Ask The Experts: Money Matters

By Mike Miles

Rollover limit

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Q. I know partial withdrawals are limited to one in retirement under TSP. Does this apply to rollovers as well? I want to top off my marginal federal tax bracket each year until I hit 70-½ by doing a TSP rollover of a varying amount to my existing external Roth account. If I have to use the monthly payment option to do it, it’s just too much trouble.

A. Only one lump-sum TSP withdrawal or rollover is allowed per lifetime.

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Withdrawals and tranfers

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Q. I plan on retiring with 31 years of service at age 57. I have both the Regular TSP and the Roth TSP. I plan to withdraw my Thrift Savings Plan in a single payment. Can I transfer 100 percent of the Regular TSP to a Traditional IRA, but take the Roth TSP funds as a direct withdrawal without penalty?

A. I believe so, as long as you have held the Roth account for at least five years. You should consult a tax adviser for specific advice before you proceed.

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Retirement options

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Q. I am 62 and a FERS employee. Can I retire with my FERS annuity and TSP and wait until my full retirement age of 66? I do not plan to work  after I leave.

A. Yes.

 

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VERA/VSIP and TSP

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Q. If a VERA/VSIP is offered next year, will I be able to draw income from TSP without penalty? I will have 33 years of creditable service, and as of March 9 I will be 54. Read the rest of this entry »

Annuity fees

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Q. I know you are not a CPA but I thought this has probably been asked before and that you might have an answer. Are annuity fees tax-deductible on traditional IRAs? Read the rest of this entry »

Disability retirement

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Q. I am 56 and had to retire under a federal service disability retirement because of cancer. I am also receiving Social Security, and I have 90 percent disability from the Veterans Affairs Department. Can I withdraw from the Thrift Savings Plan without the 10 percent penalty, or do I need to wait until I’m 59? I’ve read that if I am permanently disabled I can waive the penalty. But I can’t find any info as to how I prove permanent disability for tax purposes. I know I can’t work and retired with disability under federal service and Social Security, but is that permanently disabled? The tax documents bounce all over, and it’s difficult to know if I meet the permanently disability requirements. Read the rest of this entry »

TSP withdrawal for student loan

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Q. I retired seven years ago from the military and contributed to a TSP account up to my retirement. I am currently 52 years old and would like to know if I can withdraw money out of my TSP  account to pay for one of my children’s college loans without a penalty? Read the rest of this entry »

Full TSP withdrawal

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Q. I will be retiring Dec 2014 and want to withdraw my entire TSP monies. What is the federal withholding in percentage that will be taxed? And do they take it off the top of your balance or will it happen at income tax time? Read the rest of this entry »

The ideal TSP allocation

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If you had just enough money to pay your electric bill next month, would you gamble with it just for fun? Hold it in cash, and you’ll enjoy another month of electrified living. Lose even part of it, and you’ll be living in the dark for a while. If the sole purpose for that money is to pay for the electricity you’ll need to live the life you want, why would you risk losing it to have a chance to win money you don’t need?

Many investors don’t understand the principles and techniques necessary to manage a retirement investment portfolio intelligently. Others are obsessed with making money for the sake of having more, regardless of any need. And some are out to prove that they are somehow better than the next guy. Whatever the reason, putting money that you’ll need at risk to gain something you don’t need, or won’t ever use, is foolish. I see it in practice all the time. Investors who have more money than they’ll ever need still feel compelled to take risk with it. Often, it seems as though they feel it’s their responsibility to push that money into the stock or bond markets, and they feel guilty if they don’t. I hear phrases like “That money should be put to work” or “I can’t just let the money sit there, doing nothing.” This isn’t surprising given that incessant advertising messages have been telling them this since they were old enough to understand the message. In the temple of Wall Street, it’s sacrilege to leave money in cash — particularly if it’s not in a house account — and their prescription for every dollar you own is more risk.

Well, let me give you another perspective to consider. The goal of retirement investing is to safely fund the lifestyle you need or want — or at least as much of it as is possible. Notice that word “safely,” which I interpret to mean “with minimum risk.” What’s the least risky place for your money? Cash, of course. And, for Thrift Savings Plan (TSP) investors, that means the G Fund. As is often the case, I’m going to propose that you adopt an idea that is directly opposed to anything you’ll hear from Wall Street. The ideal portfolio is entirely in cash, particularly when that cash is positioned in the G Fund. The argument I’m making applies to all portfolios and all cash, but it is particularly strong for TSP investors who have access to the G Fund. If you have accumulated all of the money you will need to fund your lifetime of financial goals, your portfolio should be invested entirely in cash — the G Fund for TSP accounts.

That’s right: 100-percent G Fund. This recommendation applies whether you have enough now, or reach that point at some time in the future. Your goal as an investor is to be able to afford an all-cash investment portfolio. If you can do this, you have won the game. You can tip the dealer and go home, or move on to more fulfilling activities.

Investing in risky markets is like playing a game of poker. Only, you’re playing against the best players on Earth. Yes, they’re smarter than you — a lot smarter. They have virtually unlimited resources, skill and experience, and they are very motivated to do whatever they can get away with to win. They cheat all the time. You are the sucker at the table. You might win, but if you do it’s only luck, and luck always changes. It might be that you have to play this game to survive or live the life you want, and that’s a legitimate reason to play. But why would you risk losing your money to these sharks, if you had a choice? You shouldn’t.

Unlike the poker game, the markets put the odds slightly in your favor. They go up more than they go down. But, they bring with them the real chance to lose a lot of money fast — money that you might never have a chance to recover. Money that you might need to pay your bills later. You shouldn’t take that risk unless you need to. If you can’t afford to shelter all of your portfolio from the risk of loss, then protect what you can as you go. The idea is to invest only what needs to be invested to achieve your goals. Leave the rest, safe and sound, in the G Fund.

Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Ashburn, Virginia. Email your financial questions to fedexperts@federaltimes.com and view his blog at blogs.federaltimes.com/federal-money.

 

TSP withdrawal penalty

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Q. Is there a penalty for taking a lump sum TSP balance out at retirement for FERS employee to purchase a home? I may retire at age 56 or 57 with 30 years of federal service. If I decide to take my lump sum at retirement, will I be penalized? How much would come out if the amount is $170,000 right now? Read the rest of this entry »