Ask The Experts: Money Matters

By Mike Miles

Transfer to G Fund a year before retiring?

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Q. I plan on retiring in the next two years. I will be 53. My money is spread out among all the funds, including the L Fund. I was advised to transfer all my money to the G Fund about a year before retiring as it’s the safe fund. Is this good advice?

A. It can’t be good advice if it doesn’t rigorously consider your particular set of goals, resources and constraints. What works well for one person might produce disaster for another.

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TSP contribution limit

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Q. Quite a few of us here in Afghanistan believe the new Roth IRA is an excellent investment. We are contributing tax-free money to receive tax-free contributions and earnings after we retire and meet withdrawal criteria. We leave Afghanistan in late February. Since we have been in a combat zone for two months, we plan to max out the Roth as much as possible. If we are able to max the Roth at $17,000, how much may we contribute to the traditional TSP/Roth TSP for the rest of the year?

A. The TSP contribution limit applies to all of your TSP contributions — traditional and Roth — combined for the year.

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L Fund timeline

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Q. In an April 2011 answer to a question about the lifecycle funds, you noted that the Thrift Savings Plan suggests choosing the L Fund that most closely matches your retirement date and putting 100 percent of your money there. You said you recommend investing in the L Fund that most closely matches your life expectancy rather than your retirement date.  Why?  Isn’t this going to put your money at risk when you’re older and can least afford to be risky with your money?

A. This is my default recommendation, and it recognizes the fact that, in most cases, your financial time horizon isn’t your retirement point; it’s the end of your life. I don’t think that someone who retires at age 50 should implement the same investment allocation as someone who retires at age 80, but that’s what the TSP’s recommended method for choosing an L Fund will produce. The truth is that everyone should select the investment strategy that supports their personal goals with the least risk possible. Unfortunately, most people don’t have access to the kind of analysis needed to figure this out. My recommendation is the next best thing.

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Multiple annuities?

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Q. If you had $300,000, could you take $100,000 for an annuity, then keep the other $200,000 in the Thrift Savings Plan? Then, down the road could you take another $100,000 and make that an annuity, too, and keep the remaining $100,000 in the TSP?  Then, can you take the rest of it and make a third annuity a few years later?

A. No, since this would require multiple partial withdrawals.

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Fund transfers

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Q. If I have $100,000 in my C Fund and 100,000 in the I Fund and transfer the balance to the G Fund, will the balance be $200,000 if nothing changes in the market overnight?

A. Yes.

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TSP loan repayment

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Q. I am 59 and am going to retire next year. I am in CSRS. I have a loan on my Thrift Savings Plan, which, if I retire next year, won’t be completely repaid. Do I have to repay it, since it’s my money and I can withdraw all of my money from TSP when I retire?

A. No. If you don’t repay it, the outstanding balance will be declared a distribution and will be reported to you as taxable income. Since you are retiring after the year in which you reached age 55, there will be no early withdrawal penalty.

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Mutual fund withdrawals

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Q. I am 72. My wife is 62. I get $1,700 a month in pension and $1,700 a month in Social Security. My wife gets $5,800 in pension.

We put $70,000 in a mutual fund three years ago. It is now $80,000. I would like to take out $20,000 a year. I have health problems. Good idea or not?

A. You have the “idea” of spending money that you’ve saved and invested in mutual funds, and you want to know if your idea is a good one? That’s like asking if your idea to eat the leftover birthday cake is a good one. It’s an idea. I can’t possibly determine, based on the information you’ve provided, whether it’s good or bad.

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Laid off — Leave money in TSP?

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Q. My husband was a temporary federal employee for the Defense Department for five years. He was laid off in August. He had two years of military service, which he bought that time back, so in essence he has seven years of federal service. He is 60 years old. He put 10 percent of his salary in the Thrift Savings Plan. Should he leave that money in TSP or put it in another vehicle?

Also, when he reaches retirement age (62), will he receive a pension for the seven years of federal service? He left DoD with a sick leave balance — his annual leave he was paid for. Is it true, if he receives another government position within three years, his remaining sick leave will carry over.

A. Mike: He should leave his money in the TSP for as long as possible, and manage it there. Its costs and investment options are superior to those he’ll find anywhere else.

Reg: He would be eligible for an annuity at age 62 if he had five years of full-time service from which retirement deductions were taken and he didn’t take a refund of those deductions when he left. The unused sick leave he had to his credit when he left wouldn’t be included when his annuity was computed. On the other hand, if he returned to work for the federal government, his sick leave would be restored.

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Roll over TSP without penalty?

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Q. When I retire under FERS, can I get all of my Thrift Savings Plan monies, Social Security and my annuity? Can I roll over my TSP monies without paying 30 percent of the total to the Internal Revenue Service? If so, what amount of tax-deferred monies, once rolled over, can I take out monthly without a penalty or have to pay taxes?

A. Mike: Once you retire, you may withdraw your TSP money. If you retire during or after the calendar year in which you reach age 55, your TSP withdrawals will be exempt from the early withdrawal penalty. There is no withholding or tax due for TSP money rolled over to an IRA. If you are under age 59½, you will be subject to the early withdrawal penalty for withdrawals from an IRA. There are exemptions from the penalty, however, and they are spelled out in IRS Publication 590.

Reg: Yes, you can receive an annuity and, unless you retire under the MRA+10 provision, the special retirement supplement, when you reach your minimum retirement age. Unless you exceed the Social Security earnings limit from wages or self-employment, the SRS will continue until age 62 when you will be eligible for a Social Security benefit.

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Spouse’s earnings and Social Security earnings limit

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Q. I know that the Social Security supplement is reduced for any earnings above $14,640 (in fiscal year 2012). If I retire under FERS at my minimum retirement age but my wife keeps working at her job, will her earnings count toward that $14,640? Also, would distributions from my Thrift Savings Plan count toward it?

A. Mike: Your TSP distributions do not count as earned income.

Reg: The Social Security earnings limit applies only to your own earnings from wages and self-employment, not anything else.

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