By Mike Miles
Carrying over RMD at 70 1/2
June 18th, 2013 | Uncategorized
Q. Upon turning 70½ years of age, one must begin taking required minimum distributions. The only exception is that the first distribution can be delayed until the following year. This serves to reduce taxable income in the 70.5 year, but increases taxable income since there would be two years’ worth of distributions in the next year.
Can a part of the RMD be taken in the 70.5 year, with the remainder being carried over to the next year?
A. Yes.
Tags: 70 1/2, Required Minimum Distribution, taxes
Resignation and matching funds
June 18th, 2013 | Uncategorized
Q. If I resign at age 51 with 25 years of service, will I lose the government matching funds that went into my Thrift Savings Plan? Will I be able to receive a deferred annuity at age 62? What would that be — 25 percent of high-3?
A. Mike: Agency matching contributions are not subject to a vesting requirement and are not forfeited at termination.
Reg: Because you have at least 20 years of service, you could apply for a deferred annuity at age 60. Since each year of service would be worth 1 percent, with 25 years, your annuity would be 25 percent of the high-3 you had on the day you left government.
Tags: deferred annuity, matching funds, resignation, TSP, vesting
Firefighters’ benefits
June 18th, 2013 | Uncategorized
Q. Is Federal Employees’ Group Life Insurance, survivor benefit and Thrift Savings Plan matching based on GS base pay or firefighter base pay?
A. TSP matching is based on your pay.
Tags: FEGLI, firefighter, survivor benefits, TSP matching funds
TSP contribution
June 18th, 2013 | Uncategorized
Q. I joined federal service in September 1984 and left at the end of August 1986. The FERS retirement program had not really been implemented and the Thrift Savings Plan did not exist. I declined to participate in CSRS since I was compelled to pay into Social Security and felt the additional retirement payments under CSRS were too much for me. In the summer of 1988, I returned to federal service and was told I had to wait a year before being eligible to participate in TSP. I heard from some employees that when TSP was first created, there was a “catch-up” payment to compensate FERS employees for when there was no TSP system in place (1984-1986). And this catch-up occurred while I was out of federal service. Can you comment on this since, in effect, I was unable to participate in the TSP system for three years of my federal employment and have only been able to purchase my portion of the defined benefit plan more recently?
A. This is outside of my area of expertise. You’ll need to check with your agency payroll administrator to see if you have any option to make up contributions.
Tags: contributions, CSRS, FERS, Social Security, TSP
TSP fund allocation
June 17th, 2013 | Uncategorized
Q. I have unfortunately neglected my Thrift Savings Plan since joining federal service in 2007. I started with the G Fund, stayed with it during the crash, and am still 100 percent in it today. I realize that was a huge mistake; the stock funds have done extremely well especially this past year. Would you recommend I dollar cost average in over the next six months or year? My instinct is to stop these low returns and get into the bond and stock funds and out of the G, but if the market takes a dive this summer, I will be very unhappy.
I have a 401(k) self-directed plan with one of the brokerages, with stocks, bond funds, cash, but I really have not been successful in managing it with individual stocks. I discussed possible asset management programs with Schwab and Vanguard. Do you think that, with their fees of 0.75 percent to 1 percent, that they can beat over time just transferring into my TSP? Do you have any suggestions about a service that helps me rebalance the allocations among the five funds over time, or change if there are economic concerns?
A. If you don’t know what to do, then I suggest that you stop fooling around, transfer as much of you money as possible into your TSP account and put it in the L Fund that most closely corresponds to your life expectancy. You’d be a fool to trust a broker or fund company with your financial decisions.
Tags: 401(k), allocation, G fund, TSP
Exemption from early withdrawal penalty
June 17th, 2013 | Uncategorized
Q. I have been reading your responses to the questions of federal agents and early withdrawals of their TSP accounts. The publication, 575, specifically states that law enforcement officers are exempt from the penalty if they are at least in their 50th year and the plan is a “qualified retirement plan.” IRS Form 8880 instructions refer to the TSP as a “qualified retirement plan” and in various other places within the IRS publications. Why do you insist it is not? Can you please clarify your position on this? Also, the IRS defines a law enforcement officer as one that is authorized to be armed, make arrests and serve warrants. Why are federal agents any different from nonfederal agents? I do not think your assessment of IRS publication 575 is accurate. Can you please educate me as to why federal agents are not exempt as other public safety employees?
A. The exemption only applies to withdrawals from defined benefit plans. The TSP is a defined contribution plan. I’m not your tax preparer, however, so you should consult yours before making any decisions.
Tags: early withdrawal penalty, IRS, law enforcement, taxes, TSP
Traditional vs. Roth TSP
June 17th, 2013 | Uncategorized
Q. I’m a 28-year-old FERS employee contributing 10 percent of my salary plus my agency’s 5 percent match to a traditional Thrift Savings Plan. I’m planning to increase my contribution by 1 percent each time I approach a step increase or other pay increase until I eventually max out my contributions. My decision now is to determine whether to put these additional contributions into a traditional or a Roth TSP. My understanding of the trade-off analysis is that it essentially comes down to an assessment of my current effective tax rate compared with what I project my effective tax rate will be in retirement. I realize that projection is not an easy thing, since there are numerous uncertain factors. However, is that the crux of the decision, or is there more to it (i.e., if I project my current effective tax rate to be higher than my effective tax rate in retirement, is there any other compelling reason to contribute to a Roth TSP instead of a traditional TSP)?
A. That’s the crux of the decision.
Tags: contributions, FERS, matching funds, Roth TSP, taxes, TSP
Buying back in to pension plan
June 17th, 2013 | Uncategorized
Q. A client of mine retired from federal government after 16 years and took her employee contributions out of the retirement plan upon retirement. She is working for the federal government again and wants to buy back in to the pension plan for the employer portion of the 16 years she previously worked. Does she have to use after-tax dollars, or can she do a rollover from an IRA or other retirement plan?
A. She must use after-tax dollars for the buyback.
Tags: contributions, IRA, pension benefit, retirement, rollover, taxes
Adding money to TSP after retirement
June 17th, 2013 | Uncategorized
Q. I am under FERS. I want to purchase a Thrift Savings Plan annuity. After I retire, is it possible for me to add funds to my TSP savings to increase my monthly TSP annuity?
A. The only way to add funds to your TSP account after you retire is to transfer money in from a qualified IRA or employer-sponsored retirement plan. This will have no effect on a TSP annuity that has already been purchased, however.
Tags: annuity, IRA, monthly, retirement, TSP
Retirement questions
June 17th, 2013 | Uncategorized
Q. I have selected a retirement date of June 28, 2014. I will be 59½ years old with 33½ years of government service. I have been FERS my whole career. I have $365,000 in my Thrift Savings Plan. I will retire with a high-3 at GS-13, Step 4 and a 16.51 percent locality pay. I am debating paying off my mortgage on my retirement home by taking a partial withdrawal from my TSP.
The reasons for this are:
1) Escrow of property taxes
2) Flood insurance imposed by Dodd-Frank
3) Desire to be mortgage-free in retirement.
I owe $185,000 on my mortgage. I am single and will have no other debt once I retire. Does this make sense? What are the tax liability consequences if I pay off the mortgage in July 2014?
My TSP distribution is 50 percent C Fund, 25 percent L2020, 15 percent S Fund, and 10 percent G Fund. I am only able to fund my TSP at 5 percent to take advantage of matching funds. Would you recommend a more conservative distribution at this point in my career or continue with this risk model that I have been comfortable with for several years?
I have enclosed my most recent annuity estimates from my human resources center.
Also, if I were to marry after retirement what is the policy for covering my future spouse on my Federal Employees Health Benefits? If I choose a survivor benefit for my future spouse, is it possible to change from a self-only pension to one with survivor benefits?
A. You’re asking for personal financial decision support, which I can’t provide without an engagement agreement and some analytic work. If you’d like to consider hiring me to do the work necessary to answer your questions about using the TSP to pay off your mortgage and how you should invest your TSP to support your goals, visit www.variplan.com.
Tags: age, C Fund, distribution, FEHB, FERS, G fund, L Fund, matching funds, mortgage, retirement, S Fund, survivor benefits, taxes, TSP