Moving Tax-Exempt TSP Funds (Combat Zone Contributions) to Roth IRA

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SurferLife
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Joined: Sun Jun 15, 2014 1:57 am

Moving Tax-Exempt TSP Funds (Combat Zone Contributions) to Roth IRA

Post by SurferLife »

Over the last few years, there has been a lot of information put out on how to pull out TSP money that is tax-exempt (combat zone contributions) and get it into a Roth IRA. It was my understanding that in years past, this effort took quite a bit of attention to make it happen, but I just did it and want to let folks know that the process now is extremely easy.

- Log into TSP and select Withdrawals and Rollovers

- I then selected a Partial Distribution as I still have Roth TSP money I wanted to keep in the TSP.

- TSP will show you your Traditional Balance, with Tax-Exempt contributions, and also your Roth Balance. I chose to rollover my entire traditional balance.

- During this process you'll need to identify where you want the funds to go via snail mail. TSP will not send it electronically. I pulled this information from Vanguard to include my Traditional IRA account number. NOTE: You need to have the Vanguard information loaded in the TSP system for about 10 days before they will allow you to do the transfer.

- Here's the CRITICAL part. When you are filling out the forms for the transfer there will be a check box that asks you if that account will accept all the funds. DO NOT CHECK THE BOX. If you check the box then all the funds will go to Vanguard and you'll have a bit of a mess. Do not check the box and you will get a check in the mail for the tax-exempt balance. When you receive your tax-exempt check in the mail 7 days later, there will be a sheet that says "SAVE THIS STATEMENT FOR YOUR TAX RETURN". It lists out that the distribution is non-taxable and that you will receive a tax form in the future for this payment. The sheet also tells you that you have 60 days to complete the indirect rollover for the funds you just received.

Last year I was going to rollover these funds after they changed the TSP website hoping that they'd make the process easier, but as most TSP users know, the transition to the new website was simply disastrous. I decided to hold off until now and it appears as though everything is working as it should; I had zero problems and had it all complete in 7 days.

Hope this helps!
Fishing50
Posts: 668
Joined: Tue Sep 27, 2016 1:18 am

Re: Moving Tax-Exempt TSP Funds (Combat Zone Contributions) to Roth IRA

Post by Fishing50 »

Like you, I’m extremely satisfied with my transfer too. I made a similar move in 2022 without any problems. https://www.bogleheads.org/forum/viewt ... p?t=382265

I was motivated to get independent control of Roth asset allocation, tax exempt contributions into Roth IRA, and maintain G Fund allocation with Traditional TSP funds to align with tax efficient fund placement.
Retired Military Officer. 80% equites / 20% bonds for life, ZERO emergency fund, 100% taxable in equities (dividends in cash), 33% taxable, 30% Roth, 37% tax deferred. Gone Fishing At 52yrs old!
Joe Public
Posts: 196
Joined: Mon Jul 27, 2020 8:36 pm

Re: Moving Tax-Exempt TSP Funds (Combat Zone Contributions) to Roth IRA

Post by Joe Public »

SurferLife wrote: Mon Jan 29, 2024 7:21 pm Hope this helps!
Good stuff; thanks for sharing.
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Taz
Posts: 563
Joined: Tue Jan 13, 2009 8:10 am
Location: NM

Re: Moving Tax-Exempt TSP Funds (Combat Zone Contributions) to Roth IRA

Post by Taz »

SurferLife wrote: Mon Jan 29, 2024 7:21 pm Over the last few years, there has been a lot of information put out on how to pull out TSP money that is tax-exempt (combat zone contributions) and get it into a Roth IRA. It was my understanding that in years past, this effort took quite a bit of attention to make it happen, but I just did it and want to let folks know that the process now is extremely easy.

- Log into TSP and select Withdrawals and Rollovers

- I then selected a Partial Distribution as I still have Roth TSP money I wanted to keep in the TSP.

- TSP will show you your Traditional Balance, with Tax-Exempt contributions, and also your Roth Balance. I chose to rollover my entire traditional balance.

- During this process you'll need to identify where you want the funds to go via snail mail. TSP will not send it electronically. I pulled this information from Vanguard to include my Traditional IRA account number. NOTE: You need to have the Vanguard information loaded in the TSP system for about 10 days before they will allow you to do the transfer.

- Here's the CRITICAL part. When you are filling out the forms for the transfer there will be a check box that asks you if that account will accept all the funds. DO NOT CHECK THE BOX. If you check the box then all the funds will go to Vanguard and you'll have a bit of a mess. Do not check the box and you will get a check in the mail for the tax-exempt balance. When you receive your tax-exempt check in the mail 7 days later, there will be a sheet that says "SAVE THIS STATEMENT FOR YOUR TAX RETURN". It lists out that the distribution is non-taxable and that you will receive a tax form in the future for this payment. The sheet also tells you that you have 60 days to complete the indirect rollover for the funds you just received.

Last year I was going to rollover these funds after they changed the TSP website hoping that they'd make the process easier, but as most TSP users know, the transition to the new website was simply disastrous. I decided to hold off until now and it appears as though everything is working as it should; I had zero problems and had it all complete in 7 days.

Hope this helps!
Just to be clear, I can select ONLY the tax-exempt contribution (only 7k) as a partial distribution to be sent to me in a check (not to a Vanguard account) so that I can roll it over to an existing Roth account at Vanguard (or wherever) resulting in a clean traditional account left at TSP to be dealt with later? (My contributions predate Roth in TSP.) Does the Vanguard account info actually needed to be given to the TSP?
The destination matters. | "Life moves pretty fast. If you don't don't stop and look around once in a while - you could miss it." -- Ferris Bueller
Fishing50
Posts: 668
Joined: Tue Sep 27, 2016 1:18 am

Re: Moving Tax-Exempt TSP Funds (Combat Zone Contributions) to Roth IRA

Post by Fishing50 »

Taz wrote: Fri Feb 09, 2024 10:37 pm
SurferLife wrote: Mon Jan 29, 2024 7:21 pm Over the last few years, there has been a lot of information put out on how to pull out TSP money that is tax-exempt (combat zone contributions) and get it into a Roth IRA. It was my understanding that in years past, this effort took quite a bit of attention to make it happen, but I just did it and want to let folks know that the process now is extremely easy.

- Log into TSP and select Withdrawals and Rollovers

- I then selected a Partial Distribution as I still have Roth TSP money I wanted to keep in the TSP.

- TSP will show you your Traditional Balance, with Tax-Exempt contributions, and also your Roth Balance. I chose to rollover my entire traditional balance.

- During this process you'll need to identify where you want the funds to go via snail mail. TSP will not send it electronically. I pulled this information from Vanguard to include my Traditional IRA account number. NOTE: You need to have the Vanguard information loaded in the TSP system for about 10 days before they will allow you to do the transfer.

- Here's the CRITICAL part. When you are filling out the forms for the transfer there will be a check box that asks you if that account will accept all the funds. DO NOT CHECK THE BOX. If you check the box then all the funds will go to Vanguard and you'll have a bit of a mess. Do not check the box and you will get a check in the mail for the tax-exempt balance. When you receive your tax-exempt check in the mail 7 days later, there will be a sheet that says "SAVE THIS STATEMENT FOR YOUR TAX RETURN". It lists out that the distribution is non-taxable and that you will receive a tax form in the future for this payment. The sheet also tells you that you have 60 days to complete the indirect rollover for the funds you just received.

Last year I was going to rollover these funds after they changed the TSP website hoping that they'd make the process easier, but as most TSP users know, the transition to the new website was simply disastrous. I decided to hold off until now and it appears as though everything is working as it should; I had zero problems and had it all complete in 7 days.

Hope this helps!
Just to be clear, I can select ONLY the tax-exempt contribution (only 7k) as a partial distribution to be sent to me in a check (not to a Vanguard account) so that I can roll it over to an existing Roth account at Vanguard (or wherever) resulting in a clean traditional account left at TSP to be dealt with later? (My contributions predate Roth in TSP.) Does the Vanguard account info actually needed to be given to the TSP?
Taz- No, it’s much more complicated than selecting tax-exempt balance because it’s tied to traditional balance. One needs to remove most of the traditional balance to get the option to remove tax-exempt contributions. I successfully completed the transactions, and described the the transactions here https://www.bogleheads.org/forum/viewt ... p?t=382265

I feel it was worth the hassle. :beer
Retired Military Officer. 80% equites / 20% bonds for life, ZERO emergency fund, 100% taxable in equities (dividends in cash), 33% taxable, 30% Roth, 37% tax deferred. Gone Fishing At 52yrs old!
Alan S.
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Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: Moving Tax-Exempt TSP Funds (Combat Zone Contributions) to Roth IRA

Post by Alan S. »

What was done with the taxable earnings generated on the tax exempt balance?
Fishing50
Posts: 668
Joined: Tue Sep 27, 2016 1:18 am

Re: Moving Tax-Exempt TSP Funds (Combat Zone Contributions) to Roth IRA

Post by Fishing50 »

Alan S. wrote: Sat Feb 10, 2024 4:32 pm What was done with the taxable earnings generated on the tax exempt balance?
Tax-exempt contributions, earn taxable earnings that remain with the Traditional TSP balance.
Retired Military Officer. 80% equites / 20% bonds for life, ZERO emergency fund, 100% taxable in equities (dividends in cash), 33% taxable, 30% Roth, 37% tax deferred. Gone Fishing At 52yrs old!
dharrythomas
Posts: 1220
Joined: Tue Jun 19, 2007 4:46 pm

Re: Moving Tax-Exempt TSP Funds (Combat Zone Contributions) to Roth IRA

Post by dharrythomas »

If you are a federal civilian employee and have left military service, it is even easier, and has been available for a long time (I executed in 2014).

You have the option to combine your military and civilian TSP accounts. Do so. The civilian TSP will not accept the tax free balance from the military account.

Then do a direct transfer of the remaining balance in the military TSP to a Roth IRA.
tallhair
Posts: 50
Joined: Mon Dec 06, 2021 12:56 pm
Location: Southern Illinois

Re: Moving Tax-Exempt TSP Funds (Combat Zone Contributions) to Roth IRA

Post by tallhair »

dharrythomas wrote: Sun Feb 11, 2024 3:04 pm If you are a federal civilian employee and have left military service, it is even easier, and has been available for a long time (I executed in 2014).

You have the option to combine your military and civilian TSP accounts. Do so. The civilian TSP will not accept the tax free balance from the military account.

Then do a direct transfer of the remaining balance in the military TSP to a Roth IRA.
Thank you for the tip. I’m getting ready to start the process of moving the majority of my MIL & CIV TSP accounts to my Vanguard IRAs.

It sounds like doing this step first may simplify my process a little. I have a small amount of tax exempt in my MIL TSP account. If it goes like I imagine this would result in just one Traditional IRA transfer afterwards.

It would also result in two checks to me, one tax exempt, and one post tax that I would then send to Vanguard for deposit in my Roth IRA.

Is there an online way to initiate the combining of the accounts or will I need to call TSP?

Also by combining the accounts will that result in an automatic sending of the check for the tax exempt funds or will I request it?
tallhair
Posts: 50
Joined: Mon Dec 06, 2021 12:56 pm
Location: Southern Illinois

Re: Moving Tax-Exempt TSP Funds (Combat Zone Contributions) to Roth IRA

Post by tallhair »

I called today and TSP told me I had to submit a form, which I’ve requested online, which will be mailed. I was told they can’t do it for me over the phone, but the person I spoke with didn’t inspire confidence. Lots of I think, probably, etc.

I also asked if the MIL TSP account would remain since I have approximately $2.7 K of tax exempt funds in the account. I had low confidence in the answer that it would automatically roll into the CIV TSP account so I’m asking this community for input.
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