By Mike Miles
Involuntary retirement and early withdrawal penalty
May 9th, 2013 | Uncategorized
Q. I have been in the Foreign Service since 1986 and am being involuntarily retired for expiration of my time in class on Sept. 30, 2014. I will be 49 years old at the time. Even with an involuntary retirement, do I still get penalized for any lump-sum payment I take from the Thrift Savings Plan? I know annuities and equal payments are not penalized.
A. There is no exception to the early withdrawal penalty for involuntary retirement.
Tags: annuity, early withdrawal penalty, lump-sum, retirement, TSP
Switching to CSRS offset under FERCCA
May 9th, 2013 | Uncategorized
Q. I was recently informed that I fell under the Federal Erroneous Retirement Coverage Corrections Act and had an option to select CSRS Offset. I was also told that the 1 percent and matching in my Thrift Savings Plan would be removed if I selected CSRS Offset. My human resources office told me that it would be the exact amount that was put into my TSP. If it made money, I would be able to keep the difference; if it lost money, I would have to make up the difference. So I selected CSRS Offset. Now they are beginning to remove the 1 percent by pay period, but they are removing the amount plus interest. I also have a colleague who was told the same, but they are only removing the actual amount and not interest. What are they supposed to be removing from the TSP if you switch from FERS to CSRS Offset under FERCCA?
A. It’s not that simple. In fact, the FERCCA rules for this are pretty complex. The answer depends upon your particular circumstances.
Re-employment and TSP payments
May 9th, 2013 | Uncategorized
Q. If I start taking my retirement now at 62 — FERS, Thrift Savings Plan payments and Social Security — and end up being picked back up at some point in federal service: I understand my FERS benefits would be cut by the amount I make in a new job. What about TSP payments? Are they exempt from penalties of re-employment?
A. If you are rehired, your automatic monthly payments will stop and you will be subject to the in-service withdrawal rules.
Tags: age, FERS, in-service withdrawal, monthly, penalty, rehire, Social Security, TSP
CSRS annuity payments treated as rollover
May 9th, 2013 | Uncategorized
Q. Based on a reading of Internal Revenue Service Publication 721, it appears to say that since the CSRS and FERS retirement systems are considered “eligible retirement plans” you could roll over a distribution (including a regular annuity payment) into another IRA and defer the taxes, or into a Roth IRA and pay the taxes immediately. If this is the case, the normal IRS limitation on contributions to IRAs and Roth IRAs are bypassed. Am I reading this correctly?
A. From IRS Publication 721: “Distributions eligible for rollover treatment. If you receive a refund of your CSRS or FERS contributions when you leave government service, you can roll over any interest you receive on the contributions.You cannot roll over any part of your CSRS or FERS annuity payments.”
Tags: annuity, contributions, CSRS, distribution, FERS, IRA, IRS, retirement, rollover, Roth IRA, taxes
Taxes and transferring TSP to Roth IRA
May 9th, 2013 | Uncategorized
Q. Upon retirement, I’m considering transferring a portion of my Thrift Savings Plan balance in monthly payments directly into a Roth IRA. Since my TSP is pretax, I understand that taxes will need to be paid on these funds upon conversion to a Roth. I am in a state with no income tax on federal pensions and distributions from the TSP (North Carolina) and want to be sure that this transfer from my TSP to the Roth will be considered a TSP distribution for tax purposes, and therefore, subject to federal and not North Carolina taxes. Does the Office of Personnel Management issue a 1099R for such a transaction to generate the tax liability?
A. Yes.
Deferring retirement and moving 401(k)
May 9th, 2013 | Uncategorized
Q. If I were to take the MRA+10 option and defer my retirement until I turn 62, can I still move my total thrift savings (401(k)) out of the thrift program?
A. Yes.
Tags: 401(k), deferred retirement, TSP
F Fund
May 9th, 2013 | Uncategorized
Q. Is F Fund performance based just on the principal amount, or does it pay a percentage or dividend at quarter end or year end?
A. TSP funds do not distribute earnings. Dividends and interest earned increase the share price.
L Fund
May 6th, 2013 | Uncategorized
Q. On reading some of Mike Miles’ column, I see him advising to invest in the L Fund most closely matching your life expectancy. So is he saying that at 60, I should invest, say, in L2040? Would he recommend this even if/when I begin withdrawing money regularly for retirement income replacement?
A. That is what I have recommended you consider doing if you’d like to maximize the standard of living your money will likely support over your lifetime. Of course, if you’re managing your money, you’re ultimately responsible for the outcomes.
Tags: investment, L Fund, life expectancy
Disability and tax deduction from TSP funds
May 6th, 2013 | Uncategorized
Q. I recently retired from the federal government due to becoming permanently disabled at age 61. I received my disability approval from the Social Security Administration. I withdrew a portion of Thrift Savings Plan funds to cover expenses as a result of not being able to work. Why was 20 percent tax deducted from the distribution of funds at age 61 and with the legal purpose of being disabled?
A. Because that is the default federal income tax withholding rate for the distribution. The money has been applied toward your tax liability for the year.
Tags: age, deduction, Disability, distribution, Social Security, taxes, TSP, withholding rate
Penalties for leaving money in TSP
May 6th, 2013 | Uncategorized
Q. If I leave my money in the Thrift Savings Plan, will I be penalized? Is it correct to say that I have the option of rolling it into an IRA or withdrawing all of it or part of it?
A. You may leave your money in the TSP until the IRS minimum distribution requirements begin. The TSP does not penalize you for leaving your money there.
Tags: IRA, penalty, Required Minimum Distribution, rollover, TSP