Rollover beneficiary TSP to IRA?

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Nonam3
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Joined: Mon Mar 12, 2018 11:00 pm

Rollover beneficiary TSP to IRA?

Post by Nonam3 » Wed May 16, 2018 2:43 am

I have a beneficiary TSP and I just read that the TSP will be fully distributed to my (2) children should I pass away. They will, therefore, be hit with taxes once they receive the funds. Is it then imperative for me to roll over the TSP to a traditional IRA so as to avoid payment of a high tax? Should I leave some amount to take advantage of the the G fund? I read that some people prefer to have the G fund in lieu of bonds. Thank you.

Swansea
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Re: Rollover beneficiary TSP to IRA?

Post by Swansea » Wed May 16, 2018 5:41 am

Yes, you have found a good reason to move the monies from the TSP. The G fund is as stable as a money market, but with much betters returns. However, if you look at the 10 year performance vis-a-vis, the F fund (bonds), the F fund has a much better return over 10 years.
The decision hinges upon when you think your heirs may need the money.

retiredjg
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Re: Rollover beneficiary TSP to IRA?

Post by retiredjg » Wed May 16, 2018 6:02 am

Unless the TSP account is small, I would probably roll it to IRA. This would allow your children to inherit the IRA rather than get a sudden taxable distribution from the TSP.

I'd probably roll it all over. The G Fund is a nice touch, but keeping an extra account to just have the G Fund does not make a lot of sense to me.

motorcyclesarecool
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Re: Rollover beneficiary TSP to IRA?

Post by motorcyclesarecool » Wed May 16, 2018 6:46 am

Definitely roll a beneficiary TSP account to an IRA (Or IRAs in the event of a Roth balance). That is my first instruction to my survivor. Low costs and access to G-Fund not worth the inflexible withdrawal options and tax bill for your heirs.

EDITED TO ADD:
If there is a Roth balance it would be insanity not to roll it to a Roth IRA.
Last edited by motorcyclesarecool on Wed May 16, 2018 7:24 am, edited 1 time in total.
Understand that choosing an HDHP is very much a "red pill" approach. Most would rather pay higher premiums for a $20 copay per visit. They will think you weird for choosing an HSA.

rkhusky
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Re: Rollover beneficiary TSP to IRA?

Post by rkhusky » Wed May 16, 2018 6:58 am

You could keep a small amount in the G Fund in the TSP, such that your children would not face a large tax bill, such as $50K or $100K. It depends in which tax bracket they are currently.

jstat
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Joined: Mon Jan 19, 2009 2:53 pm

Re: Rollover beneficiary TSP to IRA?

Post by jstat » Wed May 16, 2018 7:32 am

My understanding is that a TSP account can be transferred by a beneficiary to an inherited IRA. Look at the "Tax Information" pdf here: https://www.tsp.gov/forms/deathBenefits.html

Spirit Rider
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Re: Rollover beneficiary TSP to IRA?

Post by Spirit Rider » Wed May 16, 2018 10:29 am

jstat wrote:
Wed May 16, 2018 7:32 am
My understanding is that a TSP account can be transferred by a beneficiary to an inherited IRA. Look at the "Tax Information" pdf here: https://www.tsp.gov/forms/deathBenefits.html
An orginal beneficiary in any qualified plan can do a direct rollover to an Inherited. This is mandatory after the PPA of 2006 and IRS 2007 Interim and Discretionary Amendment. This is nothing unique to the TSP.

What is unique to the TSP and what we are talking about is that they do not allow a beneficiary of an original non-spouse beneficiary to rollover the account to an Inherited IRA. This is why it is imperative that an original non-spouse beneficiary roll it over to an Inherited IRA promptly and a spouse beneficiary at a minimum should assume ownership.

Alan S.
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Location: Prescott, AZ

Re: Rollover beneficiary TSP to IRA?

Post by Alan S. » Wed May 16, 2018 1:06 pm

The TSP Modernization Act authorized expanded distribution options for employees and retirees and this may take a couple years to fully implement.
But there was nothing in the Act to improve beneficiary options, and given that there is no pending legislation and it takes the TSP a couple years to implement approved changes, there is no relief in sight for the non spouse beneficiary restrictions.

So no point in delaying the beneficiary direct rollovers waiting for relief: https://www.fedweek.com/issue-briefs/re ... thdrawals/

Nonam3
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Joined: Mon Mar 12, 2018 11:00 pm

Re: Rollover beneficiary TSP to IRA?

Post by Nonam3 » Thu May 17, 2018 12:39 am

Thank you all very much for your input. I will initiate transfer very soon. My children are in their early 20's. My next challenge will be asset allocation. I plan to select the recommended 3 fund portfolio (VTSAX, VTIAX, and VBTLX). Any other recommendations? So no need to keep some funds in the TSP for the G Fund? The rollover amount is about $700K. Thanks again.

retiredjg
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Re: Rollover beneficiary TSP to IRA?

Post by retiredjg » Thu May 17, 2018 6:33 am

Nonam3 wrote:
Thu May 17, 2018 12:39 am
Thank you all very much for your input. I will initiate transfer very soon. My children are in their early 20's. My next challenge will be asset allocation. I plan to select the recommended 3 fund portfolio (VTSAX, VTIAX, and VBTLX). Any other recommendations? So no need to keep some funds in the TSP for the G Fund? The rollover amount is about $700K. Thanks again.
If you want help setting up your portfolio, see the link at the bottom of this message for the format that makes it easy for us to assist people with things like that. It is a bit of work, but you will learn a lot about your financial situation as you do it.

You do not "need" to keep some funds in the G Fund, but you certainly can if you want to and don't mind having the extra account.

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