By Mike Miles
TSP Roth IRA
February 3rd, 2012 | Uncategorized
Q. I am currently deployed and trying to read up on the upcoming Thrift Savings Plan Roth Individual Retirement Account. Will I be able to do an interfund transfer of my existing balance, as well as my contribution allocation, in the TSP from my other funds into the Roth IRA TSP? If so, will I be able to do so online, as I can with the other allocations/balances?
A. We’ll find out exactly how the program works when the details are announced.
Tags: fund transfers, Roth IRA, TSP
401(k) and taxes
February 3rd, 2012 | Uncategorized
Q. Last year, I took out $3,000 from my 401(k) and paid my 20 percent penalty. This year, I went to do my taxes and expected to pay the additional 10 percent penalty of $300. I do my taxes on freetaxusa.com, and my refund was supposed to be $1,800 after I entered my W-2. But as soon as I entered my $3,000 distribution, it knocked it down to $1,300. I have no other factors involved as far as why I would be charged more than the initial $300 I expected. Do you think there is something wrong and they are charging me $200 more than I should be paying for my penalty tax? I didn’t finish my return because I don’t want to get cheated out of $200.
A. I suggest you consult a competent tax preparer — one who will defend your return in case of an audit.
Tags: 401(k), taxes, withdrawal penalty
Partial withdrawal or loan?
February 3rd, 2012 | Uncategorized
Q. I am a 57-year-old retiree. I retired two years ago. Our daughter is getting married, and I would like to help her with $15,000 for the wedding coming up later this year. We have just over $100,000 in our Thrift Savings Plan account. We know we can only make a one-time withdrawal before we’re 59½ years of age without a penalty. So if we make a one-time partial withdrawal this year, we will not be able to make another withdrawal without penalty charges until after we are 59½. Would it be wiser to take out a $15,000 loan or make a partial TSP withdrawal? What other options should we consider?
A. The early withdrawal penalty and the one-time partial withdrawal restriction for TSP are two separate, unrelated things. TSP limits you to one partial withdrawal in your lifetime. After that, you may only take a full withdrawal, either as monthly payments or a lump-sum distribution. You may get around this by rolling over your TSP account to an Individual Retirement Account, but then you will be subject to the early withdrawal penalty before you reach age 59½ unless you meet one of the exceptions.
You might want to consider taking the partial withdrawal for the wedding and then starting a stream of monthly payments from your TSP to make sure you have enough to live on. You may change the amount of the monthly payments once each year in January.
Tags: IRA, lump-sum payment, penalty, TSP, withdrawal
Required minimum distribution
February 3rd, 2012 | Uncategorized
Q. When calculating the required minimum distribution for the 2011 tax form, do you use the Individual Retirement Account balance ending Dec. 31, 2010?
A. Yes, although under certain circumstances, adjustments may be required. See IRS Publication 590 for details.
Tags: IRA, IRS, Required Minimum Distribution, tax
Social Security and TSP rollover
February 3rd, 2012 | Uncategorized
Q. I am a Civil Service Retirement System employee, hired in 1979 and contemplating retiring April 3, 2013.
1. I will be subject to the windfall elimination provision because I earned 40 credits of Social Security eligibility prior to my federal employment. But my spouse is also eligible for Social Security and started receiving Social Security benefits of more than $1,900 a month (gross) starting last month (January 2012), whereas the Social Security Administration has estimated that my Social Security benefits would be approximately $385 a month (gross). Would I be eligible for spousal Social Security benefits?
2. A financial planner has recommended that I roll over my substantial Thrift Savings Plan account balance prior to age 70½ (October 2017), but I do not consider this wise because the administrative costs of TSP are so low compared to other options (and I’m doing fine in the TSP). Do you see any advantages to an early rollover from TSP?
3. This same financial planner advised that I must take the entirety of my TSP account balance out by age 70½, either as a taxable distribution or as a rollover (or combination). Can I not maintain my TSP account after age 70½, and simply start taking periodic distributions?
A. Your financial planner is either a fraud or a fool. Find another financial planner — one who knows what he/she is talking about! Leave your TSP intact as long as possible. You can request automatic minimum distributions from the TSP. Visit www.tsp.gov.
Tags: 70 1/2, CSRS, minimum distribution, rollover, Social Security, TSP, windfall elimination provision
TSP withdrawal penalty
February 1st, 2012 | Uncategorized
Q. I’m an Air National Guard military technician, and I’ll be retiring this July at my minimum retirement age of 56. I plan on making monthly withdrawals from my Federal Employees Retirement System Thrift Savings Plan at that time. I know I won’t have to pay a penalty on these FERS TSP withdrawals, but do I have to wait until the age of 59½ to start withdrawals without paying the penalty? Can I roll my military TSP into my FERS TSP when I retire?
A. You may combine your military and civilian TSP accounts. Visit www.tsp.gov and search for form TSP-65. The instructions for this form should give you the details you need to proceed with a combination. If you separate from federal service during or after the year in which you reach age 55, distributions that you receive from the TSP account that is associated with that service will be exempt from the early withdrawal penalty. If at least one of your TSP accounts meets this definition, you may combine them to avoid the penalty on all distributions.
Tags: FERS, Minimum Retirement Age, rollover, TSP, withdrawal penalty
TSP withdrawal
February 1st, 2012 | Uncategorized
Q. I’m 72, and I must make a decision on Thrift Savings Plan withdrawals. I do not need any additional monthly income. Is there any advice/guidance on what options are best to take? Is it better to take a TSP annuity or to purchase one from another insurance company?
A. I don’t know why you’d use your TSP assets to buy an annuity if you don’t need income, particularly with interest rates so low. I suggest you manage your TSP and have them send you the Required Minimum Distribution each year. You can then reinvest the money, after taxes, in a taxable account.
Tags: annuity, interest rate, Required Minimum Distribution, TSP withdrawal
The law of large numbers
February 1st, 2012 | Uncategorized
Q. Is it possible to look at the historical rates of return of the various Thrift Savings Plan funds and predict an allocation for a nominal return of 6 percent, or am I better off looking into the Life Cycle funds and trying to predict the return from there? (Past performance of the L Fund income just falls short of 6 percent). My goal is to make an average of 6 percent per year on my current TSP balance to reach my retirement goal.
A. Yes, it’s possible. But you shouldn’t rely on a prediction based on so little data. There’s something called the law of large numbers that says a larger sample is better than a smaller sample in predicting the true nature of a population. If you flipped a fair coin once and it came up heads, you could expect that all future flips would come up heads based on that sample of one flip, but you’d be foolish to have much confidence in your prediction. Flip that same coin 1,000 times and you’ll have a better basis for predicting the future behavior of that coin. This is also true for investment assets. The TSP funds are based on underlying assets with much longer historical records than the funds themselves. You’ll need to use the largest set of relevant data available, including mean return, standard deviation and correlation coefficients, together with a process called mean-variance optimization, to develop the most reliable expectations for each of the funds and configure them in an efficient portfolio.
Tags: L Fund, Lifecycle Funds, portfolio, retirement, TSP
Contact info
February 1st, 2012 | Uncategorized
Q. I am a federal employee and would like to have Mike Miles’ contact information at Variplan LLC. I am interested in hiring him for financial planning, retirement benefits counseling, etc. If you have his phone number and email address, I would appreciate it.
A. Email is best: mmiles@variplan.com.
Buyout advice
February 1st, 2012 | Uncategorized
Q. I am 59 years old, and will be 60 in July. I will have 42 years of government service in October, at which time I plan to retire.
I am weighing my options. If my agency offers a buyout, should I leave in the spring or stay for my 80 percent? I am not sure how much I’ll be losing, but I am so close now. I’m just not sure what to do. I certainly could use the $25,000 (minus approximately $8,000 in taxes). Please give me your ideas.
A. You are asking for specific analysis and advice, which I can’t provide without an advisory engagement.
Tags: retirement