Ask The Experts: Money Matters

By Mike Miles

Thrift Savings Plan withdrawal rules

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Q: I am under the Federal Employees Retirement System with 10 years of frozen Civil Service Retirement System. I withdrew my CSRS and need to redeposit $30,000 to receive full benefits. At retirement, can I take money out of my Thrift Savings Plan to pay this redeposit?

A: You are only permitted to take withdrawals from the TSP under the usual restrictions. There is not special exception for this purpose.

— Mike Miles

Law enforcement retirement

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Q: I’m retiring at end of year. I will collect my 33 percent and Social Security supplement. I am under law enforcement at federal prisons. I will be 52 with 20 years of service. I don’t want an annuity when I decide to collect from the Thrift Savings Plan. Can you explain why they will not penalize my other two, but they will penalize my TSP if I collect now? After all, this is part of my retirement just like the other two. Are there ways to avoid being penalized?

A: Because you will be retiring under the special provision for law enforcement officers covered by Federal Employees Retirement System, you will not only receive your FERS annuity but will also be eligible for annual cost-of-living adjustments to that annuity. You will also be eligible for the special retirement supplement, but only after you reach your minimum retirement age, which ranges between 55 and 57 depending on your year of birth. Until you reach your minimum retirement age, you may earn as much as you want from wages or self-employment without the SRS being subject to the Social Security earnings limit. After you reach your MRA, you will be subject to it. Your SRS and Social Security payments come from defined benefit pension programs, so they’re exempt from early withdrawal penalties. You could covert your TSP balance to a defined benefit pension by using it to buy an annuity and similarly avoid the penalty, but you choose not to — and I don’t blame you. You can also avoid the penalty and retain control of the principal by taking a series of Substantially Equal Periodic Payments (SEPP) under IRS rules. You may use any one of three methods to compute the required payments. The rules are complex and strict, however, so you should seek professional help from a CPA before proceeding.

— Mike Miles

TSP payouts

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Q: I am receiving monthly withdrawals from my Thrift Savings Plan account. I would like to make a partial lump sum withdrawal and continue receiving my monthly amount for the next 30 years. Is this possible or do I need to withdraw the total amount?

A: Use form TSP-77 to request a one-time partial withdrawal.

— Mike Miles

TSP maximum contributions

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Q: I intend to retire in July 2010. I would like to make maximum allowable contributions to my Thrift Savings Plan during that year. Is it legal/permissable to make the maximum yearly contribution allowed by IRS rules between January and July? Or must it be over a 12 month period?

A: The annual limits are not pro-rated. You may contribute the entire annual limit during a partial year of employment.

— Mike Miles

Flexible spending account

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Q: Can I use my health spending account or flexible saving account to take CPR and First Aid classes or buy First Aid kits?

A: Neither of these appears in the list of Qualified Medical Expenses appearing in IRS Publication 502. I can’t say whether or not someone has figured out a way qualify them for payment, however.

— Mike Miles