Alan S. wrote:The reply on Ed's website was not from Ed, but it's understandable since the TSP generally follows all the IRS rules for private qualified plans. The literature on the TSP site is somewhat confusing and it not designed to be understood easily by a non spouse beneficiary who might reasonably expect the TSP to follow the same guidelines as other qualified plans. And they do for the most part, but apparently have decided for whatever reason not to offer direct rollovers to non spouse inherited Roths. This is probably due to the fact that they just have not got around to it and/or changing their literature.Therefore, you are correct that a "beneficiary account" holder must be a spouse as their literature not so clearly indicates. This is an omission at the TSP, as they spent most of the last 18 months trying to roll out their designated Roth option without considering beneficiaries. I wonder if an employee passes after contributing to the Roth with a non spouse beneficiary, where the TSP thinks this funds should go since a Roth cannot be rolled into a TIRA!! I suppose they could just require the beneficiary to distribute the balance......
So now the funds are in your inherited Roth and the 1099R contains no taxable amount in 2a. If this inherited Roth means alot to you, you could be aggressive and report the taxable amount as if it was in 2a, even if the TSP refuses to correct the 1099R. But if you can get to the tax unit at the TSP or at least to a senior staffer there, you could try to get them to amend the 1099R. You have some leverage since they ignored your request on the form you submitted and did not contact you, but you did not indicate the actual mechanics of the transfer. Did they mail you a check, and if so how did the payee read? If they are willling to acknowledge some fault according to their procedures, their solution will probably be to request a transfer back to the plan and then they will re transfer the funds to an inherited TIRA to agree with their 1099R. You may not want that outcome, but I still think you need to contact someone there that understands the entire picture including the fact that this is commonplace with the private sector qualified plans.
In the meantime, since a non spouse beneficiary cannot roll over an inherited IRA account, do NOT take a distribution from the inherited Roth other than your RMD because you cannot roll it over and even if though you intended to pay taxes on it anyway, you would lose the potential of additional tax free gains in the Roth.
Let us know what the TSP says, unless you plan to just report the income and leave the TSP out of it. I doubt the IRS will care, since their own Regs allow this transfer and they are getting their taxes on the full amount. I would be surprised if you ever heard from the IRS if you just added the taxable amount that would have been in 2a into your tax program.
With regard to the mechanics of the transfer, the TSP directly transferred the money to my Inherited Roth IRA Account at Fidelity. My form requesting the transfer clearly indicated that the Fidelity account was an Inherited Roth Account (because I wrote that in). My fingers never touched the money. In fact, the TSP literature says that one cannot rollover a TSP disbursement into an Inherited IRA so if they had sent me a check I would have been up the creek.
This Fidelity Inherited Roth IRA contains other Roth assets that I inherited from my sister, and I have been trading in this account so the TSP transferred assets and the other Roth assets are hopelessly intermingled at this point. Thus I am not interested in undoing the TSP transfer. I simply need for the TSP to correctly report on the 1099-R what they actually did.
I am going to contact the TSP again, and following your suggestion, specifically ask for a referral to a supervisor in the Tax Reporting Unit (which I expect will be denied, as my experience has been that TSP is adamant about not giving out telephone numbers - whenever you get a letter from anyone there it always seems to have only the general 800 number listed for followup).
If I can't get a telephone number from them, I am going to send a certified letter to the TSP Service Department requesting a corrected 1099-R.
If I don't hear back from them in time for my taxes I am going to act as though the taxable amount in box 2a is the amount transferred to the Inherited Roth IRA and proceed to fill out my taxes.
The TSP is clearly in the wrong here. They did in fact transfer the money to an Inherited Roth account and the 1099-R does not correctly reflect that fact.
If they come back and say they don't have the authority to transfer to an Inherited Roth, I expect them to back that up with a specific legal reference. If they want to undo the transfer they already made, I expect them to provide a legal reference authorizing that action.
If i have to guess how this will turn out, I predict that all the confusion results from their having just not considered non-spouse beneficiary transfers to an Inherited Roth IRA, rather than their having a specific position on the issue.
And furthermore, as you pointed out, since TSP accounts now may contain Roth assets, going forward, the TSP will have to have a process to transfer assets to an non-spouse beneficiary's inherited Roth IRA.