Ask The Experts: Money Matters

By Mike Miles

Moving savings

Bookmark and Share

Q. Can I move my savings into Roth TSP?

A. Only if it’s coming from a qualified Roth retirement plan account.

Tags:

Finding an advisor

Bookmark and Share

Q. My husband and I are 51. We will retire in about 10 years. How do we find the right financial advisor that will help us understand what we need for retirement, and  what we need to do if we won’t have enough to meet our needs? Read the rest of this entry »

Tags: , ,

72t payments

Bookmark and Share

Q. If I take 5 percent or the maximum interest my retirement plan provides, does this violate the 72t definition of reasonable interest rate, and would I end up paying the 10 percent penalty?

A. 72t distributions must be computed using one of three specific formulas, and the rules are strict. Anything else will not qualify for the exemption. You should work with a qualified tax adviser before initiating any payments.

Tags:

Annual Leave payout

Bookmark and Share

Q. I am a federal employee and will retire Jan. 3. I will have about 400 hours of Annual Leave for a cash payout. Am I allowed to request that this monetary amount be directly rolled into an eligible 401K plan and not have any taxes taken out? If I take the cash payout, can I predetermine the tax percentage based on my calculations or does the government tax at the maximum rate?

A. You may not direct the payout into an IRA or 401k plan. Taxes will be withheld according to the W-4 you have on file with your payroll office.

Tags: , ,

TSP and Roth TSP

Bookmark and Share

Q. Upon retirement I want to transfer my Roth TSP out so I have more flexibility with taxes. Currently, I have all of my TSP money invested into the Roth TSP. Once retired, I want to transfer all but $1 to another firm into both a regular IRA rollover and Roth IRA rollover so that the two  types of TSP accounts are no longer co-mingled. I then want to transfer my regular IRA back into the TSP in order to keep the two types of accounts separate (regular TSP at the TSP and Roth TSP with outside brokerage firm in a Roth IRA rollover). Is this feasible? The TSP doesn’t allow you to have distributions from one or the other, only both. This way I could set up my distributions separately for tax advantages. Read the rest of this entry »

Tags: , ,

Stock dividends

Bookmark and Share

Q. The stock funds (TSP) offered, Small Cap/Large Cap, invest in stocks. What happens to the dividends?

A. They are retained inside the funds and are reflected in the share prices.

Tags:

Diversification strategy

Bookmark and Share

Q. I just started a federal career at age 31. I rolled over about $21,000 dollars into the S fund from prior retirement. Would it be better to use the L funds for growth which carry less risk, or seek the highest amount of returns in the S fund. I am huge risk-taker when it comes to investing, just trying to make informed decision before accepting all the risk of the S fund with no diversification.

A. Let’s see … I know that you’re 31, have about $21,000 in the S Fund, are a huge risk-taker and know little or nothing about managing a retirement investment portfolio. Sorry, but that’s not nearly enough information to figure out what’s best for you. It’s like you’ve told me that you’re driving a Ferrari somewhere in Iowa with 1/4 of a tank of gas and asking which way you should turn the wheel. I can tell you that your one-fund portfolio takes more risk than needed for the expected return it produces, and that it could be made more risk-efficient through diversification.

Tags: ,

2020 fund

Bookmark and Share

Q. I heard someone mention the 2020 fund and that they also invest normally. All I can figure is that she invests in the L2020 fund. Is that possible, and how does that work? I did not think you could have a regular investment like the G and C fund, for example, and still have and L fund.

A. You may allocate all or a portion of your account to one or more of the L Funds, just like any of the basic TSP funds.

Tags: ,

Retirement allocation

Bookmark and Share

Q. I am federal employee who transferred from CSRS to FERS in October 1998, and I have 37 years of federal service at age 66. Planning retirement within the next year, and I would like to ask your opinion about my TSP allocation which is G Fund at 35 percent, F Fund at 10 percent, C Fund at 35 percent, S Fund at 8 percent and I Fund at 12 percent. Is this an allocation to keep when I retire? Read the rest of this entry »

Tags: ,

What’s considered earned income

Bookmark and Share

Q. Can you please provide a citation to your assertion that an annual leave payout is not considered earned income and cannot serve as the basis for IRA contributions?

A. See the sections on what is, and what is not, compensation on Page 8 of IRS Publication 590. I believe it is considered deferred compensation, but in the end, how you should proceed is a question for your tax preparer.

Tags: ,