By Mike Miles
May 16th, 2014 | Uncategorized
Q. My husband and I owe back taxes to the IRS, and I would like to know if the IRS can deduct what we owe from my TSP. I have a residential and personal loan out through TSP, so I am unable to do that. We owe around $24,000 and would like it deduct from what is in my TSP. They keep telling me they can’t, but I am not sure of that. I would like to get this paid off so in around 7 years I can retire without owing them. If I was able to get them paid off I could up my TSP to around 15 percent and have a good, sizable amount when I retire, but I cannot go that high because we owe IRS. Any help you can give me would be greatly appreciated.
A. If the IRS says they can’t or won’t invade your TSP account to collect, then you have your answer. I’m not sure I understand your logic here, anyway. You want to take a big withdrawal now so you can pay it back to your TSP a little at a time. Why not leave the lump sum in your TSP and pay the IRS a little at a time? You should come out about the same in the end.
May 15th, 2014 | Uncategorized
Q. Why was MetLife chosen as the entity to provide an annuity for the TSP? Are there provisions or protections for federal employees that were negotiated? I asked that question of the TSP and they stated that there was no one within TSP or MetLife that I could talk to. Finally, most forums seem to discourage annuities — they suggest that we stay in the TSP and take monthly allotments. Comment?
A. The FRTIB chose MetLife, so they would be the ones to explain why. I don’t know of any special protections built into the deal. Once you buy the annuity, it’s between you and MetLife, and MetLife is the guarantor.
The income you are offered in exchange for your annuity purchase money varies with interest rates at the time of purchase. Once the purchase is made, the income rate is locked in for life, so buying an immediate fixed annuity is like locking in interest rates for life. Since rates are near historically low levels, now is considered an unattractive time to make the purchase. This doesn’t mean that you should not consider it as one of your options, however, since some money, guaranteed for life, is better than none if you wind up losing it.
May 13th, 2014 | Uncategorized
Q. I’ve been getting mixed advice regarding my voluntary contributions options. I was planning to ask OPM to send the (post tax) VC contributions to a new Roth IRA so I can more easily track the five-year holding requirement, and send what minimal interest accrued during the brief time the account will have been open to my TSP (if OPM will transfer such a small amount) or simply let them withhold 20 percent and send me the accrued interest.
However, I also have a small basis in an old traditional IRA because of a recharacterization several years ago, and now I’ve been told this leftover basis may have a negative impact on my disposition of VC funds. I had hoped to transfer the pre-tax amount in the traditional IRA to my TSP before mandatory withdrawals kick in, and to get rid of the remaining basis in the traditional IRA by converting it to a Roth (since post-tax money would not be accepted by TSP) .
But I’m now concerned that the rules regarding IRA conversion will trigger additional tax liabilities on the monies transferred from VC to Roth as well. I’ve been told — I hope erroneously — that the IRS requires that we combine all conversions from all types of accounts, and therefore taxes might be assessed on the VCs as well (because it would be averaged with the existing basis in the unrelated IRA and need to be withdrawn proportionately. It’s hard to believe that’s the case, but I certainly don’t want to find out the hard way that the large sum of post-tax contributions in the VC would then be subject to income tax because of the conversion to Roth. Say it isn’t so! If that were the case, an additional annuity funded with VC contributions + interest becomes a more viable option than Roth conversion – but it’s been hard to get a straight answer. Can you advise?
Does having a basis in a traditional IRA have a negative impact on my planned conversion of post-tax VC contributions to a Roth? If so, does conversion to Roth of the IRA basis alleviate the problem for the voluntary contributions conversion to Roth?
A. You may not selectively withdraw or otherwise remove after-tax money from an IRA account. If the account contains basis, then each dollar is considered to be partly basis and party taxable when removed. You must also follow the rules for aggregating certain types of accounts when removing money. So, for example, if you have two accounts, each with $50,000, and one of the accounts contains $10,000 in tax basis, then each dollar of each account is considered to consist of 10 percent basis and 90 percent ordinary taxable income. Basically, this means that when you covert you’re the after-tax portion of your VC account balance to a Roth, you’ll have to consider a portion of that conversion taxable. These rules are complex and you should consult a CPA – the one who will prepare your tax return and defend it – before proceeding any further.
May 12th, 2014 | Uncategorized
Q. I am FERS-covered and plan to retire in August at age 62. I am now front-loading my TSP contributions to the maximum (including the $5,500 catch-up which I have already contributed). At retirement, I plan to roll over all my TSP balance to an outside IRA account.
1) Will I be able to roll over the:
a) Traditional TSP portion to a traditional IRA account?
b) TSP Roth portion (which I started in 2013) to an outside established Roth IRA account?
2) Shall I now contribute the remainder (about $12,000 of $17,500) to the TSP Roth so that I can roll this over to my Roth IRA account where I can withdraw tax free whenever needed?
A. You are allowed to roll over your TSP Traditional and Roth balances to Traditional and Roth IRA accounts, respectively. You haven’t presented any reason to favor a Roth account over a Traditional account, so why complicate things? I think you would be better served to leave your money in the TSP for as long as possible.
May 11th, 2014 | Uncategorized
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 »
May 11th, 2014 | Uncategorized
Q. Can you transfer unused annual leave into your TSP fund at retirement?
May 10th, 2014 | Uncategorized
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.
May 8th, 2014 | Uncategorized
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.
May 8th, 2014 | Uncategorized
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.
May 7th, 2014 | Uncategorized
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.