Ask The Experts: Money Matters

By Mike Miles

Rollover TSP to IRA?

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Q: Thank you for your previous answer regarding my TSP account and when I must start taking withdrawals. Is it possible to rollover my total TSP account to my IRA with my local credit union and start taking taxable withdrawal that way? Would the withdrawal of payments still be the same?

A: After you retire, it is possible to rollover your TSP balance to an IRA, but this will not change your minimum distribution requirements. If you want the smallest distribution possible, you can leave your money in the TSP and request monthly distributions based on your life expectancy. If you don’t need the money, just deposit the net receipts into a taxable investment account so it can continue to grow as it would have in the TSP.

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TSP allocation recommendation

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Q: I enjoyed reading your article in the Federal Times Jan. 24 edition. I am 37, married with a 1-year-old and work for the GSA. I changed my allocations from the L Fund to the other funds, but what would you recommend? I want to be aggressive while also being a bit conservative, especially with this recession we are still going through.

A: I can’t give you prudent advice without the proper information, analysis and understanding, but with your long-time horizon, you might consider allocating your TSP account as follows: C = 42%, S = 18%, I = 25%, G = 5%, F = 10%. This is consistent with my recommendation that, if you’re not sure what to do, choose the L Fund that most closely corresponds to your life expectancy and apply that fund’s initial allocation to your account. Rebalance your account annually to this allocation until a different L Fund is called for. It’s not the best you can do, but it’s better than a wild guess.

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Lump-sum retirement payment

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Q: I am 59 and retired from the post office since July 2009. I receive payments of $900 a month and would like to get a lump sum. Would I have to pay a penalty?

A: If you’re receiving level monthly payments, not based on your life expectancy, and not incurring the penalty on those, then your lump sum will not incur the penalty, either.

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Retirement lump-sum

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Q: I am a FERS employee with the United States Postal Service. When I retire will I be permitted to withdraw the funds in my annuity, my TSP, my accrued vacation and sick leave to be reinvested into private accounts so they can be inherited by our children upon the deaths of myself and my spouse rather than be sucked back into the government’s coffers? If so what forms would that require?

A: You may withdraw your TSP account balance immediately after you retire, although the vested amount is yours to keep and not at risk of being “sucked” back into government coffers. Do your self a favor and leave it there as long as you can. Moving it out means it will likely be “sucked” into investment industry coffers.

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BRAC leave restoration

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Q: I am 56 years old and fall under Base Closure and Realignment Commission (BRAC). I will have approximately 600+ hours of rolled over leave. I plan on working for another organization when my organization is gone in September due to BRAC. I would like to know if it is possible to take that leave and put it into my TSP account for catch up? I just started putting money into my TSP account recently so there is not very much there.

A: No, you can’t direct a leave payout into your TSP account. All of your contributions must come from payroll deferral or transfers from outside retirement accounts.

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Withdrawal of TSP contributions

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Q: I am a CSRS employee and am going to retire in May 2012 from federal service/military service (Air National Guard) at age 55. When I retire, I want to withdraw all TSP contributions I made as a CSRS employee. I have 3 questions that I would like to get the answers to: Will I have to pay taxes on the amount (currently a little over $55,000)? Are there any penalties I will have to pay when I request a full withdrawal of these funds? What is the tax rate that I would be expected to pay if I have to pay taxes on the amount immediately following withdrawal?

A: Your withdrawals will be taxed as Ordinary Income. Since you are retiring during or after the year in which you reach age 55, there will be no early withdrawal penalties assessed. The taxes on the withdrawal aren’t due until you file your return for the year, but the TSP will withhold 20 percent from your distribution in deposit against your tax liability.

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TSP defect

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Q: I am 65 and plan to retire soon. I would like to stay in the TSP as a FERS retiree. However, the inability to withdraw money while taking a monthly distribution has me considering transferring to an IRA. Do you see any possibility that the TSP will change the inability to withdraw money as necessary while having monthly distributions?

A: Of course it’s possible. If you decide to roll over your balance, you would be smart to try to duplicate, as closely as possible, the advantages of the TSP in your IRA account. That means using low-cost index funds in a discount brokerage account.

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L-fund plus life insurance

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Q: I have $37,000 in my TSP L-Fund plus a $21,000 cash value on my life insurance policy. I plan to leave the USPS with 32 years of CSRS service at the age of 58. I have had a financial adviser suggest I put the combined money into an annuity-life insurance combination he says will give me a better rate of return over a period of time, without the $40 life insurance premium, for transfer of wealth to my family. I have put the extra money into the TSP to use for extra expenses after retirement (new roof, newer car, etc.) after I reach the age of 59 1/2. I am afraid the annuity-life insurance will restrict my access to the money when the need arises. What is your advice, leave the money where it is or go with annuity-life insurance with no monthly premium any longer?

A: Annuities pay big fat commissions and sales people (agents, Registered Representatives, etc.) have no obligation to place your interests ahead of theirs. My advice is to find someone other than a salesperson to help you with the decision. Sounds like you’re getting a sales pitch rather than true advice, and I suspect that this sales pitch will do the salesman more good than you.

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When do I have to take my funds out of TSP?

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Q: I am a retired CSRS post office employee. I am 65 1/2 years old and have left my funds in TSP. How long before I have to start withdrawing the funds? I plan to rollover my deposit to my IRA with my postal credit union.

A: You’ll have to start withdrawing funds by April 1 of the year following the year in which you reach age 70 1/2. You can’t rollover your Required Minimum Distribution (RMD) to an IRA, however, since that would defeat the purpose of the RMD, which is to collect taxes.

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VERA

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Q: I am 52 years old with 27 years with the Postal Service (FERS). How would it affect me if I accepted the Voluntary Early Retirement Authority (VERA)? Would I get the Social Security Supplement upon acceptance, and how would it affect my TSP, as I would need to start withdrawing it immediately upon accepting the VERA?

A: Under this scenario, your TSP funds will be subject to the early withdrawal rules until you reach age 59 1/2. You could avoid the early withdrawal penalty, however, by initiating a series of Substantially Equal Periodic Payments (SEPP) under IRS code section 72(t), or by using the funds to purchase a life annuity.

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