Ask The Experts: Money Matters

By Mike Miles

Early retirement

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Q. I am a 54-year-old letter carrier with 24 years postal and nine years military. According to Senate bill S.1789, will I be eligible for early retirement? What about the Social Security supplement? How does this affect my Thrift Savings Plan? Can I get that also?

A. You will have access to your TSP account for retirement income as soon as you separate from service. You will be subject to the early withdrawal penalty until you reach age 59½ unless you qualify for one of the exceptions listed on page 4 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf. Note that one of the exceptions is for those who separate from federal service during the calendar year in which they reach age 55.

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Basic TSP retirement options

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Q. I will be retiring (CSRS) at the end of this year. I understand there are several options available with my account. However, I haven’t been able to find any clear/accurate information. Can I take it out as a lump sum? (Is there a negative to this?) As a retiree, can I leave it in place? (One article seemed to state that if a person does this, they receive a small monthly check of some sort.)

A. You’ll find the information you need here: https://www.tsp.gov/planparticipation/withdrawals/accountOptions.shtml.

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TSP Snapshot

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Q. What is the difference between “Year-to-date” and “Last 12 months” in the TSP Snapshot?

A. Year-to-date covers the period from the last Jan. 1 to the present. Last 12 months covers the most recent 12-month period.

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Splitting catch-up contributions

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Q. I will become a 49-year-old federal employee this August. I currently contribute the Internal Revenue Service maximum of $17,000 annually to the Thrift Savings Program via bi-weekly payroll deductions. I plan to begin making catch-up contributions Jan. 1, 2013. Once the Roth TSP is available, can I designate beginning Jan. 1, 2013 catch-up contributions to the Roth TSP while maintaining the IRS maximum contributions to the Traditional TSP?

A. You may split your pay deferral, including your catch-up contributions, between the traditional and the Roth TSP accounts.

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Employer contributions and Roth TSP

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Q. I haven’t seen any discussion on the employer contribution portion as it relates to the new Roth Thrift Savings Plan option. Is their contribution also part of the Roth TSP, or will it continue to be placed in the regular TSP?

A. Employer contributions will flow into the traditional TSP.

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TSP into IRA?

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Q. I have $200,000 in my Thrift Savings Plan and have just been approved for disability retirement from federal service. I’ll be separated from the agency in mid-May. I am 55 years old. I am not sure whether to roll my TSP into an IRA. I don’t want to start withdrawals from my TSP, but I don’t want to pay an investment firm big brokerage fees to manage an IRA. I have no debt but have a daughter in high school for another year. What should I do with my TSP?

A. Keep it and manage it for as long as possible.

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Record of TSP basis contributions

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Q. I retired from the Department of the Interior on Dec. 31, 1997, and left my Thrift Savings Plan intact until 2003, when I rolled it into a traditional IRA. On the paperwork for the rollover transaction, I find no reference to TSP contributions versus TSP account balance.  As I approach age 70½ next year, I realize that I need to know what my contribution (or basis) was. I have filed with the Internal Revenue Service for a tax extension in the hope that I can retrieve contribution/basis info from TSP archives and accurately represent the TSP account in my total IRA basis.  I have checked all the TSP forms and can’t find an appropriate one. Can someone tell me how to retrieve my TSP contribution info?

A. What makes you think that your TSP contains tax basis? Did you make nondeductible contributions to your TSP account? You’re likely to be looking for something that’s not there.

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Transferring Roth IRA to TSP

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Q. Can a federal employee move a Roth IRA into a traditional TSP?

A. No. You may not move Roth IRA money into a traditional TSP account.

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TSP dividends

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Q. TSP explains in its brochure that dividends are already incorporated into the share price. This seems illogical to me, as I believe the definition of a dividend is a cash payout of a certain stock share price at a certain time of the year. Does the Thrift Savings Plan definition mean that the share price of the S, C or I Fund is artificially inflated?

A. No, it means the dividends that are paid by the stocks owned by the funds are retained by the fund and increase the net asset value of the fund. The share price reflects this net asset value.

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No ‘magic number’ target for retirement savings

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The latest fad in retirement planning is to know your “number” — the amount of money you’ll need to have saved in order to retire.

Is there really such a magic number for your retirement? If there is, can it be determined? If so, how much should you be willing to pay to find it? These are the kinds of questions you should ask every time someone pitches a financial service or product.

Think of determining such a number for the value of your retirement savings portfolio as shooting an arrow from a bow. You’re standing in an exposed hilltop field, and your goal is to hit a small target 50 yards away. This is important, because you only have one shot and you’ve bet your life savings on the outcome. You’re not a proficient archer, so you hire a coach. You have one week to prepare.

To begin with, you’d better hope that you hired a good coach, one who is honest, competent and affordable. Taking instruction from a coach who has bet against you, doesn’t know what he’s doing or demands too much in compensation could lead to worse results than if you’d just done your best on your own. You should be confident that you’ve hired the best coach possible and that he deserves your trust and whatever you’ve agreed to pay for his help.

Your coach goes to work explaining the basics of archery and making sure you have the basic skills to execute the required shot. This seems like pretty valuable stuff, since without this basic knowledge, and a little practice, you’d have little chance of hitting a barn door at 50 feet, much less this small and distant target.

After some time practicing, you both decide that it would be best to find an intermediate target — something along the ideal flight path to aim for that isn’t so small and far away.

Your coach gathers information about the conditions of the shot and the characteristics of you and your equipment. He uses this information to perform some rather complex mathematical calculations and produces a special device. It’s a steel ring, 12 inches in diameter, mounted vertically on the top of a long pole about halfway between you and your target.

He explains that according to his calculations, if you shoot your arrow through the ring, you will hit the target. He’s double-checked the assumptions and numbers and is confident in his advice. He then explains that he needs to leave and asks to be paid. Now, you’re on your own until the time comes to make the shot — still four days away.

How valuable is your coach’s advice? What is the probability that you’ll hit the target, using the advice? These are difficult questions to answer, but it should be obvious that there is a significant possibility of failure.

Even if the calculations and assumptions were sound, the conditions could change between the time they were made and the time the arrow is released. In addition, the conditions could change as the arrow is in flight. An unexpected gust of wind, a misalignment of the eye, or a flaw in the bow or the arrow could affect the arrow’s arc and cause a complete miss, even if the arrow travels through ring.

In other words, there are so many variables to consider and predict, and the distances to travel so great, that the odds of identifying a number today that will lead to a particular outcome at some more distant point in the future are extremely low.

At best, at any point in time, there is a range of potential numbers that will likely produce the desired outcome. This range will depend on who is doing the figuring and how you will handle the myriad decisions you will have to make along the way — for the rest of your life.

While it is useful to estimate your number as part of a well-conceived and well-managed retirement plan, the number’s value evaporates shortly after it is estimated, and it’s not worth much on its own. It needs to be calculated again and again over time, and used as a checkpoint in the process of navigating your investment portfolio along the ideal path.

Yes, there is a number — or numbers — but the magic is nothing more than an empty promise.