Ask The Experts: Money Matters

By Mike Miles

TSP

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Q. I’m planning to retire Jan. 2 and would like your suggestions as to what to do with the $165,000 in my Thrift Savings Plan account. I thought about transferring the money from the TSP, buying an IRA and letting it remain there for a couple of years since do not think I will need the money at the present time. I am 63 years old and covered under CSRS. Any suggestions as to what to do with the money and the best company or companies to purchase an IRA would be greatly appreciated.

A. The TSP is the best retirement savings and investment account you’ll find. Leave your money there and manage it for as long as possible. You’ve proposed no good reason to move it away.

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Reallocating funds

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Q. I will be retiring in January. I have approximately $180,000 the G Fund. Should I consider the one-time withdrawal to a money market account that is FDIC-insured so I can have some liquidity in my cash flow?   Could you recommend such a fund? Could you recommend any restructuring of my Thrift Savings Plan to accommodate current federal reductions in the stimulus program?

A. Yes, should consider taking a withdrawal from your TSP account to provide needed liquidity, but only if no other resources are available to do the job. The best place for liquid cash reserves in this economy is FDIC-insured bank savings.

To mitigate bond risk in today’s low-interest rate environment, I suggest that you substitute some G Fund for some of the F Fund in your asset allocation scheme.

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Age-based, in-service withdrawal vs. partial withdrawal

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Q. I’m a 32-year FERS employee, 60 years old and about to retire in February 2014. I would like to take out some funds from my Thrift Savings Plan. Should I request an age-based, in-service withdrawal or take a partial withdrawal after I retire?

A. Either will count as your single lifetime partial withdrawal. Will the tax cost for the withdrawal be significantly lower if the money is withdrawn in 2013? If so, you should consider taking the withdrawal now. If not, it will not really matter when you take it in 2014. If you need the money now but would rather have it taxed as 2014 income, you could take a loan now and then fail to repay it after you retire so it will be declared a taxable distribution in 2014.

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VCP

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Q. I am a CSRS employee. I have decided to take the Voluntary Separation Incentive Payment and should be off the rolls by March 31. I am told that I can put in 10 percent of my basic total federal wages (could be in excess of $200,000) into the Voluntary Contribution Program and I should withdraw all of it when I retire. I am also told that I can deposit this withdrawn VCP money into a Roth IRA, which is the main reason I want to do this. Are my assumptions true? If it is, how can I open a VCP account, since I am told that it will take at least a couple of months before the Office of Personnel Management acts on my request?

A. I can’t tell you what you should do with what little I know about you and your circumstances. For the timing, you’ll have to work with your agency and OPM to figure out how to make it work. I can tell you that what you’re considering is allowed and worth considering.

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Rolling a TSP distribution over into a Roth IRA

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Q. Can I roll over a Thrift Savings Plan distribution that I received last week to a Roth IRA?

A. Yes, as long as it’s not a required minimum distribution. Your tax preparer is responsible for making sure that you obey the applicable rules, however. Self-preparation of all but the simplest tax return can be hazardous to your financial health.

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TSP withdrawals and earned income

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Q. Are TSP lump-sum withdrawals considered earned income for the purposes of the earned income test for FERS disability retirement?

A. TSP withdrawals are not considered earned income.

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TSP and state income taxes

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Q. Can the Thrift Savings Plan withhold state income taxes from a monthly payment (scheduled withdrawal)?  If yes, what is the procedure?

A. No.

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Diversifying from G Fund

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Q. A sad tale: I am 64 and still working for the Defense Department. For most of my career, I have left my money in the G Fund except for some short periods where some of it was in the C Fund. I now have $430,000 in the G Fund but just can’t find it in myself to diversify although I see that I have lost a lot of money over the years this way. Can you recommend a relatively safe future strategy that won’t keep me awake at night?

A. Find a trustworthy and affordable adviser to help you.

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IRAs for retired military

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Q. My IRA was started when active-duty personnel were permitted to contribute to an IRA with after-tax dollars. I am 66 and want to begin planning for the required minimum distribution with a little long-term projecting.

Here is the dilemma. In trying to compute the cost basis and taxable amount, I have to distinguish between the military years “after-tax dollars invested” and the “before-tax dollars investments” contributed during my post-active-duty working years.

I found out that for some of the active years, no IRS Form 8506 was filed (showing the contributions for some years). How can I substantiate for the IRS that contributions for those years were “after-tax dollars”?

A. This question is beyond the scope of this forum. You should consult a CPA to help you with this.

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Transferring into TSP

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Q. Can a CD be transferred into the Thrift Savings Plan?

A. No. Only cash can be transferred into the TSP.

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