Withdraw Roth contributions to max TSP/get more G Fund?

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ICMoney
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Withdraw Roth contributions to max TSP/get more G Fund?

Post by ICMoney » Thu Jul 12, 2018 7:40 am

We are in our upper 30s and recently went down to one income so that wife can stay home to help raise our children for awhile. As a result, we cannot max out all retirement accounts any more. We can afford around $10K to go to husband's TSP each year, but it pains me to leave "G Fund space" on the table.

One idea I had was to withdraw some Roth contributions in order to max out the TSP - i.e. use these withdrawn Roth contributions to live on while simultaneously increasing payroll deductions to Roth TSP in order to max it out. Is this a good/bad idea?

Pros as I see them: continue to shift our bond position into G Fund, arguably the "best" bond fund; not leave G Fund "space" on the table for 2018 and beyond until we can max out retirement accounts due to income increase

Cons: Less flexibility to withdraw Roth contributions in the future for emergencies, etc.; extra paperwork potentially at tax time to document Roth contribution withdrawal

------------

Emergency funds: 4 months of expenses (we see Roth IRAs as extra e-funds in addition, current basis in Roth IRAs is $23K and will be $63K in 2019)
Debt: $135K @ 3.25% mortgage, 15yr fixed (1 year in), $1000/mo. House is worth about $350K.
Tax Filing Status: MFJ
Tax Rate: 22% Federal (since we'll do Roth conversions of wife's tIRA to max out $2000/child tax credit, which takes us into the 22% bracket), 5% State
Age: 38/37
Income: $84K

Current retirement assets

Size of the portfolio: $500K

His TSP
11% G fund (.04%)

Her 401k
9% International index (.08%)
17% US Large cap index (.01%)

Her Roth 401k
4% International index (.08%)
6% US Large cap index (.01%)

His Roth IRA at Vanguard
5% Vanguard Total Stock Market VTSAX (.04%)

Her Roth IRA at Vanguard
13% Vanguard Total Stock Market VTSAX (.04%)
15% Vanguard Total Bond Market VBTLX (.05%)

Her Traditional IRA at Vanguard
5% Vanguard Total Stock Market VTSAX (.04%)
3% Vanguard FTSE All World ex-US VFWAX (.11%)
3% Vanguard Total Bond Market VBTLX (.05%)

Her Cash Balance Pension
6%

Her HSA
3% Vanguard Total Stock Market VTSAX (.04%)

Annual expenses: $60-65K


Thanks in advance for any/all thoughts on whether we should withdraw Roth contributions to max TSP/G fund.

bloom2708
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by bloom2708 » Thu Jul 12, 2018 11:25 am

My vote would be to leave Roth alone.

Many variables ahead. Future pay raises may get you toward the pre-tax max.

If you said you have $50k or $100k in a taxable account, then I would certainly sell some to live on to boost your pre-tax TSP contributions.
"We are here not to please but to provoke thoughtfulness" Unknown Boglehead

02nz
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by 02nz » Thu Jul 12, 2018 11:37 am

The G fund is great but I'd think of this in terms of tax-deferred vs. Roth space. If you feel like you need more of the former, then it could make sense to shift money from Roth. In your situation I'd probably leave the Roth IRA alone - in any given year you have much more tax-deferred space than Roth IRA space.

BTW are you sure you're doing all the math right for the child tax credit? With the tax cut that passed in late 2017, there were significant changes. There are others more knowledgeable than I about this, but as I understand up to $1400 of the credit (per child) is now refundable, lowering the amount of taxable income needed to get the full benefit. So it's possible you don't need to be doing all that Roth conversion. You should double check all this because you shouldn't be paying 22% federal + 5% state (particularly given your rather tight cash situation) unless it meant actually getting more money through the child tax credit.

LinusP
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by LinusP » Thu Jul 12, 2018 12:01 pm

02nz wrote:
Thu Jul 12, 2018 11:37 am
The G fund is great but I'd think of this in terms of tax-deferred vs. Roth space. If you feel like you need more of the former, then it could make sense to shift money from Roth. In your situation I'd probably leave the Roth IRA alone - in any given year you have much more tax-deferred space than Roth IRA space.
Feds can make either Roth or Traditional contributions to TSP, and the OP specified the new funds would be Roth. So I think the only way they'd lose money 'converting' Roth IRA to Roth 401k (in TSP) is if those original Roth contributions were taxed at a lower rate than now - which seems unlikely given their income has dropped due to the wife staying home.

It seems worth doing to me, but I'm no expert and could be missing something.

02nz
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by 02nz » Thu Jul 12, 2018 12:29 pm

LinusP wrote:
Thu Jul 12, 2018 12:01 pm
02nz wrote:
Thu Jul 12, 2018 11:37 am
The G fund is great but I'd think of this in terms of tax-deferred vs. Roth space. If you feel like you need more of the former, then it could make sense to shift money from Roth. In your situation I'd probably leave the Roth IRA alone - in any given year you have much more tax-deferred space than Roth IRA space.
Feds can make either Roth or Traditional contributions to TSP, and the OP specified the new funds would be Roth. So I think the only way they'd lose money 'converting' Roth IRA to Roth 401k (in TSP) is if those original Roth contributions were taxed at a lower rate than now - which seems unlikely given their income has dropped due to the wife staying home.

It seems worth doing to me, but I'm no expert and could be missing something.
My bad, I missed that. Roth TSP has some disadvantages compared to a Roth IRA (being subject to RMDs, and some quirks related to withdrawals). But the latter will be largely fixed by 2019, with implementation of the TSP Modernization Act. The RMDs can be circumvented by rolling over to a Roth IRA after retirement/separation from federal service. So I think the OP's plan is fine - but I'd still double-check about the child tax credit.

ICMoney
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by ICMoney » Thu Jul 12, 2018 1:24 pm

02nz wrote:
Thu Jul 12, 2018 12:29 pm
LinusP wrote:
Thu Jul 12, 2018 12:01 pm
02nz wrote:
Thu Jul 12, 2018 11:37 am
The G fund is great but I'd think of this in terms of tax-deferred vs. Roth space. If you feel like you need more of the former, then it could make sense to shift money from Roth. In your situation I'd probably leave the Roth IRA alone - in any given year you have much more tax-deferred space than Roth IRA space.
Feds can make either Roth or Traditional contributions to TSP, and the OP specified the new funds would be Roth. So I think the only way they'd lose money 'converting' Roth IRA to Roth 401k (in TSP) is if those original Roth contributions were taxed at a lower rate than now - which seems unlikely given their income has dropped due to the wife staying home.

It seems worth doing to me, but I'm no expert and could be missing something.
My bad, I missed that. Roth TSP has some disadvantages compared to a Roth IRA (being subject to RMDs, and some quirks related to withdrawals). But the latter will be largely fixed by 2019, with implementation of the TSP Modernization Act. The RMDs can be circumvented by rolling over to a Roth IRA after retirement/separation from federal service. So I think the OP's plan is fine - but I'd still double-check about the child tax credit.
Thanks for the responses. On the child tax credit post-tax reform, we have several children and my understanding of tax reform is that it's up to $2000/child nonrefundable, up to $1400/child refundable. If we do nothing we'll have $0 federal tax liability and will only get up to $1400/child refundable. So my thinking was it'd be better to Roth-convert to get the full $2000/child even if some of the conversion dollars technically fall into the 22% tax bracket. Please correct me if I'm wrong on this though.

Best,
ICM

02nz
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by 02nz » Thu Jul 12, 2018 1:28 pm

ICMoney wrote:
Thu Jul 12, 2018 1:24 pm
On the child tax credit post-tax reform, we have several children and my understanding of tax reform is that it's up to $2000/child nonrefundable, up to $1400/child refundable. If we do nothing we'll have $0 federal tax liability and will only get up to $1400/child refundable. So my thinking was it'd be better to Roth-convert to get the full $2000/child even if some of the conversion dollars technically fall into the 22% tax bracket.
That's my understanding - for each child, $1400 refundable, another $600 nonrefundable. Makes sense to do Roth conversions to get enough tax liability to get the nonrefundable portion.

Fishing50
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by Fishing50 » Fri Jul 13, 2018 1:21 am

Leave the Roth alone, and ensure you are making Roth contributions to TSP.
It's perfectly legal, go ask the IRS, they'll say the same thing. I actually feel stupid telling you this, I'm sure you would've investigated the matter yourself. Andy Dufresne

retiredjg
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by retiredjg » Fri Jul 13, 2018 8:58 am

ICMoney wrote:
Thu Jul 12, 2018 7:40 am
We can afford around $10K to go to husband's TSP each year, but it pains me to leave "G Fund space" on the table.
This does not make sense to me at all. Yes, the G Fund is great, but with all of your contributions going into the TSP, that space is going to get larger anyway (relative to the other accounts).

Besides, I think it is good to have some total bond in addition to the G Fund. Of course, that is just one person's opinion.

One idea I had was to withdraw some Roth contributions in order to max out the TSP - i.e. use these withdrawn Roth contributions to live on while simultaneously increasing payroll deductions to Roth TSP in order to max it out. Is this a good/bad idea?
First reaction is that I would not do this.

Tax Filing Status: MFJ
Tax Rate: 22% Federal (since we'll do Roth conversions of wife's tIRA to max out $2000/child tax credit, which takes us into the 22% bracket),
I don't understand what this means. If you have more income, you get a larger child tax credit?

Where will the money for the tax on the Roth conversions come from?

ICMoney
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by ICMoney » Fri Jul 13, 2018 10:40 am

retiredjg wrote:
Fri Jul 13, 2018 8:58 am
[
Tax Filing Status: MFJ
Tax Rate: 22% Federal (since we'll do Roth conversions of wife's tIRA to max out $2000/child tax credit, which takes us into the 22% bracket),
I don't understand what this means. If you have more income, you get a larger child tax credit?

Where will the money for the tax on the Roth conversions come from?
Thank you for your thoughts - maybe diversification is ok (some G fund, some total bond fund)?

I believe we get a larger tax credit if we have more income due to the lower refundable credit amount under tax reform ($2000 nonrefundable vs. $1400 refundable, please correct me if I'm wrong). We wouldn't need to bring any money to do the Roth conversions if we convert an amount that will get us to the max child tax credit of $2000/kid nonrefundable - I don't think...

For example, using numbers that are roughly similar to our situation:
No Roth conversion
AGI = $74K (the $84K gross less roughly $10K pretax deductions)
Standard deduction = $24K
Taxable income = $50K
Preliminary Tax = $5600
Nonrefundable child tax credit = ($5600) (assume 6 kids, this is about $933/kid)
Tax = $0
Refundable child tax credit = ($2800) (Not sure about this number... this would get to $1400/kid in total including the nonrefundable credit)

With Roth conversion
Wages = $74K
Roth conversion = $41K
AGI = $115K
Standard deduction = $24K
Taxable income = $91K
Preliminary Tax = $12K
Nonrefundable child tax credit = ($12K) (assume 6 kids)
Tax = $0

Roth conversion seems optimal in our situation per my analysis, do you agree? Let me know if my understanding of this isn't correct though.

Best,
ICM

02nz
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by 02nz » Fri Jul 13, 2018 4:18 pm

OP, as noted above, of the $2000 per child tax credit, $1400 is refundable and $600 nonrefundable. So for 6 children you'd need just $3600 in tax liability to get the max benefit, NOT $12K. In your first example, with no Roth conversion and $5600 tax liability, that's already more than enough to capture the full credit. So I don't see that Roth conversions are necessary to capture the full credit.

Here's the best article I found to explain the changes made with the tax cut bill, but I'd double check all this with the new 1040 form and maybe with a CPA as well, given how new this is.

https://www.fool.com/taxes/2018/01/09/t ... ed-to.aspx

On shuffling money from Roth IRA to Roth TSP - Looking at everything again I don't see enough benefit to justify the hassle (and risk that something could be done wrong). The Roth IRA can be a secondary emergency fund, given that you can take contributions out at any time without penalty. So probably better to keep this option for when you really need it, not just to max out G fund space, which will only grow as you put more into TSP.

retiredjg
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by retiredjg » Fri Jul 13, 2018 4:44 pm

ICMoney wrote:
Fri Jul 13, 2018 10:40 am
Thank you for your thoughts - maybe diversification is ok (some G fund, some total bond fund)?
That is what I do. I like the G fund fine, but I also like Total Bond Index and it does pay more.
I believe we get a larger tax credit if we have more income due to the lower refundable credit amount under tax reform ($2000 nonrefundable vs. $1400 refundable, please correct me if I'm wrong).
I would not know if you are wrong or right. I've never used a refundable credit and was wondering how it works. It seems that doing Roth conversions gives you a bigger refund (if you have it right).

We wouldn't need to bring any money to do the Roth conversions if we convert an amount that will get us to the max child tax credit of $2000/kid nonrefundable - I don't think...
Not sure what this means. If you convert $41k, you will need a chunk of money to pay the taxes. Do you have that? Or is your point that you will not have any tax at all because of the increased child credit? Maybe now I'm catching on? Oh....am I having a lightbulb moment? :idea:

02nz
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by 02nz » Fri Jul 13, 2018 5:00 pm

I wonder if OP might be misunderstanding the refundable/nonrefundable aspect of a tax credit. Whether a tax credit is refundable or not has nothing to do with your tax refund or how much tax was withheld by your employer. It only has to do with whether that tax credit can make your tax negative. So for example:

1. Your income tax is $5000, you have a $7500 nonrefundable tax credit, your income tax is reduced to zero, but you don't get the other $2500.

2. Your income tax is $5000, you have a $7500 refundable tax credit, the IRS owes you $2500.

Again, the above is completely unrelated to how much was withheld. So if in the first example your employer withheld $5000, you get that $5000 refunded, even though the tax credit is "nonrefundable."

gmaynardkrebs
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by gmaynardkrebs » Fri Jul 13, 2018 5:14 pm

The "G" in G Fund stands for "God." There is no better deal on this planet.

02nz
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by 02nz » Fri Jul 13, 2018 5:21 pm

retiredjg wrote:
Fri Jul 13, 2018 4:44 pm
That is what I do. I like the G fund fine, but I also like Total Bond Index and it does pay more.
Total Bond Index (and the TSP F fund, which is basically the same thing) has outperformed the G fund in periods of falling interest rates. But interest rates now have much more room to go up than down. Indeed, during the past several months, as interest rates have begun to creep back up, Total Bond has taken a beating (relatively), highlighting the unique advantage of the G fund: even though it offers the return of long-term treasuries, it carries none of the interest-rate risk. It can never go down in value. Ultimately you're holding bonds to cushion volatility, not to boost returns. And for that purpose the G fund beats any other bond fund.

retiredjg
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by retiredjg » Fri Jul 13, 2018 5:57 pm

02nz wrote:
Fri Jul 13, 2018 5:21 pm
retiredjg wrote:
Fri Jul 13, 2018 4:44 pm
That is what I do. I like the G fund fine, but I also like Total Bond Index and it does pay more.
Total Bond Index (and the TSP F fund, which is basically the same thing) has outperformed the G fund in periods of falling interest rates. But interest rates now have much more room to go up than down. Indeed, during the past several months, as interest rates have begun to creep back up, Total Bond has taken a beating (relatively), highlighting the unique advantage of the G fund: even though it offers the return of long-term treasuries, it carries none of the interest-rate risk. It can never go down in value. Ultimately you're holding bonds to cushion volatility, not to boost returns. And for that purpose the G fund beats any other bond fund.
I think this is a short term view. As interest rates rise, the return on the F Fund (Total Bond) will also increase. And the risk of the F Fund (Total Bond) may not be as low as the G Fund, but it is certainly low and it certainly fulfills the function of a bond fund.

Holding both the F fund (or Total Bond Index) and G fund is optimal in my opinion. Sometimes one will do better, sometimes the other will do better. Holding some of both is the best of both worlds.

Others may have a different opinion.

gmaynardkrebs
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by gmaynardkrebs » Fri Jul 13, 2018 6:58 pm

retiredjg wrote:
Fri Jul 13, 2018 5:57 pm
02nz wrote:
Fri Jul 13, 2018 5:21 pm
retiredjg wrote:
Fri Jul 13, 2018 4:44 pm
That is what I do. I like the G fund fine, but I also like Total Bond Index and it does pay more.
Total Bond Index (and the TSP F fund, which is basically the same thing) has outperformed the G fund in periods of falling interest rates. But interest rates now have much more room to go up than down. Indeed, during the past several months, as interest rates have begun to creep back up, Total Bond has taken a beating (relatively), highlighting the unique advantage of the G fund: even though it offers the return of long-term treasuries, it carries none of the interest-rate risk. It can never go down in value. Ultimately you're holding bonds to cushion volatility, not to boost returns. And for that purpose the G fund beats any other bond fund.
I think this is a short term view. As interest rates rise, the return on the F Fund (Total Bond) will also increase. And the risk of the F Fund (Total Bond) may not be as low as the G Fund, but it is certainly low and it certainly fulfills the function of a bond fund.

Holding both the F fund (or Total Bond Index) and G fund is optimal in my opinion. Sometimes one will do better, sometimes the other will do better. Holding some of both is the best of both worlds.

Others may have a different opinion.
Count me as one who has very different opinion. Your statement that "As interest rates rise, the return on the F Fund (Total Bond) will also increase" is not the way most people view it; what about the capital loss as rates rise? What you say about returns is a perfect description of the G fund, however, which makes it highly attractive, and low risk.

02nz
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by 02nz » Fri Jul 13, 2018 7:04 pm

retiredjg wrote:
Fri Jul 13, 2018 5:57 pm
As interest rates rise, the return on the F Fund (Total Bond) will also increase.
Yes, the bonds within the F fund will yield more as rates rise, but so will the bonds in the G fund! Yields on corporate bonds and treasuries are quite closely correlated - and something like 40% of the F fund is made up of treasuries (except that these DO have interest-rate risk, unlike the G fund). I don't mean to imply it's wrong to hold the F fund or Total Bond Index, it's just that for the purpose for which most investors hold bonds, the G is superior is every way.

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teen persuasion
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by teen persuasion » Sat Jul 14, 2018 11:19 am

02nz wrote:
Fri Jul 13, 2018 5:00 pm
I wonder if OP might be misunderstanding the refundable/nonrefundable aspect of a tax credit. Whether a tax credit is refundable or not has nothing to do with your tax refund or how much tax was withheld by your employer. It only has to do with whether that tax credit can make your tax negative. So for example:

1. Your income tax is $5000, you have a $7500 nonrefundable tax credit, your income tax is reduced to zero, but you don't get the other $2500.

2. Your income tax is $5000, you have a $7500 refundable tax credit, the IRS owes you $2500.

Again, the above is completely unrelated to how much was withheld. So if in the first example your employer withheld $5000, you get that $5000 refunded, even though the tax credit is "nonrefundable."
Have any details been released on how the refundable/nonrefundable portions will be calculated? It isn't clear whether it will be a $1400/$600 break, or a proportional system like for the AOTC. The AOTC has up to $2500 credit, with max $1k refundable, but it works out to 40% refundable if you are only eligible for a lesser amount.

We always have unused nonrefundable credits go to waste (AOTC and Retirement Saver's credit), because we are maximizing for refundable EITC (increased by a proportional state match), which is reduced by increasing AGI.

OP, what about the state tax costs of your proposed Roth conversion?

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teen persuasion
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by teen persuasion » Sat Jul 14, 2018 11:45 am

ICMoney wrote:
Fri Jul 13, 2018 10:40 am
retiredjg wrote:
Fri Jul 13, 2018 8:58 am
[
Tax Filing Status: MFJ
Tax Rate: 22% Federal (since we'll do Roth conversions of wife's tIRA to max out $2000/child tax credit, which takes us into the 22% bracket),
I don't understand what this means. If you have more income, you get a larger child tax credit?

Where will the money for the tax on the Roth conversions come from?
Thank you for your thoughts - maybe diversification is ok (some G fund, some total bond fund)?

I believe we get a larger tax credit if we have more income due to the lower refundable credit amount under tax reform ($2000 nonrefundable vs. $1400 refundable, please correct me if I'm wrong). We wouldn't need to bring any money to do the Roth conversions if we convert an amount that will get us to the max child tax credit of $2000/kid nonrefundable - I don't think...

For example, using numbers that are roughly similar to our situation:
No Roth conversion
AGI = $74K (the $84K gross less roughly $10K pretax deductions)
Standard deduction = $24K
Taxable income = $50K
Preliminary Tax = $5600
Nonrefundable child tax credit = ($5600) (assume 6 kids, this is about $933/kid)
Tax = $0
Refundable child tax credit = ($2800) (Not sure about this number... this would get to $1400/kid in total including the nonrefundable credit) ($6400)

With Roth conversion
Wages = $74K
Roth conversion = $41K
AGI = $115K
Standard deduction = $24K
Taxable income = $91K
Preliminary Tax = $12K
Nonrefundable child tax credit = ($12K) (assume 6 kids)
Tax = $0

Roth conversion seems optimal in our situation per my analysis, do you agree? Let me know if my understanding of this isn't correct though.

Best,
ICM
If the CTC is $600 nonrefundable $1400 refundable per child under 17 and you have 6 children eligible, it would seem you'd be eligible for $6400 refund (plus any withholdings) under your current situation. Could you use this $ to fund your desired Roth TSP G fund? If you are having anything withheld, it is unneeded, stop it. If you are currently funding IRAs for you and your spouse, stop and use the tax refund to fund them before the April 15th deadline. Use those freed up $ to increase your TSP contributions now.

If you have six CTC eligible children, then you presumably had a $6k CTC credit last year. Did that wipe out your tax bill then?

ICMoney
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by ICMoney » Sat Jul 14, 2018 2:28 pm

02nz wrote:
Fri Jul 13, 2018 4:18 pm
OP, as noted above, of the $2000 per child tax credit, $1400 is refundable and $600 nonrefundable. So for 6 children you'd need just $3600 in tax liability to get the max benefit, NOT $12K. In your first example, with no Roth conversion and $5600 tax liability, that's already more than enough to capture the full credit. So I don't see that Roth conversions are necessary to capture the full credit.

Here's the best article I found to explain the changes made with the tax cut bill, but I'd double check all this with the new 1040 form and maybe with a CPA as well, given how new this is.

https://www.fool.com/taxes/2018/01/09/t ... ed-to.aspx
teen persuasion wrote:
Sat Jul 14, 2018 11:45 am

If the CTC is $600 nonrefundable $1400 refundable per child under 17 and you have 6 children eligible, it would seem you'd be eligible for $6400 refund (plus any withholdings) under your current situation. Could you use this $ to fund your desired Roth TSP G fund? If you are having anything withheld, it is unneeded, stop it. If you are currently funding IRAs for you and your spouse, stop and use the tax refund to fund them before the April 15th deadline. Use those freed up $ to increase your TSP contributions now.

If you have six CTC eligible children, then you presumably had a $6k CTC credit last year. Did that wipe out your tax bill then?
Thank you both for setting me straight on the child tax credit. I didn't see any official IRS guidance yet upon a quick scan of their website, but what you're saying seems to make perfect sense.

I may still do some Roth conversions, assuming we don't need the refundable credits for something else. I'll have to weigh whether using a large refundable credit to offset the increase in payroll deductions towards TSP/G fund is more valuable than doing large Roth conversions.

Best,
ICM

ICMoney
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by ICMoney » Sat Jul 14, 2018 2:30 pm

teen persuasion wrote:
Sat Jul 14, 2018 11:45 am

If you have six CTC eligible children, then you presumably had a $6k CTC credit last year. Did that wipe out your tax bill then?
Last year was different since we were dual-income. We Roth-converted enough to get the maximum child tax credit before the phase-out, which almost totally offset the tax bill.

ICMoney
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by ICMoney » Sat Jul 14, 2018 2:34 pm

teen persuasion wrote:
Sat Jul 14, 2018 11:19 am

OP, what about the state tax costs of your proposed Roth conversion?
It should be about 5% marginal for state tax and we've increased state withholding slightly in anticipation of potential conversions (whereas our federal withholding right now is $0). It's unlikely we'll move to a lower tax state during the next several years.

ICMoney
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by ICMoney » Sat Jul 14, 2018 2:44 pm

02nz wrote:
Fri Jul 13, 2018 7:04 pm
retiredjg wrote:
Fri Jul 13, 2018 5:57 pm
As interest rates rise, the return on the F Fund (Total Bond) will also increase.
Yes, the bonds within the F fund will yield more as rates rise, but so will the bonds in the G fund! Yields on corporate bonds and treasuries are quite closely correlated - and something like 40% of the F fund is made up of treasuries (except that these DO have interest-rate risk, unlike the G fund). I don't mean to imply it's wrong to hold the F fund or Total Bond Index, it's just that for the purpose for which most investors hold bonds, the G is superior is every way.
Thanks all for your discussion on these bond funds. We still need Vanguard Total Bond Market in IRAs to get to our target bond allocation given our portfolio size relative to the TSP space, but it seems that Bogleheads generally prefer G Fund above all other bond funds so we've been trying to "buy" as much G Fund as we can in the TSP. As retiredjg pointed out above, our TSP space will grow relative to the rest of our portfolio if we continue on one income/not able to contribute to IRAs/only contribute to TSP for several years - I was initially thinking using Roth contributions was a way of shifting our bond allocation to a "better" bond fund but realize there are some other options available.

Best,
ICM

retiredjg
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Re: Withdraw Roth contributions to max TSP/get more G Fund?

Post by retiredjg » Sat Jul 14, 2018 2:54 pm

ICMoney wrote:
Sat Jul 14, 2018 2:44 pm
As retiredjg pointed out above, our TSP space will grow relative to the rest of our portfolio if we continue on one income/not able to contribute to IRAs/only contribute to TSP for several years...
However, I did not take into account that your other accounts will be experiencing more growth because they contain all the stocks. So the TSP may not grow in percentage quite as fast as I was thinking at the time I said that.

The good thing about the G fund is that is has a reasonable return for essentially no risk. The good thing about the F Fund is that it has a higher return but does have some risk.

I just don't see a need to try to achieve zero risk for your entire bond allocation. Low risk for part of your bond allocation works plenty fine too.

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