Ask The Experts: Money Matters

By Mike Miles

Roth TSP withdrawal

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Q. I am 47 and hope to retire at my minimum retirement age in nine years. I contribute to both my traditional Thrift Savings Plan and Roth TSP. A publication I read, “Important Tax Information about Payments from Your TSP Account,” says you will not have to pay taxes for Roth contributions if you follow a two-step rule: Hold for five years + age 59½. But I think it also says that if I transfer my Roth TSP out of the TSP when I retire, the monies will not be subject to taxes. Is this correct?

Can I only roll over my Roth TSP and keep my traditional TSP with the TSP or must I roll over both the Roth and traditional? I ask because I would like to keep my traditional TSP where it is and only roll over the Roth to avoid taxes on distributions that occur before age 59½.

A. The five-year + 59½ rule applies only to earnings, but it applies to both your Roth TSP and a Roth IRA account. You may always withdraw your contributions from either account without tax or penalty. You may transfer all or part of your Roth TSP balance to a Roth IRA, if you are eligible for a partial withdrawal, and leave the remainder in your TSP account, using Form TSP-77.

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G Fund vs. F Fund

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Q. Many experts are indicating that there is a bond market bubble growing. In addition, The Wall Street Journal survey report indicates that interest rates will be going up about a point in 2014. For the next year or two, would it be best to move money out of the F Fund and place it in the G Fund, or move monies out of both funds and place them in market funds like C, S or I? Since both G and F are invested in bonds, will increasing interest rates affect invested funds negatively?

A. I have been substituting G Fund for part of the F Fund allocation in my client portfolios for the past two years.

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TSP matching funds

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Q. I am a federal law enforcement officer covered by FERS and, by Sept. 30, I will have more than 29 years of service plus more than a year of sick leave. To obtain my annuity beginning Oct. 1, I would like to retire on Sept. 30, but it is in the middle of a pay period. I plan on front-loading my Thrift Savings Plan and TSP catch-up contributions starting in April for the rest of this year to reach the maximum for both. Would there be any TSP match in my last, partial pay period, or should I just aim to reach my TSP limits in the previous complete pay period?

A. There will be matching on every pay period.

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Transferring TSP funds to Roth TSP

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Q. Can traditional Thrift Savings Plan funds be transferred/rolled to Roth TSP funds after retirement, while paying taxes on the amount transferred? I’m trying to at least save the taxes on the five-year growth.

A. You may not convert your traditional TSP funds to Roth TSP funds. I’d like to see the math that convinces you that this is a good idea in the first place.

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Taxes

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Q. I will be 59½ this time next year. I would like to withdraw a one-time lump sum. What is the tax percentage rate I would pay in federal and state (Michigan) taxes?

A. The answer will depend entirely on the tax code and your tax return for the year of the withdrawal.

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I Fund

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Q. I been following the news about Cyprus’ banks. I want to find out if our Thrift Savings Plan I Fund money is invested in Cyprus’ banks. If yes, is it good to move money back to another fund?

A. No.

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TSP withdrawal

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Q. I am 64 years old and will be retiring in a year. I have 15 years with the federal government. Do all of my Thrift Savings Plan contributions have to be withdrawn prior to a specific age?

I also understand that my total TSP account will be charged 20 percent. Am I to understand that after the 20 percent is subtracted from my TSP account, I have to pay income taxes per year for withdrawals I make from my TSP account that will be added to my total gross income?

A. You will be required to begin taking minimum annual distributions from your TSP account when you reach age 70½, but there is no requirement to deplete your TSP account during your lifetime. Under certain circumstances, the TSP may withhold 20 percent from your withdrawal as a deposit against your tax liability for the year of the withdrawal. Your TSP withdrawals are added to your gross income for the year and taxed as ordinary income.

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VCP conversion to Roth

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Q. I am 66 years old and plan to retire in 2014, at which time I would transfer (convert) my Voluntary Contributions Program monies directly into a newly created Roth IRA. However, I have an existing (non-TSP) Traditional (substantial) IRA (never taxed), and know the Internal Revenue Service will aggregate my Traditional IRA balance for purposes of determining the taxability of this VCP-to-Roth conversion.

If, prior to retirement, I (in 2013) transfer (direct rollover) my Traditional IRA into my existing Thrift Savings Plan account, will those monies now be considered 401(a), and therefore, making my subsequent VCP-to-Roth conversion occur with few tax implications?

A. As I understand the rules, your TSP balance will not be subject to aggregation for the purpose of determining the taxability of your VCP-to-Roth IRA conversion, but you should consult a CPA before going down that path. You may also want to fill in a pro-forma IRS Form 8606 to see how it will look. This is the form used to calculate your tax liability on conversions. Notice that it does not mention an employer-sponsored plan like the TSP anywhere.

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Claiming retroactive TSP contributions

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Q. I’m a 58-year-old FERS employee with 29 years of service. I have two years of leave without pay from while I was mobilized in the Army Reserve (2004-06). I am in the process of paying my military deposit to buy back this time.

After returning to federal service, I did not identify that I wanted to catch up on the Thrift Savings Plan and get my TSP matching contributions.

I recently read on the TSP website that I could still use the substantial contributions I made to the uniformed services TSP to request my civilian matching contributions. I have my military leave and earnings statements to confirm my contributions; and the TSP website confirms I never received the automatic 1 percent or the 4 percent matching funds.

Can I still submit for the retroactive TSP contributions? If so, should I do it through the agency I was with while on duty, or through my current agency I subsequently transferred to later on?

A. See this notice https://www.tsp.gov/PDF/formspubs/oc95-5.pdf and go to your agency human resources office to pursue the missed agency contributions.

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Rolling over a Roth IRA

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Q. I have a non-401(k) Roth IRA. Why can’t I roll it over to a TSP Roth IRA? Both are after taxes.

A. The rules are the rules.

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