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Rollover from TSP to Roth IRA at Separation from Mil?

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  • Rollover from TSP to Roth IRA at Separation from Mil?

    In ~18 months, my spouse will be separating from the military. They have been contributing to the TSP Roth during residency and payback under the blended retirement system, and in addition to the Roth contributions, will have approximately $25k in the TSP that is the pre-tax Service Automatic 1% and Service Matching 4%. At the time of separation, there will be three options:

    1. Roll over the entirety of the TSP into a Roth IRA and pay taxes on the $25k at 24%. The positive for this would be avoiding RMD at 72. The negative would be losing access to the G Fund.

    2. Leave the entirety of the TSP where it sits in order to slowly rebalance / reallocate to the G Fund as retirement nears

    3. Split the difference and only roll over the pre-tax service automatic and service matching into the Roth IRA ($25k at 24%) while leaving the after-tax TSP Roth funds in the C and S Funds until retirement nears, with progressive transition to what will likely be 100% G Fund, which would cover the 10-20% Bonds allocation we're targeting in early retirement. I'm pretty sure this partial rollover is allowed, but haven't been able to confirm it yet.

    Hoping to get The White Coat Investor's 2 cents on this, since reading his G Fund article, as well as anyone else who's transitioned out of the military recently and contemplated this scenario. We are currently leaning towards #3 since opportunities for after-tax Roth-type investing will be in shorter supply, and yet we still want to keep the G Fund available to us.

  • #2
    Never close the TSP.

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    • #3
      Originally posted by Lithium View Post
      Never close the TSP.
      Only a Sith deals in absolutes. But seriously, what is your argument for such a strong statement? Not saying I disagree, but want to know if our reasons would be the same.

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      • #4
        I’m proud to be a Sith.

        https://www.whitecoatinvestor.com/wh...ings-plan-tsp/

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        • #5
          TSP is unique in that it will accept a rollover into the plan even after separation from service, as long as one maintains a balance. virtually no other plan does that. and it has excellent low cost funds.

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          • #6
            Originally posted by Lithium View Post
            Thanks, I somehow missed that post. WCI also mentions he did something similar to what I'm considering in another linked post I was previously unaware of. Looks like I have some reading to do tomorrow.

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            • #7
              Unlike almost all other plans, the TSP allows participants to rollover into the plan even after separation. The benefit may diminish somewhat if the Backdoor Roth and Mega Backdoor are eliminated as is currently in the House version of the BBB.

              However, there are many other scenarios where having a low cost indefinite destination to rollover funds is a good thing. You need to maintain a minimum balance of $200 or the TSP will do a force out and close your account.

              WCI's review is a little dated. Withdrawals including multiple in-service withdrawals were significantly expanded in 2020. Also, coming in 2022 is a mutual fund window.

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              • #8
                Keep $1000 or so in the TSP to keep it open.

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                • #9
                  Originally posted by spiritrider View Post
                  Also, coming in 2022 is a mutual fund window.
                  Looking forward to seeing what's available in that. Hopefully more than ESG funds.

                  Going back to my original options, does anyone have anything negative to say about option #3?

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                  • #10
                    never close the TSP. it is a very unique account to have access to. just park it. mine has been sitting just growing for almost 10 years now.

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                    • #11
                      Originally posted by Special Delivery View Post
                      Looking forward to seeing what's available in that. Hopefully more than ESG funds.

                      Going back to my original options, does anyone have anything negative to say about option #3?
                      I think as long as you're also not in a high-income tax state, withdrawing and paying 24% on the pre-tax to roll over to an IRA is a sound plan. As others said, keep the TSP so the after-tax should stay in there. Also you're a long way off but eventually all of the after-tax/Roth money in the TSP I believe you'd want to roll over to your Roth IRA before you hit 72 (not a taxable event) just to avoid RMDs, as Roth IRAs don't have that requirement.

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