going to be kind of Micah’s style preference, if you will, of what’s just worked really well in the past, and some kind of hang ups I have, or things I’m concerned about. So on the forums, Douglas, you are correct, you can click through those little boxes they will now, I have never done this, but it looks like they will do directly move money from the TSP to a Roth. IRA, am I advising that? No, I’m still not. I like my two step process, why? Because it works really, really well, so I would still break this down to a transfer, I don’t like that nasty rollover word, yes, I know it’s all the forms, I’m still going to go with the transfer, right? Remember, there’s a potential tax difference if you do a rollover incorrectly, there’s no wrong way to do a transfer, I would still do a direct transfer from TSP to a traditional IRA, then once at the traditional IRA, do the Roth conversions. Couple reasons why I like that. Number one, when it’s at Fidelity or Schwab or whoever you use when you do an internal Roth conversion, you can have taxes withheld now making sure you’re over 59 and a half in your case, you are, so you don’t have to worry about a premature distribution penalty for sending some money off to an IRS, but that’s a one great reason to do it. The second reason to do it is I really like tracking step by step what happens, I have had issues in the past with TSP and other custodians when doing this, things weren’t reported correctly to the IRS, things weren’t done correctly, now this was years ago, TSP has made a ton of improvements in their services, and they’re set up with things so it might go off just fine for me, I like our two step process because it works really, really well. If you have questions like this about your retirement and the best way to access your money, then make sure you jump on our website, PlanYourFederalRetirement.com and leave a comment for us and you can be featured in the next FERS Federal Fact Check, until then Happy Planning!