Ask The Experts: Money Matters

By Mike Miles

Is TSP considered ‘traditional IRA’ for tax purposes?

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Q. I own both a Thrift Savings Plan account and several non-TSP IRAs with other institutions and am approaching the age at which I must begin to withdraw the required minimum distribution from both the TSP and the non-TSP IRAs.

I am withdrawing enough money from the TSP to cover the required distribution from all of my accounts combined. Must I withdraw any additional monies from my non-TSP IRAs to comply with the tax laws? The answer may depend upon whether the TSP is considered a “traditional IRA” for tax purposes. I can’t find any information on this point.

A. The TSP is not considered an IRA for any purpose. From the Internal Revenue Service website:

“An IRA owner must calculate the RMD separately for each IRA that he or she owns, but can withdraw the total amount from one or more of the IRAs. Similarly, a 403(b) contract owner must calculate the RMD separately for each 403(b) contract that he or she owns, but can take the total amount from one or more of the 403(b) contracts.
However, RMDs required from other types of retirement plans, such as 401(k) and 457(b) plans have to be taken separately from each of those plan accounts.”

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Transferring spouse’s 403(b) into TSP

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Q. Are there any advantages and does it make sense to transfer my wife’s 403(b) account into my Thrift Savings Plan account before I retire? I am planning to retire in 2015 at age 55 with 33 years of service (CSRS Offset). Will TSP even allow a spouse’s account to be transferred into the TSP? She will be retiring in 2014. She is not federally employed.

A. It makes sense, and there would probably be advantages to doing this. But, alas, it’s not allowed.

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Any reason not to retire?

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Q. I worked for the Department of Justice from 1989 to 2003 under FERS. I have worked in the private sector since that time. I will be 62 in 2015, at which time I think I qualify for a retirement annuity. Can I do all of the following:

1. Receive a FERS annuity based on my high-3 salary;

2. Continue to be employed in the private sector; and

3. Leave my Thrift Savings Plan money where it is for now.

Is there any reason not to do this, or any value in deferring this? My impression is that the annuity is not going to get any larger, so I should start receiving it as soon as I can. Am I missing something?

A. Mike: You can, and should, leave your money in the TSP, and manage it there, for as long as possible. It’s the best retirement investment vehicle you’ll find. You should also consider moving your eligible IRA, 401(k) and 403(b) money into the TSP, when they become available for rollover.

Reg: You are correct. You are now eligible for a FERS annuity based on your high-3 and length of service on the day you left. Since the initial amount won’t change, it’s better to claim it now than later. And receiving it will neither be affected by your private-sector employment nor will it affect that employment.

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Rollover into TSP

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Q. I have retirement funds in TIAA-CREF. The funds are listed as 401(a) and 403(b) accounts. All are pretax. May I roll over these accounts into my Thrift Savings Plan? I am considering this only for consolidation purposes.

A. Yes.

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12 questions on VERA

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Q. I am a letter carrier, age 52, started in 1985 and have 28 years of creditable service.

If I understand what I’ve gleaned from the posts here and the Postal Service were to offer me a Voluntary Early Retirement Authority this year,

1.  Would I begin my annuity immediately?

2.  Would I have no reductions in calculations of my annuity? (average high-3 x 1 percent x 28)

3.  Would I receive credit for half of my sick leave and all of my annual leave? (How are these applied?)

4.  Would I receive the special retirement supplement beginning at age 56 (my minimum retirement age), and receive it until I reach age 62?

5. Would I be able to continue carrying my current health and life insurance at non-USPS rates? (I couldn’t find how long these could be carried. Until death?)

6.  Could I begin receiving Social Security as early as age 62?

7. Any withdrawal from my Thrift Savings Plan prior to age 59½ would be penalized 10 percent as per Internal Revenue Service regulations? (Can I continue to contribute to TSP after retirement?)

8. As a FERS annuitant, is there no limit to what I can earn after separation from the Postal Service as it pertains to my annuity payment?

9. At age 56 (my MRA), the special retirement supplement from Social Security would begin and would be subject to yearly income limits. Would supplement payments be reduced by approximately $1 for every $2 I earned above that year’s Social Security income limit?

10. At age 65, I’d be eligible for Medicare parts A and B? (Would this affect my health insurance coverage through Federal Employees Health Benefits?)

11.  Would there be cost-of-living increases at any point for my annuity?

12.  Is there a date during the year that maximizes the benefits of retirement?

Did I get this right, and are there any other things I should know before considering a VERA if it is offered?

A. Reg: 1. Yes.

2. Yes.

3. Yes. Half of your unused hours of sick leave would be added to any hours of service that were left over when your annuity was computed. Any additional months created would increase the amount of your annuity. Any unused annual leave would be paid to you in a lump sum at your current hourly rate.

4. Yes.

5. Yes. And those enrollments would continue until your death.

6. Yes.

Mike: 7. You will be subject to the early withdrawal penalty until you reach age 59½ unless you can qualify for one of the exceptions listed on Page 7 of the notice: https://www.tsp.gov/PDF/formspubs/tsp-536.pdf. You may not contribute to the TSP after you retire, but you may transfer eligible balances into the TSP from other retirement accounts such as IRA, 401(k), 403(b), etc.

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Discontinued service retirement

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Q. I was involuntarily separated under FERS discontinued service retirement with 26½ years of service. I was rehired to a federal job and opted to receive both salary and annuity. I no longer contribute to FERS and understand why I no longer get matching contributions to the Thrift Savings Plan, but why can’t I contribute my own money to TSP and get the tax deferral? I have a TSP account but do not plan on withdrawing money until I permanently retire in several years.

A. The only way that you’re allowed to contribute to the TSP is through payroll deferral or by transferring pretax money in from an IRA, 401(k), 403(b) or other qualified retirement plan.

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Rolling over TSP after leaving federal job

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Q. I am in my early 20s and have just left a federal job. I am trying to decide what to do with my Thrift Savings Plan money. I’m leaning toward rolling it over to an IRA but do not understand where to start. Where do you get the forms to do this? Is it a good idea? (Cashing it out would have been my next option.)

A. The best thing you could do with it is to leave it in the TSP and manage it there for as long as possible. In fact, if you have IRA, 401(k) or 403(b) balances now, or in the future, you could and should consider moving them into the TSP because it’s the best retirement investment vehicle you’re likely to find.

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Transferring into TSP

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Q. I invest the maximum in my Thrift Savings Plan L2030 account. What other monies can I move into my TSP account — e.g., mature CDs, ITF money from a deceased parent, bond dividends, etc.?

A. You may transfer previously untaxed retirement account (IRA, 401(k), 403(b), etc.) balances into the TSP.

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Should I roll private-sector accounts into TSP?

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Q: I am a new federal employee coming from a private-sector employer where I had a 401(k) and a 403(b) plan managed by ING. Should I roll these plans over into my Thrift Savings Plan retirement account? I also have another 401(k) plan managed by Merrill Lynch; should I roll that over ?

A: Yes.

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