Ask The Experts: Money Matters

By Mike Miles

Multiple annuities in retirement

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Q. I am 41 and a “gray area retiree from the Maryland Army National Guard. I am employed with the Postal Service (FERS) and have about 19 years of service (including five years active duty, which I already paid back). I also collect 30 percent disability from the Veterans Affairs Department. In planning my final retirement living, it seems if I retire at my minimum retirement age of 57, I should be immediately eligible for full annuities of the following, with no penalties or offsets:

FERS basic annuity

Social Security offset (until 62)

TSP annuity (no IRS penalty)

VA compensation

Army retired pay (age 60)

Reduced Social Security (age 62)

Are my assumptions correct?

A. Mike: If you retire during or after the calendar year in which you reach age 55, you will have access to your Thrift Savings Plan account without penalty. If you use the balance to purchase a life annuity, there will be no penalty for this regardless of when you retire.

Reg: Assuming that you retire at age 57 with more than 30 years of combined service, you would be entitled to an unreduced FERS annuity and the special retirement supplement. (There is no such thing as a Social Security offset.) You would also be entitled to your reserve retired pay, VA disability compensation, and a reduced Social Security benefit.

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Social Security, special retirement supplement and TSP

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Q. I am a Postal Service employee under FERS. I am going to retire soon with 26½ years at age 60. Do I have to take the special retirement supplement, or can I waive it? If I take it, do I have to start taking Social Security at 62, or do I have an option to wait until I am older? If I decide to purchase an annuity with my Thrift Savings Plan balance from MetLife, is that annuity protected if MetLife folds?

A. Mike: A MetLife annuity is backed by MetLife. Your state may also offer some backstop in the case of MetLife’s failure. It’s not guaranteed by the federal government, if that’s what you’re asking.

Reg: There is no conceivable reason for turning down the special retirement supplement. You don’t have to apply for a Social Security benefit when you turn 62, you can delay that decision as long as you want.

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TSP allocation

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Q. I am 35 years old and am using L2040 for my fund allocation through the Thrift Savings Plan. I have been reading that I should be diversifying between C, S and I funds for a larger return, but I am not sure how to split the percentages between the three funds. How can I do that since I have 30 years or so until retirement?

A. About 77 percent of your L 2040 investment is already in the C, S and I funds. You could switch to the L 2050 fund and increase that allocation to about 87 percent. If you want more of your money than this in only those three funds, you’ll have to leave the L Funds and allocate your money directly into the funds.

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Move to G Fund or L Fund?

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Q. I am a 66-year-old CSRS retiree with approximately $200,000 in the F Fund. I have no debts, and will likely leave my Thrift Savings Plan untouched until I am forced to start withdrawing it. I am concerned that when interest rates start to rise, bonds will drop and the value of my TSP account may fall. I am considering moving my TSP into the G Fund. However, since I don’t plan on a withdrawal soon, should I put move it to one of the L funds?

A. The G Fund is the only TSP fund that does not pose the risk of loss.

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One-time TSP withdrawal at 59 1/2?

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Q. I am 59½ and would like to take advantage of the opportunity to take a one-time withdrawal. What are the tax consequences of taking a withdrawal of, say, $50,000? Does it have to all be rolled to an IRA to avoid a tax penalty, or can it come out as cash and part of it be put into an IRA and part put into a spending account for paying down bills/mortgage?

A. Taking a withdrawal from your TSP account after reaching age 59½ will not generate a penalty. Any amount withdrawn and not rolled over will be treated as ordinary, taxable income when you file your tax return. You may roll over all or part of your withdrawn amount (as long as it is not considered a Required Minimum Distribution) to an IRA to further defer taxation.

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Special category retiree and TSP access

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Q. I am a 50-year-old 6(c). I am eligible to retire on an immediate unreduced annuity this year and plan to do so. I plan to eventually access my Thrift Savings Plan funds, and I understand that I am able to do 72(t)-type withdrawals and avoid early withdrawal penalties. But I’m not interested in 72(t) systematic payments. I also know I could roll over the account to an IRA, but that is not my desired intention. Since I am retiring at age 50, what is the first date that I could begin to access my TSP via lump sum or monthly withdrawals without the 10 percent penalty: age 55 or 59½?

A. Age 59½.

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Withdrawal, TSP and IRA

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Q. My boyfriend worked as a civilian marine electrician in the Navy and he has a 401(k) plan or a Thrift Savings Plan. He’s not working with them anymore, and he wants to withdraw some money to start a new life. He does have a job, but it’s not enough to pay his bills, and he wants to get a divorce from his wife but has no money to even file it. I’ve read several articles and I think his best option is to directly roll over the plan to a traditional IRA, which avoids any penalty fees, but he will still pay tax depending on how much he withdraws for a year. Any other best ways to touch the money? He just needs some, not all.

A. He can roll over the money to an IRA to remove it from the TSP and defer the tax bill, but he won’t be able to spend the money unless he withdraws it from the IRA, which will trigger taxes. He may want to consider a loan from the plan instead, which isn’t available from an IRA. This will avoid the taxes, but the loan will have to be repaid according to the schedule.

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Required minimum distribution

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Q. I will turn 70 in July 2014. Is 2015 the first year I will be required to receive the required minimum distribution? Who decides the date and month of annual distributions?

A. You must complete your first RMD by April 1 of the year following the calendar year in which you reach age 70½. You may take the distribution however and whenever you like, as long as the required minimum amount has been withdrawn by the deadline for each year.

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TSP loan

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Q. If you have a Thrift Savings Plan loan and have paid three of the four years but want to remodel a house, can you change the existing loan to get the money?

A. Only one general purpose loan at a time is allowed.

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G Fund suspension

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Q. As someone who has more then $100,000 in the G Fund in my Thrift Savings Plan account, should I be taking any actions due to the Treasury’s suspension of G Fund investments?

A. There is no substitute for the G Fund.

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