Ask The Experts: Money Matters

By Mike Miles

Using TSP to buy other annuity

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Q: I plan to retire sometime around age 55 with 28-plus years of federal law enforcement service. I am aware I can make a one-time partial Thrift Savings Plan withdrawal. My question is: Upon retirement, can I request that TSP purchase a Met Life annuity for me with 75 percent of my TSP account and leave the rest untouched and, hopefully, growing until I decide to make monthly withdrawals or turn 70 1/2? The partial withdrawal form does not seem to provide this option, and neither does the full withdrawal form.

A: Unfortunately, if you use part of your account to purchase an annuity through the TSP, you must withdraw the remainder in a lump sum, via monthly payments, or some combination of the two. You could take partial withdrawal and use the money to purchase an annuity on the retail market, if you can find one that’s attractive. Or you could buy the TSP’s annuity and then roll either the lump sum or monthly payments into an IRA at a discount broker that lets you invest in low-cost index funds similar to the TSP’s.

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TSP funds to Roth IRA?

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Q: I understand that the IRS will allow TSP funds to roll over into a Roth IRA. However, that does not mean that the company that runs the TSP will allow it. I’m 46 years old and in federal service with the Federal Employees Retirement System. How can I move my TSP funds into a Roth IRA?

A: You can’t.

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Rolling IRA into CSRS

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Q: I’ve recently received a civil service deposit account statement and have two questions regarding payment. I am planning on rolling over an IRA account for payment. My first question: Can you confirm that there are no tax penalties for rolling over an IRA to the Civil Service Retirement System (Redeposit)? These are the instructions I am planning on giving my IRA company: Make check payable to Office of Personnel Management. Indicate FBO [my name] and include the claim number in the memo. My second question: Do you expect that this will cause any delays in processing my payments?  If so, what do you suggest I do differently in order to avoid any delays?

A: Since CSRS deposits are made with after-tax dollars, I don’t believe that your strategy will work without triggering a taxable distribution from your IRA. You should work with a qualified tax adviser on this, however. You may be better off just taking the withdrawal and sending OPM a check of your own to avoid delays.

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Are TSP withdrawals earned income?

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Q: For those covered under Federal Employees Retirement System law enforcement retirement, is the earnings test applied toward funds received from their Thrift Savings Plan if those amounts exceed the earnings test for Special LEO/FF SS Supplement after their minimum retirement age?

A: No. TSP withdrawals are not considered earned income.

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No income, no IRA contributions

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Q: My wife and I are retiring from federal civil service on Sept. 30. We want to continue adding money to IRAs we had prior to our civil service careers. We will not be employed after leaving the federal government. Can you share the contribution amount we can make to an IRA annually?

A: If you have no earned income, you can’t make IRA contributions.

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TSP options for retirees

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Q: Once retired from the federal government, how long can you leave your money in the Thrift Savings Plan without making a designation on how it is to be allocated?

A: You can leave your money in the TSP and direct it, or not, as you see fit, until the IRS Required Minimum Distribution rules kick in.

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Early TSP withdrawal for son’s school expenses

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Q: I am 58 years old and will turn 59 1/2 in March, at which point I will be able to empty my Thrift Savings Plan account without an early distribution penalty. However, I would like to access these funds now to pay for some of my son’s law school expenses. He is 30 years old and not a dependent. Is there any reason why I could
not roll over some of my TSP funds into a traditional individual retirement account and then withdraw the funds from the IRA now so that I can use the money for the expenses immediately? Also, my reading of the IRA early distibution rules indicates that the only requirement is that the money be spent for educational expenses for a child and does not require that child to be a dependent. Is that correct?

A: This is not really a federal pay or benefits question. It would be best to ask your tax preparer.

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How long before TSP designation is required?

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Q: Once retired from the federal government, how long can you leave money in a Thrift Savings Plan account without designating how it is to be allocated?

A: You can leave your money in the TSP and direct it — or not, as you see fit — until the IRS Required Minimum Distribution rules kick in.

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TSP and divorce

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Q: I have been separated from my spouse for six years, and he refuses to sign the paperwork for me to receive funds from my Thrift Savings Plan. What are my options? Should I just leave the money in the account?

A: This is a divorce matter. You should consult an attorney.

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IRA contributions after retirement

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Q: My wife and I are retiring from federal civil service effective Sept. 30 and want to continue adding money to individual retirement accounts we have had since before our civil service careers. We will not be employed after leaving the federal government. What is the contribution amount we can make to an IRA annually?

A: If you have no earned income, you can’t make IRA contributions.

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