So it seems that if I am adding after tax dollars to this 401(a) and then having the gains taxed when I roll to the Roth, that that makes it a bit pointless......
What if, after maxing your TSP, you put $36,000 into the after-tax 401a, then distribute the $36K into a Roth IRA and whatever gains into a tIRA, and repeat this each year?
Great idea :) Fantastic news; I was able to confirm today that I can do the split withdrawal once a year with putting the contributions into a Roth IRA and profit into a traditional IRA.
This leads to a few other questions, though. My only retirement accounts right now are a TSP and a standalone Roth IRA with Vanguard. Obviously, I'd transfer the 401(a) contributions to that Roth IRA.
1. Vanguard seems to have a $1,000 minimum for opening up a traditional IRA. I am capped on the amount I can contribute after-tax on this 401(a) at 10% of my base pay, which is only $8216 a year at the moment. So the interest/gains on that from a year to year basis are going to be low. So what is the answer here?
A) Do I have to wait (potentially years) until I have gained $1,000 in growth to roll it out? lol.
B) Be sad I can't keep all my retirement stuff just in Vanguard and find a place with no minimum to open a traditional IRA?
C) Some other option I am unaware of. Perhaps open an after-tax traditional IRA (see #2 below).
D) Is it possible to roll that money into my TSP directly from the 401(a) using TSP-60?
https://www.tsp.gov/PDF/formspubs/tsp-60.pdf2. A maxed TSP + 5% matching + ~$8216 a year in 401(a) still falls short of the Annual Defined Contribution Limit for a Single filer of $54,000 in 2017. Is this what you were referring to with your $36,000 reference? Or am I conflating different things? If this is what you meant, could I open a Traditional IRA with Vanguard right now with $3,000 in after tax money and leave it alone to roll profit from the 401(a) into each year?
I think a yearly roll-over makes sense for the 401(a) just in case the split withdrawal loophole ever gets closed.
3. Final two-part question: If my question is correct in #3 that I can open up a traditional IRA with after-tax money, will converting that to a Roth IRA be tax-free since I did not take a deduction? ie, no tax and not added to my gross income for the year I roll it to the Roth. Second part: Does money in a TSP play a role in the pro-rata rule when it come to doing a conversion of this traditional IRA later on? I only see references to "Traditional, SEP, and/or SIMPLE IRA" when reading about the rule, and I just am not sure how the TSP would count.