Ask The Experts: Money Matters

By Mike Miles

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.

TSP allocation

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Q. I am 26 years old and have been investing into TSP (Roth) for about seven months. I am currently investing at just above 10 percent of base pay. I was investing into G Fund at 100 percent and recently moved to the L Fund 2040 at 100 percent. I have zero experience with investing and took this advice from a friend’s parent who has experience. Was this the right move?

A. Based only on your age, which is the only relevant clue you’ve provided, I think that the L 2050 Fund would have been a better choice. The person responsible for producing the results should have the final say, however.

TSP withdrawal

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Q. Can I take a partial lump-sum and then start a full withdrawal as monthly payments?

A. Yes.

RMD explainer

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Q. I turn 70 ½ in April. Must I take the required RMD by April 1? Do I take it all at once or can I spread it out over the year?
Must I take a certain amount from all accounts or can I take it all from one?

A. Your first RMD is due by April 1 of the year following the calendar year in which you reach age 70 ½. You may take the RMD any way you like, as long as the required amount has been withdrawn by the deadline. Your TSP RMD must come from your TSP account. Certain other types of accounts, including IRA accounts, may be aggregated for RMD purposes.

Share cost vs. share return

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Q. I’m a federal law enforcement agent that has been contributing about $1,500 per month, which includes the matching contribution. For the last few years I have been investing 100 percent into the S fund, and this year I have been investing 20 percent in the F fund, 30 percent in the C fund and 50 percent in the S fund. I have been a federal employee since 2009 and I have asked a number of agents at my work throughout the years if purchasing shares that are less inexpensive such as in the L 2050 will provide me with a lot more income vs. S fund since I could buy more shares in the L fund.

The way I understood it was that the share price or having thousands of shares in the G fund or L fund don’t matter; what is important is making the most interest from the share, i.e. the S fund or C fund. Clarification in this matter would be greatly appreciated.

A. There is no advantage to buying fund shares with lower prices. The share price nothing more than the fund’s total value divided by the number of shares. A little basic arithmetic will quickly prove that this is unrelated to the rate of return on your investment.

No partial TSP withdrawals after full withdrawal begins

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Q. I’m a CSRS person retiring at 64. I’ve read a couple of the comments and the TSP Web. As I understand I can: request a single partial withdraw, leaving the balance for future withdrawals; or I can request a monthly check varying the amount as needs dictate.

My question is: Can I start taking a monthly amount for, say, 2 years and then request my one-time partial withdrawal (for a large cost item), and stay with the current monthly amount? I would adjust my monthly payments downward at the next open period.

A. You may not request a partial lump-sum withdrawal once a full withdrawal as monthly payments has begun.

TSP distributions are not earned income

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Q. I am a 56-year-old considering early retirement, no disabilities. Example: If I withdraw $60,000 from TSP, I would have nearly $20,000 taken for taxes and 10 percent  penalty, but if I withdrew at the end of the pay year, will the additional $40,000 that I receive count towards my “High 3” for Social Security payment calculation? Or if I grossed $70,000 in earnings that year, and took the $40,000 from TSP after penalties and tax, would my income for that year be $70,000 earnings plus $40,000 TSP withdraw = $110,000 for that year’s income?

A. TSP distributions are not considered earned income and don’t count toward your Hi-3 or Social Security calculations. They are considered ordinary income for tax purposes, however.