military unique investment strategies?

[pgg]

But if you plan to bail out after your commitment, you can roll your TSP over to a Roth IRA and you won't pay tax on the tax-exempt basis-larger Roth IRA, where the tax benefits more than make up for the fact that you pay your marginal tax rate on the earnings portion of the tax-exempt TSP money.

What are the rules for rolling TSP over into a Roth IRA? Is there a limit to how much money from a TSP account can be moved? Presumably by the time most of us get out, we'll be ineligible to contribute anything to a Roth IRA because of income limits. The rollover you mention here sounds like a loophole for dumping money into a Roth regardless of income.

I think the max annual contribution to TSP is around $15,000. Could someone spend his final four years in the military maxing out his TSP account @ $15K/year, and then roll that $60K straight into a Roth (thereby getting around the annual $5K Roth contribution limit)?

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[Gastrapathy]

What are the rules for rolling TSP over into a Roth IRA? Is there a limit to how much money from a TSP account can be moved? Presumably by the time most of us get out, we'll be ineligible to contribute anything to a Roth IRA because of income limits. The rollover you mention here sounds like a loophole for dumping money into a Roth regardless of income.

I think the max annual contribution to TSP is around $15,000. Could someone spend his final four years in the military maxing out his TSP account @ $15K/year, and then roll that $60K straight into a Roth (thereby getting around the annual $5K Roth contribution limit)?

I think you can only roll TSP $ into a traditional IRA.

 

[alpha62]

If I earned tax-free money the hard way, in Iraq, it would be a cold day in hell before I let the gov't ever get their hands on it with any chance of getting another whack at taxing it... ever.

I'd max the Roth out.

 

[The White Coat Investor]

I think you can only roll TSP $ into a traditional IRA.

Not true. There was a recent change. But in effect, it is really no different than before. You still have to pay the taxes on whatever wasn't taxed or tax-free before. So if you deferred in $60K during your 4 year commmitment, and also put in another $40K of tax-exempt while deployed, you have a say $110K (add in a few earnings) in your TSP when you separate. You would have to pay taxes on $70K of income in order to convert it to a Roth IRA. In 2010 there is no income limit to doing this, but in other years, you might hit a snag if you made too much money at the end of the year you separated. Since most of us stick around to about September 1st so we don't have to give up the ISP our last year, we probably won't exceed the income limit unless we have a working spouse.

 

[The White Coat Investor]

What are the rules for rolling TSP over into a Roth IRA? Is there a limit to how much money from a TSP account can be moved? Presumably by the time most of us get out, we'll be ineligible to contribute anything to a Roth IRA because of income limits. The rollover you mention here sounds like a loophole for dumping money into a Roth regardless of income.

I think the max annual contribution to TSP is around $15,000. Could someone spend his final four years in the military maxing out his TSP account @ $15K/year, and then roll that $60K straight into a Roth (thereby getting around the annual $5K Roth contribution limit)?

It isn't a loophole because you still must have income below the Roth IRA conversion limit (something like $160K) to do so. That limit is waived in 2010, and perhaps longer depending on what congress does with the Bush tax cuts. But no, the only limit is the IRS limit on your income. And of course, at a certain amount of conversion, it doesn't make sense. If you're paying 45% taxes on the converted money, you might as well leave it in the TSP until retirement since you'll almost surely be in a lower bracket then. But I'll probably convert at least a portion of my TSP in 2010 when I get out.

 

[jbernar1]

Is your base pay the only taxable income? Or are these other things taxable: basic allowance for housing, basic allowance for sustinence, variable special pay, additional special pay, board certified pay, incentive special pay? And do you have to apply for each of these additional special pays?

 

[elderjack21]

Is your base pay the only taxable income? Or are these other things taxable: basic allowance for housing, basic allowance for sustinence, variable special pay, additional special pay, board certified pay, incentive special pay? And do you have to apply for each of these additional special pays?

the only non-taxable income is BAH, BAS, and the first $6500/mo earned in a combat zone (may be a little less than that or a little more, not sure exactly what it is this year).

 

[IronMed10]

Thanks for keeping these old threads going for those of us with our heads in Step 1 prep books!

Ironmed
AFHPSP c/o 2010