Ask The Experts: Money Matters

By Mike Miles

Separation from Postal Service and TSP access

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Q. I am a 48 year old male. I am a letter carrier for USPS. Due to unfortunate circumstances, I will be applying for Social Security disability and disability retirement from USPS. Here’s the thing.  I have had two previous surgeries on my spine, both covered by worker’s compensation. Right now I am using all my sick leave until worker’s compensation receives all of the information it needs. Is there a separate retirement through OWCP or do I need to file for disability through the Post Office. I am thinking of separating from the Postal Service because of my financial situation. If I did separate, would I have access to all funds in my thrift savings and would there be a penalty for withdrawal before 59 1/2?  Also, I have a loan that is almost paid off. Would this have to be paid off first or would they just deduct it from whatever was in the thrift savings?

A. For  my part:
In general your TSP withdrawals, including any unrepaid loan balance following your separation, will be subject to the early withdrawal penalty, unless you can qualify for one of the available exceptions. You’ll find a summary of these exception on page 4 of the notice at this address:

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TSP calculator

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Q. When I use the TSP website’s Monthly Payment Calculator to determine how long my payments will last at an amount selected, it asks what annual interest you expect to receive.  I plan on leaving all my money in the G Fund. What rate should I expect?

A. You’ve found the flaw in the calculator that makes it unreliable – pretty much useless in my opinion. Since its inception the G Fund has returned as much as around 9 percent in a year, and as little as 2.81 percent in 2010. If you’re not exercising a rigorous monitoring and management program over your portfolio along the way, you should probably set your estimate closer to the low end of the range.




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Q. Right now I am allowed to contribute $21,500 annually ($16,500 normal plus $5,000 over 50 catch-up) to my government-run TSP.  I am also allowed to contribute $6,000 annually ($5,000 normal plus $1,000 over 50 catch-up) to my civilian-run Roth.  I am told that when the government Roth option is established I will still be limited to $21,500 total in the government-run accounts however I allocate it?  Is this true — it
would make more sense if the ceiling stayed the same to TSP, but I could only do a $6,000 for Roths no matter if it was government or civilian run.

A. I expect it to be true, but we’ll have to wait and see.


Thrift Savings Plan

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Q. My husband is retired and has a fairly decent sum in the Thrift Savings Plan.  He keeps talking about taking it out and investing it in mutual funds, etc.  Is this smart or would it be better to leave it where it is?

A. It would be better to leave it where it is! Lower costs, efficiently diversified, easy to manage, the G Fund. There’s no better place to invest for retirement income.


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Money matters

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Q. My question on keeping my money in my TSP when I retire from the Post Office was answered (yes, I can keep it in until age 70 1/2) Now for the next question: If I decide to keep it in the TSP, can I add to it after I retire? I have heard that you can’t, please clarify this. If the answer is no, what would be the advantage of keeping it in? If the answer is yes, how would you do this, automatic from retirement payments?

A. The only way to contribute to your TSP account after you retire is to transfer balances in from other retirement accounts, like an IRA or 401(k) account. It is in your best interest to keep as much of your money in the TSP for as long as possible because of its unique combination of low cost, efficient diversification, ease of management and the availability of the G Fund.

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TSP lump sum, with loan balance

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Q. Thank you very much for allowing us the opportunity to “ask the experts” through your forum. It can be difficult to get a correct answer at times from the Web. I am an air traffic controller with 30 years government service, and am eligible to retire now at 50 years of age. I currently have a TSP loan with a $2,900 balance outstanding. If I retired now, would I be able to withdraw my TSP account as a lump-sum payment with this outstanding loan balance? Or would I first be required to pay off the $2,900 loan before TSP would process my lump-sum request?

A. You can take the withdrawal without repaying your loan first. The loan will be declared a taxable distribution, in addition to the withdrawn amount. You will also be subject to the early withdrawal penalty rules on both amounts.

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TSP at 70 1/2

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Q. If I retire at 59, leave my money in TSP and immediately start taking monthly payments, can I leave my money there past 70 ½ and continue drawing monthly payments?  Someone told me at 70 ½ I have to take it all out, but that’s not the way I understand it.

A. You were misinformed. You may leave your money in the TSP for life, as long as you take the Required Minimum Distribution each year after reaching age 70 1/2.


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Postal service questions

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Q. Age: 56 (will be 57 in July 2011)
Service comp date: May 1983
Hired:  July 1984
Retirement:  FERS from the start
Break in service:  May 2007-February 2009 (about 22 months)
Military:  USMC 1975-1978 (“bought” the time)
VER Authority:  Application deadline and irrevocability date 4/25/2011
Effective date 5/31/2011
RIF Effective Date:  Sept 9, 2011

If I lost my job on Sept. 9 (with 28 years and about four months service) and took a discontinued service retirement, would I be eligible for:
a)  Annuity supplement (Social Security offset)
b)  No “+ 10″ reduction of my FERS annuity
c)  TSP withdrawals without penalty
d)  Continuation of health benefits.  I restarted them as soon as I could upon being rehired, but there were a couple weeks before my federal health benefits kicked back in.  In other words, do I have the five years’ continuous coverage? If I took the VER, what would change, if anything, in questions a-d above?  (I wouldn’t be 56 — my MRA — having been born in 1955)

A. Under these circumstances, you would have access to your TSP without penalty.

Whether you are involuntarily separated or accept a VERA, you would be eligible for an immediate, unreduced annuity. In either case, you would only need to be age 50 and have at least 20 years of service. You’d be eligible to receive the special retirement supplement when you reach your minimum retirement age, which in your case is 56. You would be able to continue your FEHB coverage in retirement if you had been covered for the full five consecutive years before you retire. If you were covered under the FEHB program when you left government and re-enrolled as soon as you returned, and the combined coverage totaled 5 years, that would qualify.



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TSP withdrawals

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Q. What are the answers to the below questions if under age 55? For instance, taking a early retirement option at age 53 — how would the TSP 10 percent penalty apply using the original scenarios in the question??

Original question:

Q. I have read many of the articles and TSP literature and I am still a bit confused. As a federal law enforcement officer over age 55, I plan to retire later this year. I have read that if I want to take withdrawals from my TSP account prior to age 59½, I can do so without having to pay the 10 percent IRS penalty for early withdrawal, so long as I do it in an annuity (not interested) or, based on life expectancy (not interested as it provides more funds than I want at the beginning of my retirement), or as “substantially equal periodic payments. (not sure who determines this payment, me or IRS).

A. As long as you retire during or after the calendar year in which you reach age 55, you will not have to worry about the early withdrawal penalty, since it will not apply to you. You will have access to your TSP account through the various options offered by the TSP without further restriction.

My questions:

May I set the amount of the monthly payment, say $1,000 each month, and so long as I maintain that same payment amount each year until age 59½ or for five years, whichever is the later (in my case the five years)? If yes, will I still avoid the IRS early withdrawal penalty?

May I change the amount of the monthly payment (increase or decrease) prior to turning age 59½ or five years, whichever is greater and still avoid paying the 10 percent early withdrawal penalty?

A. You determine the Substantially Equal Payment Amount using one of three allowed methods – annuitization, amortization or life expectancy. Once commenced, the calculated payments must continue and may not be altered (although the life expectancy method of calculating the payment amount will produce changing payments each year) for the longer of 5 years or until you reach age 59 1/2, if you want to avoid the penalty. The rules for using a Substantially Equal Periodic Payments to avoid the early withdrawal penalty are complicated and rigid, so care, and perhaps some professional help, should be used.



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TSP fund when retiring

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Q. I am exploring the idea of retiring from the postal service as a CSRS with 32 years at age 55. Can I just leave my money in the TSP? Some answers I read say you can keep it in, but I have also read that I have to withdraw it when I retire. I prefer to leave it and not touch it for at least 10 years. So what is it?

A. You can, and should, leave your money in the TSP until you have to begin withdrawing it -– usually at age 70 1/2.


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