Ask The Experts: Money Matters

By Mike Miles

C Fund to G?

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Q. I’m a 52-year-old federal employee serving in military status. I have the following in my Thrift Savings Plan account: C Fund — $145,000; G Fund — $30,000; F Fund — $10,000; and I Fund — $7,000 for a total of $192,000. I have other IRA investments of $70,000. I plan to buy back about eight years of military service for my federal retirement. My risk level is somewhat moderate, and I wanted to know if I should move a percentage of my C Fund into G? The fiscal cliff concerns me. I’m not sure if I’m balanced in my approach. I do not expect to retire as a civilian until 65. Thoughts?

A. I can’t tell you what to do since I don’t know nearly enough about your circumstances except your current TSP allocation of 75 percent C Fund, 16 percent G Fund, 5 percent F Fund and 4 percent I Fund — basically 80 percent stocks, 5 percent bonds and 15 percent cash — would be considered aggressive by most objective standards, not really moderate.

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Discontinued service retirement

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Q. I was involuntarily separated under FERS discontinued service retirement with 26½ years of service. I was rehired to a federal job and opted to receive both salary and annuity. I no longer contribute to FERS and understand why I no longer get matching contributions to the Thrift Savings Plan, but why can’t I contribute my own money to TSP and get the tax deferral? I have a TSP account but do not plan on withdrawing money until I permanently retire in several years.

A. The only way that you’re allowed to contribute to the TSP is through payroll deferral or by transferring pretax money in from an IRA, 401(k), 403(b) or other qualified retirement plan.

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Beneficiary IRAs

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Q. My husband and I inherited IRAs from my mother when she passed away at age 86. Why must I take required minimum distributions from these IRAs when I am only 59 years old and my husband is 46?

A. Because the rules for beneficiary IRAs say you do. Or, you could not and pay the 50 percent penalty instead.

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Traditional or Roth TSP?

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Q. My husband has been in the military for six years, and he plans on retiring at 20 years from the military. He will then work with the State or Defense Department and work for another 20 years before we retire. I am a DoD civilian employee. We would like to enroll him in the Thrift Savings Plan. But, we are not sure of which TSP plan (traditional or Roth) would benefit us the most. Any advice?

A. It’s impossible to know now which will work out to be best for you. Without that knowledge, I prefer the tax break today over the promise of a tax break tomorrow, so I would choose the traditional TSP over the Roth.

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Taxed twice at 59 1/2?

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Q. In January 2011, I was forced into retirement at age 62 due to a surgery that left me visually impaired. I took a partial withdrawal to pay off personal expenses. The Thrift Savings Plan deducted 20 percent for federal taxes before the distribution was made. However, when federal taxes were filed jointly, I owed $16,000 in taxes due to the TSP money. Why did I pay taxes twice when I met the 59½ age rule?

A. That’s a question that only your tax-preparer can answer, although I doubt you paid taxes twice, and there would have been no early withdrawal penalty because of your age.

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VCP to Roth IRA after retirement

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Q. I retired in April 2008 and took a lump-sum distribution from my Voluntary Contribution Plan, with the interest going into my Thrift Savings Plan and the principal amount going into my money market fund. Is it still possible to take the entire VCP principal amount and put it into a Roth IRA four years after retirement? When I attended various CSRS federal retirement seminars in 2007 and 2008, I was never informed of the option to transfer the principal amount to a Roth IRA.

A. This is not possible.

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One-time rollover from TSP into Roth IRA

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Q. I am a FERS employee contributing to the Thrift Savings Plan. At the recommendation of a pre-retirement seminar, I am looking at a one-time in-service withdrawal of $100,000 into a Roth IRA. I realize that it will add $100,000 to income for 2012, but this is the year my husband’s business is losing money anyway. We intend to pay taxes now (presumably when they are lower, though my income will drop significantly when I retire) and not pay taxes on future earnings. Smart or dumb?

A. You shouldn’t make that move without a thorough analysis of the tax implications using pro-forma returns and consideration about what will be done with the money in the Roth IRA. This is a complex decision, and you should be careful to avoid taking “advice” from anyone with a conflict of interest in the matter. I’d stay put unless you make sure that it is in your best interests to make the move. The odds are that it will be a dumb move, but it’s possible that it could be an opportunity.

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Survivor benefits

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Q. I’m going to retire in May, and I’m considering withdrawing my Thrift Savings Plan in equal monthly payments. Based on the TSP website calculator, my $190,000 will give me 288 payments using a 1.5 percent interest rate. If I die after, say, 150 payments, what are the options open to my wife?

A. A beneficiary participant account will be established for your spouse beneficiary, and she may then manage it or withdraw from it as she chooses, subject to the applicable TSP and Internal Revenue Service rules.

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Roth TSP limits

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Q. There is around a $5,000 annual limit to a Roth IRA based on income and age. Does that limit apply to TSP? In other words, can I put all $17,500 plus the $5,500 catch-up contributions for those age 50 and older into the Roth TSP and pay taxes on it now, rather than later regardless of my income? I am a civilian over 50 years old in FERS.

A. The Roth IRA limit does not apply to Roth TSP contributions.

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FERCCA employee switching to CSRS Offset

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Q. I have elected to switch to CSRS under FERCCA. I understand I will be given the option of the refund of my portion of Thrift Savings Plan contributions. When I left the Postal Service after my first seven years in the 1980s, I withdrew my CSRS money. If I take the refund of my portion of TSP deposit over the CSRS maximum contribution, can I pay back the withdrawn CSRS money without tax implications?

A. The refund of your TSP contributions will be taxable, since you never paid taxes on the money when you earned it. You may then use after-tax money to make a CSRS redeposit, which is not tax-deductible.

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