Should I do a rollover and open up a tIRA?

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Topic Author
mbres60
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Should I do a rollover and open up a tIRA?

Post by mbres60 »

Currently dh and I have NO tIRA. I have a 401k and he has his TSP. He is thinking of rolling some of his TSP into a tIRA so he can do QCD. I am thinking of rolling some after tax money I have in my 401k into a Roth IRA but the earnings it generated would go into a tIRA. Is there any reason we would not want to do this? I seem to remember a few years ago some issues with RMDs or something that got complicated if you had a Roth (which we do) and a tIRA.

FYI- he is already taking RMDs and I will be next year.

Is it too late for this year to rollover some of his TSP into a Vanguard tIRA AND do some QCDs before the end of the year?

Thanks for any help.
shess
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Re: Should I do a rollover and open up a tIRA?

Post by shess »

Seems like there's a lot of crossing of streams, here. Each of 401k, TSP, and tIRA have RMD requirements, and you cannot satisfy one type of account's RMD requirements using a different type of account. So you could rollover TSP to tIRA in order to generate a tIRA RMD requirement going forward which you could then satisfy using a QCD. I think you need to satisfy your RMD *before* doing the rollover, so it would only help in future years. So it might make sense if you want to generate a stream of charitable payments.

Um, random links:
https://www.fedweek.com/tsp/rollovers-a ... -your-tsp/
https://feea.org/2019/02/28/qualified-c ... ributions/

Roth IRAs do not have RMD, Roth 401k or TSP do have RMD. So it can make sense to rollover from those accounts into a Roth IRA. Doing your split rollover of after-tax-401k-to-Roth and earning-from-same-to-tIRA won't make things super complicated, if you leave your pre-tax 401k in place it will just generate a new tIRA account which has RMD requirements. You could just rollover the entire 401k to keep the same number of RMD accounts.
fyre4ce
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Re: Should I do a rollover and open up a tIRA?

Post by fyre4ce »

Here's a general, but detailed, comparison between IRAs and employer plans that you may find helpful:

https://www.bogleheads.org/wiki/IRA#Com ... r_accounts
Topic Author
mbres60
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Joined: Tue Jul 03, 2007 1:47 pm

Re: Should I do a rollover and open up a tIRA?

Post by mbres60 »

shess wrote: Tue Nov 23, 2021 4:10 pm Seems like there's a lot of crossing of streams, here. Each of 401k, TSP, and tIRA have RMD requirements, and you cannot satisfy one type of account's RMD requirements using a different type of account. So you could rollover TSP to tIRA in order to generate a tIRA RMD requirement going forward which you could then satisfy using a QCD. I think you need to satisfy your RMD *before* doing the rollover, so it would only help in future years. So it might make sense if you want to generate a stream of charitable payments.

Um, random links:
https://www.fedweek.com/tsp/rollovers-a ... -your-tsp/
https://feea.org/2019/02/28/qualified-c ... ributions/

Roth IRAs do not have RMD, Roth 401k or TSP do have RMD. So it can make sense to rollover from those accounts into a Roth IRA. Doing your split rollover of after-tax-401k-to-Roth and earning-from-same-to-tIRA won't make things super complicated, if you leave your pre-tax 401k in place it will just generate a new tIRA account which has RMD requirements. You could just rollover the entire 401k to keep the same number of RMD accounts.
Thanks! I did learn from the fed week article that if you are already taking RMDs (my dh is) then you have to take your RMD before the rollover. We had been hoping to do the rollover, do some QCDs and then take the rest of the RMD . I just reread the article and it is unclear to me if they are only talking about rolling over the whole balance. What happens if it is only about 5% of the balance that would be rolled over to a tIRA?
Last edited by mbres60 on Tue Nov 23, 2021 5:12 pm, edited 1 time in total.
Topic Author
mbres60
Posts: 1114
Joined: Tue Jul 03, 2007 1:47 pm

Re: Should I do a rollover and open up a tIRA?

Post by mbres60 »

fyre4ce wrote: Tue Nov 23, 2021 4:56 pm Here's a general, but detailed, comparison between IRAs and employer plans that you may find helpful:

https://www.bogleheads.org/wiki/IRA#Com ... r_accounts
Thank you.
shess
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Joined: Wed May 17, 2017 12:02 am

Re: Should I do a rollover and open up a tIRA?

Post by shess »

mbres60 wrote: Tue Nov 23, 2021 5:08 pm
shess wrote: Tue Nov 23, 2021 4:10 pm Seems like there's a lot of crossing of streams, here. Each of 401k, TSP, and tIRA have RMD requirements, and you cannot satisfy one type of account's RMD requirements using a different type of account. So you could rollover TSP to tIRA in order to generate a tIRA RMD requirement going forward which you could then satisfy using a QCD. I think you need to satisfy your RMD *before* doing the rollover, so it would only help in future years. So it might make sense if you want to generate a stream of charitable payments.

Um, random links:
https://www.fedweek.com/tsp/rollovers-a ... -your-tsp/
https://feea.org/2019/02/28/qualified-c ... ributions/

Roth IRAs do not have RMD, Roth 401k or TSP do have RMD. So it can make sense to rollover from those accounts into a Roth IRA. Doing your split rollover of after-tax-401k-to-Roth and earning-from-same-to-tIRA won't make things super complicated, if you leave your pre-tax 401k in place it will just generate a new tIRA account which has RMD requirements. You could just rollover the entire 401k to keep the same number of RMD accounts.
Thanks! I did learn from the fed week article that if you are already taking RMDs (my dh is) then you have to take your RMD before the rollover. We had been hoping to do the rollover, do some QCDs and then take the rest of the RMD . I just reread the article and it is unclear to me if they are only talking about rolling over the whole balance. What happens if it is only about 5% of the balance that would be rolled over to a tIRA?
I'm not sure what your question is. I read the guidance to mean that you needed to take care of your TSP RMD before removing any other money from the TSP account. Most likely this is because your RMD is determined based on your prior year's end-of-year balance. So without requiring the RMD before the rollover, you could potentially play games doing rollovers into new accounts to sidestep the RMD requirements. Also feeding in is that they need to make sure you don't leave too few funds post-rollover to cover the RMD. So I would assume you have to take your entire RMD before doing any rollover, whether 100% or 5%.

Also, my reading of that is that the new funds rolled into your tIRA would not cause a new RMD requirement for that tIRA in the year of the rollover, because you took care of that before the rollover.

Again, you cannot rollover TSP funds to a tIRA and use distributions from the tIRA to satisfy the TSP RMD requirements. TSP RMD requirements must be satisfied from the TSP, 401k RMD requirements must be satisfied from the 401k, etc.
Topic Author
mbres60
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Re: Should I do a rollover and open up a tIRA?

Post by mbres60 »

Shess - thank you for your reply. As an example, dh is currently taking RMDs (due to pandemic he didn't have to do so last year). He will take his yearly RMD in December. His RMD this year will be based on how much was in his account 12/31/2020 so rolling over to tIRA before he takes the RMD will have no impact on what they base the RMD amount on. I am wondering if that article is talking about fully rolling over to tIRA the whole account balance as opposed to a partial rollover. It didn't say. In that case the company who now will get the new money in tIRA would not know what the balance was 12/31/2020.

Once RMDs need to be taken they are taken every year. I wish I knew where to find out the exact rules without calling TSP. Earlier I googled but really didn't find too much. I'll have to think of better terminology to google.
shess
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Re: Should I do a rollover and open up a tIRA?

Post by shess »

mbres60 wrote: Tue Nov 23, 2021 8:24 pm Shess - thank you for your reply. As an example, dh is currently taking RMDs (due to pandemic he didn't have to do so last year). He will take his yearly RMD in December. His RMD this year will be based on how much was in his account 12/31/2020 so rolling over to tIRA before he takes the RMD will have no impact on what they base the RMD amount on. I am wondering if that article is talking about fully rolling over to tIRA the whole account balance as opposed to a partial rollover. It didn't say. In that case the company who now will get the new money in tIRA would not know what the balance was 12/31/2020.

Once RMDs need to be taken they are taken every year. I wish I knew where to find out the exact rules without calling TSP. Earlier I googled but really didn't find too much. I'll have to think of better terminology to google.
Your balance on 12/31/2020 in the tIRA accounts has nothing to do with your balance on 12/31/2020 in your TSP accounts. So the company who gets your tIRA rollover WILL know what the balance of that tIRA account was on 12/31/2020, it was what it was, the rollover doesn't change that. The rules as described implies that the funds rolled over to the tIRA will not require an RMD in the tax year the rollover happens, because that already was required to happen at the source.

AFAICT, the Internet seems pretty consistent that if you want to move money out of TSP, then you must first take your RMD if you are at an age where RMDs are required. In fact, articles kind of imply that TSP won't even let you do any other kind of rollover unless you have taken care of your RMDs. Unfortunately, if you get it wrong there are penalties, so IMHO you're probably better off to just give them a call and ask (or take your RMD and do the rollover afterwards).
retiredjg
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Re: Should I do a rollover and open up a tIRA?

Post by retiredjg »

Regarding his TSP...

I assume an RMD is required this year and you know what balance it is based on. He cannot do a QCD from the TSP. So the 2021 RMD must be taken as is. It cannot be reduced.

If he wants to lower the 2022 RMD from the TSP, he will have to reduce his TSP balance (by rolling some to an IRA) before the end of 2021. Since this rollover can take several weeks, I suggest taking the 2021 RMD on Monday (or Friday this week if possible) and initiating the rollover to IRA two or three days later. I would roll out a lot to the tIRA - enough for several year's intended QCDs - since this is a bit of a laborious practice.

Then in 2022, he will have a reduced RMD from the TSP and up to $100k of his rollover IRA can be a QCD (which can take the place of his IRA RMD).

The question arises in my mind why he wants to keep the TSP at this point. Are you aware that if he dies and you inherit the TSP that you need to immediately roll it over to tIRA instead of keeping the money in the TSP? If you don't, when you die, your heirs will get a taxable distribution of the entire thing all at one time...which they cannot put into an inherited IRA.

Of course, if your heirs are a charity, that won't matter.
retiredjg
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Re: Should I do a rollover and open up a tIRA?

Post by retiredjg »

mbres60 wrote: Tue Nov 23, 2021 3:14 pm Currently dh and I have NO tIRA. I have a 401k and he has his TSP. He is thinking of rolling some of his TSP into a tIRA so he can do QCD. I am thinking of rolling some after tax money I have in my 401k into a Roth IRA but the earnings it generated would go into a tIRA. Is there any reason we would not want to do this? I seem to remember a few years ago some issues with RMDs or something that got complicated if you had a Roth (which we do) and a tIRA.

FYI- he is already taking RMDs and I will be next year.
Regarding your 401k....your first RMD will be based on the 401k balance at the end of this year. If you want to reduce that RMD, you will need to do a rollover of some or all to tIRA before the end of this year. Then your IRA could be used for QCDs if you want and your 401k RMD will be smaller. Of course, the total amount you take from your accounts will be the same, just that some could go to QCDs if you want.

You say you are thinking of rolling some after-tax money into Roth IRA and the earnings will go into tIRA. When you say "after-tax" money, do you mean Roth 401k? Or do you mean an after-tax account (that is not Roth) inside the 401k? Those are different things and what happens with the money is different as well.
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Eagle33
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Re: Should I do a rollover and open up a tIRA?

Post by Eagle33 »

Assuming you rollover $ this year from the 401k and TSP to each of your tIRA's you can do QCD's from the IRAs of those of you that have reached 70.5. Realize the QCD from IRA will only reduce the IRA's taxable RMD, not the RMDs from the 401k and TSP this year and in the future.
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.
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mbres60
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Re: Should I do a rollover and open up a tIRA?

Post by mbres60 »

retiredjg wrote: Wed Nov 24, 2021 9:36 am
The question arises in my mind why he wants to keep the TSP at this point. Are you aware that if he dies and you inherit the TSP that you need to immediately roll it over to tIRA instead of keeping the money in the TSP? If you don't, when you die, your heirs will get a taxable distribution of the entire thing all at one time...which they cannot put into an inherited IRA.

Of course, if your heirs are a charity, that won't matter.
Yes, I am aware that if he passes or I do one of us would have to rollover his TSP to an IRA (actually the TSP calls it a transfer, not a rollover ;)) Maybe next year we will take care of transferring it to an IRA. We do like the G fund however so could leave some there.

I don't have a Roth 401k. I do have a 401k that while working I was able to put after tax money in it. I called Vanguard yesterday (my 401k is there) and was told I could rollover the after tax $ into a Roth IRA and the earnings into a tIRA. I wanted to think about it. I called today and was told I would have to put the after tax $ (my contributions) AND the tax deferred earnings it accumulated all into a tIRA. I didn't like that so I called back and got someone else. This person said I could do what I want but they would have to mail me the paperwork (the other person said they could do it but never got into details). So now I am left waiting a while for them to mail me forms. I hope these forms say I can do what I want to do.

Happy Thanksgiving to all!
retiredjg
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Re: Should I do a rollover and open up a tIRA?

Post by retiredjg »

They are required (at least in 2021) to do it the way you want - after-tax to Roth IRA and pre-tax to tIRA. The person who said it must all go to tIRA was incorrect.

You might want to start that paperwork soon. Some people have concerns that this option will go away as tax laws change.
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Eagle33
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Re: Should I do a rollover and open up a tIRA?

Post by Eagle33 »

Back when I was still working with a 401k, I did an in-service rollover. However, when discussing the desired transaction with the 401k administrator's rep, he explained that it was necessary to rollover pre-tax and after-tax in the proportion they existed in the 401k. In other words to get 100% of the after-tax amount (contribution only) it was required to also rollover 100% of the pre-tax that was available for in-service rollover. Glad I decided on 100% instead of selecting a specific dollar amount, it clearly made the rollover to tIRA (100% of pre-tax) and Roth IRA (100% of after-tax) go smoothly without taxes being involved. That still left the 401k sub-account that contained the company's annual contribution in the 401k. The company match sub-account was part of the pre-tax rollover to my tIRA. It was confusing at the time, but I now understand it more clearly today thanks to members on this forum.
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.
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