Ask The Experts: Money Matters

By Mike Miles

Asset allocation models

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Q: Is it possible to obtain the various recommended asset allocation models
that you mentioned in your column of Feb. 8, 2010? That was an excellent article!

A: Our allocation models are proprietary and intended for use as part of an
integrated management process.

You will find a useful set of TSP allocation models at www.tsp.gov in the L Funds section. Use the starting allocation for each of the L Funds as a guide.

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Potential rehire

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Q: I retired as a FERS annuitant Feb. 1, 2006, when I was 62.
If I am rehired, will my current FERS gross annuity before taxes be deducted from the new gross salary before taxes?
If I have the maximum for retirement, including the over 50 extra amount, deducted and invested in the TSP, am I matched by the federal government and vested from day one for as long as I decide to work?
I left my TSP with the federal government and I have not taking anything from the TSP.
I’m working as a federal contractor.

A: Your TSP agency contributions will resume and you will be vested based upon your total service.

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IRAs

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Q. Can I take advantage of an traditional IRA under these circumstances. I am retired, with a pension from my former job plus Social Security distributions. I am 70.25 years old (limit 70.5). If I am eligible to start an IRA, then how long must it remain to avoid any withdrawal penalties? And what fees are involved during withdrawals? I understand that I would only be eligible to make a one-time catch up contribution of $6,000. This move is an effort to reduce the taxes due for 2009.
A. You are not eligible to contribute to an IRA unless you have earned income.

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TSP withdrawal

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Q. I retired under CSRS in 2006 . I already took out my one-time withdrawal of TSP a couple years ago.  I did not go to work after retiring and do not have enough credits to receive Social Security.  I also do not have any other IRAs or a Roth IRA.  My question is, if I want some of the money, is there anything I can roll it into where I can draw out partials when I want, or is the only other thing I can do is withdraw it all and pay the taxes on it? I don’t want to wait till I’m 70 1/2 and get partial payments.

A. Yes you can still roll your balance over to an IRA. You could also leave it where it is and begin a series of monthly payments, which you can change each year but which would have to end in a terminal full withdrawal. Be careful about rolling over the balance since you won’t find an IRA that will match TSP’s low costs and many IRA providers will charge you a small fortune to invest.

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Investments options – HSA through FEHB insurer

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Q: I am a federal employee. I have an HDHP (family plan) with an HSA through a FEHB insurer. The HSA cash account is getting funded to the extent that I would like to exercise some investment options. However, the investment options with the HSA trustee are load funds with high expenses that don’t have the greatest track record. Can I set up a separate HSA with another fund family and transfer funds from the cash account to the separate HSA? Or am I stuck with the investment options selected by the FEHP insurer? The insurer is Aetna and the HSA fund investment options are through JP Morgan Funds.

A: Yes, and this is probably a smart move if you can find another trustee with better investment options. In addition to transferring existing funds from the health plan’s trustee, you can make voluntary contributions directly to the second trustee. You might have, or want, to reduce your payroll allotment to the FEHB HSA account and make up the difference through direct contributions to the second HSA account.

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TSP withdrawal

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Q: I have attempted to get answers on withdrawing my annuity but I am generally referred to the TSP page. Unfortunately, it doesn’t really answer my specific question. Can I purchase an annuity with part of my TSP and leave the balance in my TSP until I am 70½ and then start taking out monthly payments?

A: Yes, as long as you haven’t already used your one-time partial withdrawal allowance at the time you use it to buy the annuity.

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TSP Withdrawal for a Refi?

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Q: I’m recently separated, keeping the house, and want to refinance in order to release my wife from the original mortgage. I do qualify to refinance, but am upside down by about $30,000. I’m a federal employee, and would have to take the $30,000 out of my TSP retirement account. If I make an early withdrawal from my TSP account that will be used solely for refinancing my home, will I still have to pay tax and the IRS early withdrawal penalty on the $30K?

A: None of the circumstances you mention will excuse you from the early withdrawal penalty. In fact, assuming that you’re under age 59 1/2, you will not have access to your account via withdrawal unless you can prove financial hardship. I suggest that you consider taking a loan from your TSP account instead.

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Maximum TSP, Roth IRA contributions

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Q: In answering a previous question about maximum nondeductible contributions to Individual Retirement Accounts, you wrote: “Your participation in the Thrift Savings Plan should not prohibit you from making the maximum nondeductible contributions to a traditional IRA in 2009.” Is the answer the same if I have a Roth IRA instead of a traditional IRA? Can I max out both TSP at $22,000 and ROTH IRA at $6,000?

A: The rules are different for Roth IRA contributions. You’ll have to use an online calculator or the rules contained in IRS Publication 590 to see if you can contribute to both.

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L funds and the ‘lost decade’

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Q: I just read the “lost decade” article in Money Matters and I am wondering why you did not mention the L Funds. I have all my Thrift Savings Plan funds allocated to L Funds as recommended to me since I  am in my 10-year window of retirement. Is that a mistake? Should I also diversify into the other five individual  funds?

A: I’m not a fan of the L Funds, but I can’t say that using them is a mistake. The problem I have with them is that it’s difficult to know whether the robotic allocation shifts they make are appropriate for you when they are made. What do the L Funds know about your circumstances and goals?

The L Funds will help you to avoid some of the mistakes that many TSP investors make, but that doesn’t make them the best solution. Your interests are best served by selecting and implementing the appropriate asset allocation in your account on a regular basis – at least annually and no more frequently than quarterly.

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FERS leave and retirement

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Q: What happens with Federal Employees Retirement System unused sick leave and annual leave at retirement? I will have 2,080 hours at retirement and would like to cash that time in toward my Thrift Savings Plan.

A: Based on the current regulations, the potential candidate for this maneuver would be unused annual leave, which must be taken in cash at retirement. Nothing definitive has happened on this yet, but it is under consideration.

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