Ask The Experts: Money Matters

By Mike Miles

TSP loan repayment

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Q. From what I understand, I must repay a TSP loan within 90 days of the date my agency notifies TSP of my separation from service, otherwise my loan is taxable. When does the agency notify TSP of my separation, upon retirement?

A. You’ll have to ask your agency’s benefits officer.

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L Fund selection

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Q. I am 55 years old planning to retire under CSRS in the next year. I currently have approximately $200,000 in TSP using my own distribution choices rather than an L Fund. Although my distribution selection falls between the L 2020 and L 2040 Funds, I am considering movement to an L Fund once I retire. If I understand the TSP descriptions correctly, they suggest I use the L Fund closest to my retirement year (L 2020), but my thought is that I can afford to be a little more aggressive considering I will be receiving a decent pension ($70,000). I believe I read in one of your answers that choosing an L Fund closest to my life expectancy is worth considering, but I can’t find it and would hate to make any decision without a complete understanding of what is best for me. Which L Fund, if any, would you recommend someone in my situation should select?  Read the rest of this entry »

Moving TSP funds

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Q. I plan to retire under FERS in December 2020 at age 66. All my investment is in the G Fund, $350,000, as are my allocations at 100 percent. I was advised to move 60 percent to the C fund and 40 percent to the F fund ASAP with the same allocations. I consider this a risky and aggressive move considering my situation, the economy, and that the S&P is overdue for at least a 20 percent correction by the end of this year. What do the experts advise. Read the rest of this entry »

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Roll IRA to TSP?

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Q. I am a 55-year-old Postal employee planning to retire sometime in the next year under CSRS. Many years ago, I purchased a $2,000 Vanguard IRA that has grown to more than $40,000. I also have a separate similarly valued Roth IRA. I know that I can begin penalty-free withdrawals from TSP after separation, but can I roll my Vanguard IRA into TSP?  I also know that I cannot roll my Roth into TSP. My desire is to have the money accessible before 59-1/2 and to avoid having three pots to withdraw MRDs when I’m 70-1/2. Any suggestions?

A. You may transfer the IRA money into the TSP any time, as long as it contains no after-tax contributions.

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Loan balance

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Q. I work for the BOP and I am 10 months away from being forced to retire with 20 years of service. A few years ago there was talk around work that the age restriction was going to be raised, and it seems that was wishful thinking.  I just accepted it as a probability because it was raised in the past and that gave me the opportunity to get hired. I took out a loan against my TSP account anticipating the age requirement would go up and as a result, unless something does change, I will most likely have a balance on this loan when I’m forced out. If I’m unable to pay this balance off prior to being forced out, what consequence can I expect as a result?

A. The unpaid balance will be declared a taxable distribution. The early withdrawal penalty may also apply if you don’t meet one of the exceptions listed on Page 7 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.

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Late start to TSP

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Q. I am 65 years old.  I have been employed in the federal government for nine years. At this late stage and age, should I join TSP.

A. If you’d like to save money for your use later in retirement, yes.

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Roth IRA

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Q. Can you roll an existing Roth IRA into you Roth TSP fund?

A. No.

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TSP rollover

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Q. I am almost 57-1/2 years old, and I have more than 30 years with the Defense Department. Can I roll my TSP into a self-directed IRA now without retiring or quitting? I want control over where it is and how it grows, and I am concerned about the government taking it to pay its debts before I can remove it normally at 59-1/2.

A. No.

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What TSP investors should worry about

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As a Thrift Savings Plan investor, what should you worry about? You might be surprised that my list doesn’t include whether to contribute to the Roth or traditional accounts, or that you’ll have to begin taking distributions someday, if you aren’t already. Here is my list of things worth worrying about:

Political meddling. The greatest threat to the TSP, as an institution, comes from members of Congress. The TSP contains nearly $400 billion. It’s the juiciest single profit target for the financial services industry. So far, they’ve had to go after it one retired investor at a time, but they imagine — fantasize, really — how great it would be to gain access to all $400 billion at once. Connect the dots, and you realize that the only way to do this without having to pass through the protective fiduciary gauntlet imposed by the Federal Retirement Thrift Investment Board is through Congressional action.

So far, the attempts by certain members of Congress to insert new investment options, for example, have failed, but it will only take one successful effort to ruin the TSP for the federal worker.

Another stock market crash. This always will be a concern for a retirement investorbecause the risk is ever-present and can do real harm to your retirement standard of living. It is impossible to predict with certainty when market crashes will occur and how severe they’ll be. I think of it this way: At any given moment, the probability that the C, S, I or F Funds will either beat, or lag, the expected rate of return is about 50 percent — a coin flip. The market’s tug-of-war makes it so. If you need that expected return to support your planned standard of living in retirement, then you don’t want to risk not being there to collect that return when it comes. But if losses come instead, you don’t want to participate in them any more than necessary. For most investors, there’s risk to being in, and out of, the market, so a balance must be struck. Hold as much of each fund as you need to hold to support your retirement plan, but no more.

Rising interest rates. Rising interest rates pose two threats. First, they drive bond prices, and hence values, down. Yes, that means that, like stocks, bonds are risky investments. The F Fund, which is a bond fund, can and does lose value from time to time. Second, rising interest rates tend to depress the value of stocks. This is because the formulas used by competent investors to assess the value of a company’s stock are heavily dependent upon a “discount rate” that is, in turn, dependent upon interest rates. And higher discount rates mean lower prices for stocks. The F Fund’s primary purpose in your portfolio should be to hedge the risk of loss from holdings in the C, S and I Funds. Whenever you hold stocks, you should also hold bonds as a hedge. Because they are risky assets, however, like stocks, you should only hold the amount needed to efficiently hedge your stock positions, and no more. Today’s low interest rates mean that controlling your exposure to the F Fund is particularly important.

The rationale for your choices. There about a zillion financial decisions you’ll face during your life — choices you’ll have to make. Before you act, you should thoroughly investigate, understand and critically evaluate the rationale for taking that action and the reasons why that action, alone, is the best possible action to take. There are reliable ways to make your financial decisions, including those you’ll make in managing your TSP account, the best they can be. There is no need to settle for anything less.

Mike Miles is a Certified Financial Planner licensee and a principal adviser for Variplan LLC, an independent fiduciary in Ashburn, Virginia. Email your financial questions to fedexperts@federaltimes.com and view his blog at blogs.federaltimes.com/federal-money.

Maximizing investment

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Q. I’m 53 with 30 years of government service. I’m invested at 15 percent to TSP. Looking at my account, I feel I am not going to have enough money in my TSP to retire comfortably. I have 6-1/2 years until I can retire without penalty to TSP. What can I do to maximize my investment?

A. I suggest that you contribute as much as you can and direct all of your current and future investments to the L Fund that most closely corresponds to your life expectancy. If you’d like more certainty in predicting and producing the outcome of your retirement plan, you can review the information provided at www.variplan.com. My ongoing help is trustworthy and cost effective for most feds with $100,000 or more in savings and investments.

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