By Mike Miles
Federal Funds rate and the F Fund
March 10th, 2010 | Uncategorized
Q. The Federal Reserve Bank has indicated it will begin increasing the Federal Funds Rate this year. How much of an impact (decrease in value) will this have on the F Fund (U.S. bonds)?
A. It’s impossible to say exactly, since the F Fund is composed a variety of types of bonds. In general, you should expect rising interest rates to drive down the market value of bonds, particularly treasury debt — but reasonable expectations are not always fulfilled.
Tags: funds
Converting Traditional IRA to TSP and Roth
March 10th, 2010 | Uncategorized
Q. If I have a traditional IRA worth $100,000 with a basis (post-tax contributions) of $20,000, can I roll over $80,000 to TSP and the other $20,000 convert to a Roth? Would these two actions result in a tax-free transaction?
A. No. Any distributions from your IRA, whether rolled over, or not, are considered to consist of both basis and earnings.
Tags: IRA, Roth IRA, thrift savings plan, TSP
Age-based withdrawals
March 10th, 2010 | Uncategorized
Q. I am 60 years old. I want to make an age-based withdrawal. However, I am paying back a loan made four years ago. The TSP Web site says I cannot make an a withdrawal if I have a loan application pending. Since my loan has been ongoing for four years, the load application is “NOT PENDING. May I still make an age-based withdrawal with an active loan?
A. Having a loan outstanding does not prevent you from taking an in-service withdrawal.
Tags: withdrawal, withdrawals
Contributing to the TSP and another 401(k)
March 9th, 2010 | Uncategorized
Q. I am a federal employee and contributing the maximum of $16,500 to the TSP. I also have a sub-chapter s-corporation and earn outside employment income. Can I open a 401(k) under the corporation and make additional pretax contributions to this account?
A. No. The limit applies in the aggregate.
Tags: 401(k), thrift savings plan, TSP
72T and TSP
March 9th, 2010 | Uncategorized
Q. I plan to retire at the age of 53 with 22 years under law enforcement with the Bureau of Prisons. Can I have my 72T Substantially Equal Periodic Payments come from TSP or do I have to transfer to a financial planning firm such as Edward Jones?
A. The payments can come from your TSP, but will have to be set up as monthly payments.
Tags: SEPP, thrift savings plan, TSP
TSP funds
March 9th, 2010 | Uncategorized
Q. I just read your article in today’s Federal Times. I just looked at my TSP account and I am investing in the G, F and C funds. As of June I will have 21 years of service. I asked my boss when will I be able to go to the Retirement Seminar and she informed me that there are six people ahead of me. Last year the office sent two people; at this rate I will be screwed because I am trying to prepare now for my retirement. After reading your article it has inspired me to invest in the other funds at 5 percent and change the three that I am currently vested into 21.66 percent each. I know you can’t advise me on what to do, but based on your article, am I headed in the right direction?
A. Being invested in all five funds, in most cases, is preferable to concentration in fewer. I can’t say whether or not the allocation you’ve chosen is right for your needs, however, and you won’t get this answer from a retirement seminar, either.
Tags: G fund, retirement planning, thrift savings plan, TSP
TSP vs. IRAs
March 9th, 2010 | Uncategorized
Q. Could you provide your opinion about the pros and cons in transferring IRAs into the TSP, or keeping them separate? I understand that the costs are much less in the TSP. However, withdrawal options are more flexible in IRAs, and IRAs provide another diversification capability.
A. The pros are low cost, the G Fund, simple and efficient design, ease of management and superior risk-adjusted returns. The con is limited withdrawal options. The diversification possibilities in an IRA are largely irrelevant, since the TSP’s funds adequately cover the investment world. What most people call diversification is actually concentration. The TSP’s attributes make it the best retirement investment vehicle that exists, period. Dealing with the withdrawal restrictions is a small price to pay for such a great investment environment.
Tags: IRA, thrift savings plan, TSP
TSP withdrawal
March 8th, 2010 | Uncategorized
Q. Once retired and taking distribution withdrawals from my TSP account, will I have control of which investment(s) in my TSP account the distribution withdrawal comes out of? An example would be G fund versus one of the stock index funds?
A. Your withdrawal be pro-rated across all the funds held in your account at the time the withdrawal is processed.
Tags: thrift savings plan, TSP, withdrawals
Metlife insurance
March 8th, 2010 | Uncategorized
Q. The current annuity provider for our TSP balance is MetLife. If Metlife goes into bankruptcy, what will happen to those people who have purchased an annuity from Metlife? If there is a chance that I could lose my annuity because of this company going under, what would you suggest I do with my TSP balance when i do retire?
A. Your annuity might be paid in full or in part or not at all. It depends upon what happens. Your annuity could be paid out of available funds even in the event of bankruptcy. Your annuity could be sold to another insurer that would honor the contract. A state insurance commission may step in and provide funds to make payment. The bottom line is that there is risk, but it’s the insurer’s responsibility to back up their guarantee. But, then again, in the age of the bailout, who knows…?
Tags: annuity, thrift savings plan, TSP
One-time contribution to TSP
March 8th, 2010 | Uncategorized
Q. I am a U.S. Postal Service employee covered by CSRS and I have a fellow employee covered by FERS with the same question. Aside from the “catch-up contribution,” is it possible for me to make a one-time contribution to my TSP account. For example, I would like to take the amount of my federal income tax refund and add it into my TSP. I realize that I have already paid income taxes on this money and won’t enjoy the full tax benefits of a “pretax” contribution. I am more interested in building up my TSP balance. FYI, I am in no danger of exceeding the IRS limits for pretax contributions.
A. No, you can’t.
Tags: CSRS, thrift savings plan, TSP