Ask The Experts: Money Matters

By Mike Miles

Retirement funds from former employer

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Q. I have about $100,000 in a Vanguard account from my old employer. Since I can’t contribute anything to that account, can I drop those funds into my TSP and get better return?

A. Yes, you may and probably should transfer the pre-tax part of these funds into your TSP account.

TSP contributions while on disability

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Q. If I go out on FERS disability, will I still be able to make contributions to my TSP while on disability? If so, will there be matching contributions?

A. You may not make TSP contributions from FERS disability retirement income payments.

TSP withdrawal for financial hardship

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Q. I am 50 years old and have been employed with the federal government for more than 20 years. I have an outstanding TSP loan with a balance of around $14,000 from about three years ago. Each month I have difficulty paying all of my bills. I have no problem proving negative cash flow due to years of frozen pay, furloughs, increases in the cost of living including energy, food prices, medical expenses and prior debt. I see no circumstances where these costs will decrease nor do I see my income increasing in the foreseeable future. I need to take a hardship withdrawal, around $20,000, an amount sufficient to pay off the TSP loan along with the penalties and taxes. This would increase my monthly usable cash flow by around $500, enabling me to meet my obligations and start bringing down debt. I plan to work for at least 15 more years and contribute as soon as the penalty period is complete. I am aware of the taxes and penalties as well as the impact on my final TSP balance and retirement income. If I am willing to pay the taxes and penalties, can I not take this hardship withdrawal to prevent possible bankruptcy? A smaller withdrawal will do little more than a temporary reprieve and just prolong the inevitable in the hopes that my income may increase.

A. Recurring negative monthly cash flow will qualify you for a financial hardship in-service TSP withdrawal.

Rolling TSP to Roth IRA not a good option

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Q. I am 69 years old and made a small early withdrawal from my TSP. I am thinking of retiring within the next two years and wondered if I should roll part of my TSP earnings into a Roth IRA. What are your suggestions? What type of Roth should I choose, and what amount should I roll over?

A. Nothing in your note indicates that there is a good reason for doing this. You will certainly incur higher investment expenses, lose access to the G Fund, and pay taxes at today’s rate. What do you expect to gain in return? Better returns? No. Less risk? No. Significantly lower taxes in the future? Not likely.

G Fund vs. L Fund options for TSP account

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Q. I am a 49-year-old FERS employee, and I have been contributing to my TSP account for the last 8 years. I am contributing 100 percent to the G Funds because I was told that is safer, but I don’t see my money growing fast enough, and to be honest I don’t really understand the different options available to me. I have at least 13 more years of service before retirement and need to see my money grow faster. Please advise where should I be contributing my money. The options I have are:

  • G Fund Government Securities
  • F Fund Fixed Income Index
  • C Fund Common Stock Index
  • S Fund Small Cap Stock Index
  • I Fund International Stock Index

A. You also have the option to contribute to the L Funds, and given your lack of understanding, you should consider doing so. If you’re interested in taking your planning and investment management to the next level, you may contact me through my website at www.variplan.com.

TSP and in-service withdrawals

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Q. I’m 58 yrs old with 34 years at the Postal Service. I have about $400,000 in my TSP account. I’m not ready to retire, but I would like to take a one-time withdrawal from my account to use for down payment of a house ($100,000). Is that money subject to a penalty? Do I have to pay it back? Or is it just treated like ordinary income?

A. You may take a loan up to the TSP loan limit, which will not be taxed if you repay it on time. You may take an in-service hardship withdrawal if you qualify, and you do not pay it back, but it will be taxed as ordinary income and subject to the early withdrawal penalty. You may wait until you reach age 59 ½ and take an age-based, in-service withdrawal, which you do not pay back and which will be taxed as ordinary income. Visit www.tsp.gov for more information about in-service withdrawals and loans.

Lifecycle fund investment strategy

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Q. Based on your advice to select the Lifecycle fund based on your expected lifespan, rather than retirement age, I am considering the idea of transferring all of my shares from the Lifecycle 2040 to the 2050 fund. Would it better to do this when the stock market is down or up?

A. Of course it will work out better if it is accomplished before the market rises than before it falls. The real question is: How will you know when this is before it has happened? Is the market higher or lower today than it will be tomorrow? The smart play is to move from the wrong investment strategy to the right one as quickly as possible.

TSP withdrawal age

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Q. At what age can I withdraw my TSP without penalty? I will not have 30 years in the federal service.

A. You may do it any age as long as you meet one of the exceptions listed on page 7 of the notice at: https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.

TSP status after switch to private sector

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Q. I am a federal employee (FERS employee from January 1988 to the present) who will likely be leaving federal employment for a private sector position in a different city. What happens to TSP? I can either leave my money in the TSP account or roll it over; in any case, I am not touching the balance until I retire.

A. You may, and probably should, maintain your TSP for life. Later, when you leave private sector employment, you may, and probably should, move your retirement plan balance(s) to the TSP account and manage it there.

Mutual fund fees

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Q. I read the article related to the management fee charged by mutual fund brokers. Is this fee charged annually or monthly?
(www.federaltimes.com/article/20140310/MGMT01/303100003/The-TSP-hard-beat)

I have been investing in Fidelity in a traditional IRA account for a number of years, but lately I have had to pay taxes on the contributions because my household income has been above the threshold required to get the tax deduction. I was wondering if I could move some of the contributed funds from fidelity straight to the TSP Roth without having to pay taxes again or incur any penalties and still continue saving with Fidelity.

A. The rate for mutual fund expenses is expressed as an annual percentage, but it is charged against the account on a daily basis. As long as the money is eligible to be deposited to the TSP account — that is, it contains only pre-tax money — you may move it directly into your TSP account whenever you like.