Author Topic: Combine Civilian and Military TSP Accounts  (Read 328 times)

Michael in ABQ

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Combine Civilian and Military TSP Accounts
« on: August 11, 2021, 01:26:40 AM »
I recently left federal service and I've got about $20k in my civilian Thrift Savings Plan (TSP) account. It's mostly in the fund that mirrors the S&P 500 so no need to do anything. However, I just discovered that now that I can combine it with my existing military TSP account that has quite a bit more money.

Is there any downside to this? Right now I can't sync my civilian account in Personal Capital as both accounts have the same account number (but different passwords). I'm still in the National Guard and plan to be for years to come so I'm still adding money to my military TSP. The upside seems to be just one less account to worry about but I'm wondering if there's any downside I'm not seeing.

@Nords any input?

dabighen

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Re: Combine Civilian and Military TSP Accounts
« Reply #1 on: August 12, 2021, 05:15:19 PM »
The only benefit to keeping two that I am aware of is that they are each treated separately for vesting, withdraw etc.  For example, if you wanted to take a TSP Loan, you could in theory take limits on both.  But taking a loan is a very bad idea, so this "benefit" should be moot.

If you take 72t withdrawls, in theory you could use the tables for one account and not they other which adds a bit of flexibility.

In my opinion, the benefits are too minor to be of note, so if it makes your accounts appear cleaner, I say combine them.

Nords

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Re: Combine Civilian and Military TSP Accounts
« Reply #2 on: August 14, 2021, 12:38:31 AM »
I recently left federal service and I've got about $20k in my civilian Thrift Savings Plan (TSP) account. It's mostly in the fund that mirrors the S&P 500 so no need to do anything. However, I just discovered that now that I can combine it with my existing military TSP account that has quite a bit more money.

Is there any downside to this? Right now I can't sync my civilian account in Personal Capital as both accounts have the same account number (but different passwords). I'm still in the National Guard and plan to be for years to come so I'm still adding money to my military TSP. The upside seems to be just one less account to worry about but I'm wondering if there's any downside I'm not seeing.

@Nords any input?
I can think of 4-5 issues, from most important to least interesting.

First, let me ask a dumb IT question.  If you change the password on your TSP accounts to both have the exact same password, what happens when you synch the two accounts into Personal Capital?  This old MilitarySaves post implies that you can try it:
https://militarysaves.org/blog/1718-three-things-to-know-when-you-have-two-tsp-accounts
ďFinally, you can make your My Account profile settings on each account different or the same depending on how you want to manage your online access. If you choose to make the password the same for each account, youíll be able to log into one account and then switch over to the other without having to log out and log back in. Youíll still need to add and validate your email address(es) or phone number separately on each account to use required security features such as two-step authentication.Ē

Thereís a measure of password vulnerability in that tactic, but itís the TSP and that hack might still be open.  Maybe youíd be able to experiment with it, or maybe their system already prevents re-using the same password.

Next, if youíre finished with the civil service, then I believe (but have not confirmed) that you can roll your civil-service TSP over to your IRA (traditional IRA or Roth IRA, as appropriate).  That gives your civil-service traditional TSP account a lot of flexibility to do Roth IRA conversions on your time.  But itís only $20K.

If you roll that civil-service TSP into your military TSP then you canít touch your combined (military) TSP account until youíve retired awaiting pay from the Guard.  Thereís no in-service rollovers for military servicemembers, although you could do hardship withdrawals or loans.

Third, Iím not sure about spouse rights for your civil-service TSP, but the military TSP account has spouse rights to the TSPís annuity feature.  In 2015 when we rolled my spouseís traditional TSP over to her traditional IRA, I had to give my notarized spouse permission. 

If you roll your civil-service TSP into your military TSP, that civil-service $20K would then be subject to spouse rights.

Fourth, hereís two examples of the convenience of a TSP account (your civilian one) where (because youíre out of the civil service) you can transfer funds back & forth.

1.  Separating out your tax-exempt contributions.  Letís say that you have Combat Zone Tax-Exempt contributions in your military traditional TSP account. 

(The TSP wonít let you combine a military traditional TSP account with CZTE contributions into a civil-service account.  Thatís a note in section II of the form:
https://sharmansite.com/Content/pdf/Civilian-Forms/tsp-65.pdf
But you can combine a civil-service TSP account into a military account that has CZTE contributions.)

Once youíve retired, you could roll that entire military TSP account over to a traditional IRA, then roll back all but the CZTE contributions into the military TSP account.  That leaves your CZTE contributions sitting in a traditional IRA, which you can immediately convert to a Roth IRA.  Since the contributions were tax-exempt, youíve essentially completed a backdoor Roth IRA conversion with zero income taxes.

If you combined your civil-service TSP account with your military TSP account before this CZTE maneuver, youíd have to make absolutely certain that all of the cost-basis info is preserved during the combining of the accounts.  Otherwise the CZTE Roth IRA conversion would be a lot more difficult, but still eminently achievable.

2.  Backdoor Roth IRA conversions (if your income is too high for Roth IRA contributions).
Backdoor Roth IRAs require an empty traditional IRA so that there are no gains subject to income tax.  You can create an empty traditional IRA by transferring it into your civil-service traditional TSP.  Once your traditional IRA is empty, you could make a nondeductible traditional IRA contribution and immediately convert that into a backdoor Roth IRA.  It was a nondeductible contribution (already taxed), and it was only in the traditional IRA for a day or two (no taxable gains).