Ask The Experts: Money Matters

By Mike Miles

Annual leave

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Q. I have 38 years with the federal government. I have 240 hours of stored leave and, if I save my annual leave this year, I will have 208 hours of annual leave. This equates to 448 hours times my base pay, which is $33.92 for $15,196.

When I retire at the end of this year, can I roll my lump-sum payment over to my Thrift Savings Plan account before taxes?

A. No.

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Lump-sum annual leave into TSP?

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Q. I am in FERS (age 57 with 30 years). I have been offered the buyout and will have to be off the roll Jan. 31.  How should I go about having a portion of my lump-sum annual leave payment go directly into my Thrift Savings Plan account?

A. This is not allowed.

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Lump-sum payment of leave

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Q. If the lump-sum payment is considered earned income for tax purposes but is not eligible to Thrift Savings Plan deferral nor does it serve as the base for automatic agency contributions, wouldn’t it make better sense not to cash in the leave? Rather, wouldn’t it be more lucrative to continue working, take the earned vacation over the year, collect matching funds for TSP, matching funds for health insurance, and on top of that, continue to accrue more annual leave, more sick leave, and enjoy the vacation time off?  I understand no supervisor/manager would approve a single vacation of 5+ weeks, but spreading a vacation out over a period of time can’t be denied.

A. Yes, financially, it would be better.

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Retirement date’s effect on TSP and catch-up contributions

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Q. I’m 59 and retiring June 2, which is the first day of a new pay period. Will my Thrift Savings Plan election and catch-up contribution be deducted from my last paycheck? I will have earned no salary in that pay period, but I will have my lump-sum annual leave payout.

A. TSP deferrals are not taken from annual leave payout checks.

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TSP vs. Roth IRA

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Q. I am a fully vested CSRS employee with the Environmental Protection Agency for 33 years at age 55. I have received my numbers, but I missed my first date to retire. How long does it take to receive my first full check? Worst-case scenario? Best-case scenario? And is there any way to speed up processing?

When will I receive my annual leave payment? Will it be immediate in one lump sum without taxes since I already paid taxes on my leave?

Should I take all of my Thrift Savings Plan out at once or leave about 10,000 in and roll it over to a Roth IRA or leave it in TSP?

Is there a financial counselor at TSP to speak with about taxes and IRAs vs. TSP?

I was told the first three days of the month or the last day of the month are the best times to go out to receive the check earlier? Is this a good idea?

A. Mike: You should leave your money in the TSP for as long as possible, since it is the best retirement investment vehicle you’ll find. You’ll find information about taxes and the TSP at www.tsp.gov. You may contact the Thrift Line with your specific questions, although I doubt they’ll help you with questions about IRA taxation.

Reg: I don’t know how long it will take for you to get your first full annuity check; nor, I expect, does anyone else. However, once your retirement package arrives at the Office of Personnel Management, they will put you in interim pay within a week or two. A complete and accurate retirement package speedily sent to OPM by your agency is the best hedge against delayed processing.

You’ll have to ask your agency when it will send you your lump-sum payment for unused annual leave. That can’t happen until your agency closes out your account. Since you couldn’t have paid taxes on that money until it was received, it will be treated as ordinary income from which taxes will be deducted.

To pick the best date to retire, try to find one that is at the end of a pay period — to get credit for any annual and sick leave you earned during that pay period — and as close to the end of a month as possible — so the time between when you are employed and on the annuity roll is as short as you can make it. Note: As a CSRS employee, you can retire up to the third day of any month and be on the annuity roll in that month. While you will be paid for the additional days you are employed, your first month’s annuity will be reduced by 1/30 for every day you are still employed.

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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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Earnings limit and special retirement supplement

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Q. I will be eligible to retire Dec. 4 with both minimum retirement age and years of service under FERS. I would like to wait until Jan. 31 to retire to complete a project. I will have 240 hours of annual leave going into 2013. The combination of my lump-sum payment for my annual leave and my January wage earnings would exceed the Social Security earnings limit for 2013. Since the Social Security earning limit is the same as the FERS annuity supplement earnings limit, would this make me ineligible for the special retirement supplement for 2013?

If I put all of my January wage earnings for 2013 into the Thrift Savings Plan and just receive the lump-sum payment, which by itself is less than the earnings limit, would I be able to collect the special retirement supplement for the rest of 2013 when I retire at the end of January?

A. In general, the earnings limit is based on gross earned income, before deductions for things like TSP contributions, so you can’t reduce the income counted for the limit by deferring it into the TSP. Amounts you are paid after retirement, but that were earned before retirement, are usually considered special payments, which do not count against the Social Security earnings limit. The rules can be complicated, though, and you should consult a qualified tax preparer — preferably the one who will actually complete and stand behind your tax return for the year — before proceeding.

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Laid off — Leave money in TSP?

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Q. My husband was a temporary federal employee for the Defense Department for five years. He was laid off in August. He had two years of military service, which he bought that time back, so in essence he has seven years of federal service. He is 60 years old. He put 10 percent of his salary in the Thrift Savings Plan. Should he leave that money in TSP or put it in another vehicle?

Also, when he reaches retirement age (62), will he receive a pension for the seven years of federal service? He left DoD with a sick leave balance — his annual leave he was paid for. Is it true, if he receives another government position within three years, his remaining sick leave will carry over.

A. Mike: He should leave his money in the TSP for as long as possible, and manage it there. Its costs and investment options are superior to those he’ll find anywhere else.

Reg: He would be eligible for an annuity at age 62 if he had five years of full-time service from which retirement deductions were taken and he didn’t take a refund of those deductions when he left. The unused sick leave he had to his credit when he left wouldn’t be included when his annuity was computed. On the other hand, if he returned to work for the federal government, his sick leave would be restored.

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Deductions in final close-out check

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Q. If I retire at the end of August, and had not previously taken advantage of TSP catch-up, can I max out the tax benefit by having the balance of my annual allowable TSP contribution limit, plus the full retirement catch-up amount all taken out of the last close-out check for unused annual leave and sick leave? I’m in senior-level service, so I get 50 percent of unused sick leave.)

A. You may set your Thrift Savings Plan deferral amount as high as you like, within the limits of your paycheck amount. Once the annual deferral limit, including catch-up, is reached, your deferrals will be suspended.

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TSP vesting

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Q. I am a FERS employee who did a one-year-and-one-day residency (366 days) at the Veterans Affairs Department. During this residency, I was a full-time (40-hour-a-week) employee receiving benefits (health care, annual leave, sick leave, etc.). However, I did not contribute to FERS or the Thrift Savings Plan during this year and my “term” of employment was allotted for only one year. After the residency, I was hired as a full-time employee at VA contributing to the FERS pension, and I still continue to work in the VA system.

1. Does this one year of residency count as a year of service toward my retirement in FERS?

2. Does this one year of residency count as a year of service toward my TSP computation date?

A. All federal civilian service counts toward TSP vesting requirements.

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