Ask The Experts: Money Matters

By Mike Miles

Buy annuity with TSP money?

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Q. I retired (at age 72) from the Department of Labor on Jan. 31. I have $368,000 in my Thrift Savings Plan invested — 40 percent G fund; 20 percent C fund; 20 percent I Fund; and 20 percent S Fund. The combined interest yield for 2013 was $85,000 (a 12 percent gain). I was thinking about drawing out $5,000 a month for 10 years and depleting the fund.

If I take a monthly deductions, I computed the interest earned for a 10-year period at 10 percent. This will expand the fund each year until it is paid out in about 11 years. While looking at other options with Met-Life, I noticed that I could combine this with any annuity that would pay out for the rest of my life.

I was thinking of buying an annuity with part of the money — say $50,000 to $100,000 — and leaving the rest in the TSP at the current risk factors (40/20/20/20)
My questions are:
1) Is this possible?
2) Does the annuity also pay an interest dividend?
3) What would be left in the TSP to be paid out monthly?
4) Will my wife be able to draw on this plan after I die?
5) Will my children be able to inherit what is left in the find?
6) How would I set this plan up? Read the rest of this entry »

Transfer annual leave?

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Q. Can you transfer unused annual leave into your TSP fund at retirement?

A. No.

TSP funds upon retirement

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Q. I’m retiring in one year. I’m 66 years old with $617,000 in the 2020 L fund. I plan on taking level payments from the TSP. Should I leave the the funds in the 2020, move them to the L income fund, or move them to the 2030 fund based on my life expectancy?

A. The correct answer to your question will depend upon the size of those level payments and whether or not the payments may need to continue after your death. There is no one-size-fits-all-for-a-66-year-old solution for this. The answer is different for different circumstances.

Combine TSP accounts?

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Q. My spouse is a postal worker, age 48, who will have eight years of service and plans to leave the workforce in February 2015. She plans to defer retirement until age 62. I am a FERS participant who will have 36 years when I reach my MRA of 56 in September 2019. We both have TSP accounts. When my spouse leaves the workforce next year, will I be able to transfer her TSP into mine so that they are combined into one account? Will they need to be left separate for a number of years or always? What are our options?

A. Your TSP accounts must remain separate as long as you are both alive.

IRA after retirement

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Q. I’m getting ready to retire in February 2015. I have invested in the TSP since 1997. After I retire, is it too late to invest in an Roth IRA since I can’t contribute to my TSP plan?

A. The rules for this are complex and depend upon your income, marital status and employment. You should ask your tax preparer to provide you with guidance on this.

Taxable distribution

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Q. I’ll be retiring this year, and using a portion of my TSP account balance to purchase a retirement home. My question is: For example, If I take an Age-Based In-Service Withdrawal of $100,000, and the TSP withholds 20 percent for taxes ($20,000) and I request an additional withholding of $10,000 to cover any tax shortfalls, will the declared taxable distribution be $100,000 or $130,000?

A. The withholding is taken from the withdrawal, so the declared taxable distribution will be $100,000, you’ll receive $70,000 of it, and $30,000 will be deposited and held against your tax liability for the year.

TSP beneficiary

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Q. I am a retired federal law enforcement agent. I retired under the civil service plan but I invested in the FERS system. I am now 70 1/2 years of age, I have a balance of $72,000 in the TSP account and plan to withdraw $500 in monthly payments. If I die, will my wife, who is my beneficiary, continue to receive those monthly payments?

A. Those payments will stop at your death, but your wife may take over the account and resume the distributions.

Wealth preservation

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Q. Does the TSP offer any way to keep money in TSP for beneficiaries to continue growth? I just read about a stretch IRA that allows beneficiaries to keep money in the account when you die. The only stipulation is they have to take the RMD right away and it is taxable.

A. Your spouse beneficiary may inherit your TSP account and treat it as their own. Your non-spouse beneficiary may retain the proceeds in an Beneficiary IRA account, subject to the RMD rules for that type of account.

TSP transfer?

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Q. My concern was that I took all my money out of the TSP when I left the government in 1989 and then came back years later, in 2004. Does that affect my date of eligibility (SCD for retirement)? Related question: Will I be considered to have worked at this point (as of March 2014) 25 months (old service) plus now about 10 years, so about 12 years total, or only 10 years (my current service beginning in 2004)? Also, when my FERS annuity is figured, is that on 10 years or 12 years? Finally, am I currently eligible to make a re-deposit of the TSP that I took out in 1989?

A. Your TSP contributions and withdrawals have no impact on your retirement SCD. There is no such thing as a redeposit into the TSP. You may transfer eligible IRA or Qualified Retirement Plan balances into your TSP account at any time, however.

Withholding from TSP distributions

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Q. I am a 62-year-old FERS employee with 29 years of service. I took an age-based withdrawal from my TSP account at 59 from which TSP withheld 20 percent off the top and then the remainder was taxed; however, I got the taxed portion back in the next tax year. My question is: If I retire at age 66 with 33 years of service and withdraw my TSP funds at that time, will 20 percent be taken off the top by TSP again? Will I be able to leave funds in TSP and have monthly or annual withdrawals, or would my best bet be to take an annuity?

A. See page 3 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf for the rules about withholding from TSP distributions. You may leave money in your TSP account for life and take monthly withdrawals. The decision to buy an annuity is too important, and complex, to trust to an Q & A forum.