Ask The Experts: Money Matters

By Mike Miles

TSP annuity

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Q. My question has to do with choosing to withdraw my TSP account upon retirement. I understand I can leave my balance with the government and either choose equal payments for my expected lifespan or have the government purchase an annuity on my behalf. What I do not understand is the difference between choosing equal payments for the rest of my life and purchasing an annuity solely for myself? What are the pros and cons for each? I also don’t understand why I am also given a choice to choose a survivor benefit with my wife as the beneficiary should I decide on the annuity available through the government. If I die before my wife, isn’t she entitled to my TSP balance regardless if I choose the equal monthly payout or the annuity? Since she is the beneficiary of my TSP remaining balance, why should I even consider purchasing an annuity with a survivor benefit when this will have the effect of reducing my monthly pay? She will get the remaining TSP balance should I die anyway, won’t she? I also would like to know  if I choose either option for withdrawing my TSP retirement funds, do I retain control of the balance? Can I still move the money around from the C, S, and I funds in order to sustain the longevity of my retirement account? Read the rest of this entry »

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TSP withdrawal

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Q. I’m trying to decide how to withdraw my TSP. I really do not need the income at this time. I’m 60 years old with no dependents or heirs. I have about $240,000 in my TSP. Is it possible to buy a life annuity with half now and take monthly payments later? I was also considering a life annuity with increasing payments and 10-year certain. Or would it be better to do monthly payments? From what I understand, I can adjust the payment once a year. Read the rest of this entry »

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Beneficiary in TSP

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Q. I have reviewed information at the TSP website. I have been unable to locate information regarding survivor benefits in the case of a nonannuity, monthly distribution without 10-year certain enabled. What are the rules in this most simple TSP account distribution plan?

A. If you die while receiving automatic monthly payments from your TSP account, the payments will end and the remaining balance in the account will be distributed to your beneficiaries.

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Annuity with qualified funds

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Q. So I’m retiring early, age 55, on the early out offer effective on July 31, 2014. I will begin monthly withdrawals from the Thrift plan at the rate of 20K per year as soon as I can, hopefully beginning in September 2014. I will receive my pension payment of 25K, and beginning in November 2014, I qualify to begin receiving the supplemental payment of slightly over 10K because I turn 56 on October 30, 2014.

I like the idea of eventually converting to an immediate fixed annuity at some point after I’ve managed my own distributions for a lengthy period of more than 10 years, maybe 15 years. I’m giving my background to ask a specific technical age requirement question about converting all my remaining funds to an annuity from qualified Thrift Account funds.

I’m being told by the guys at Vanguard that I can’t buy an immediate annuity or even a deferred longevity type annuity unless it starts at age 70 1/2, because these are “qualified funds.” That does not sound right to me. If I’m distributing my Thrift plan and meeting the required minimum distribution after age 70 1/2, why does it matter when I use qualified funds to buy an annuity? It shouldn’t matter if I’ve complied with RMD on the qualified funds prior to purchasing an immediate annuity even if I were 75 years old. Is the advice I’m getting from Vanguard correct? Do I have to convert thrift funds on or before age 70 1/2 or can I do it as late as 75 or 80?

A. I can’t speak for Vanguard, but generally you may use qualified plan money to buy an immediate annuity any time you like.

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Calculating tax withholding

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Q. I recently retired from federal service. I began receiving my FERS annuity Jan. 1. My annuity is $3,190 gross, plus $1,195 special retirement supplement, minus $190.28 health insurance and $36.34 for dental/vision. I am single with no dependents. I am withholding $641 for federal tax purposes. My state has no income tax.

I want to begin monthly distributions from the Thrift Savings Plan at $4,200 per month. How much should I elect to withhold to ensure that I am not hit with a substantial tax bill for tax year 2014? Assume no itemized deductions.

A. I’m not in a position to calculate your estimated tax liability for the coming year. You can consult a qualified tax preparer for help with this, or review Internal Revenue Service Publication 505 to figure it out for yourself.

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TSP withdrawal

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Q. I am 70½ and separated from federal service since 2008. I need to make a withdrawal election (my Thrift Savings Plan has $180,000). I was told I have three options: withdraw the account as a single payment, monthly payments or an annuity (or a combination). Assuming I do not need the money right now, what is the best option to maximize the interest I am getting and paying taxes on what I’ll be withdrawing?

A. If you don’t need the money, I suggest that you begin fixed monthly distributions in an amount that will satisfy or nearly satisfy your required minimum distribution for the year.

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TSP annuity?

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Q. My father died with $90,000 in a Thrift Savings Plan annuity. How do I collect?

A. There is no such thing as a “TSP annuity.” Your father used his TSP assets to buy an annuity from an insurance company. You’ll need to file your claim with the insurance company that issued the annuity contract and was making his payments.

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Return on annuity

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Q. What is the percentage of return if I invest the balance of my Thrift Savings Plan account in the annuity provided by TSP?

A. The monthly payment depends upon your circumstances and the interest rate environment when you purchase the annuity. You can run a quote at www.tsp.gov. The return on investment from a TSP annuity can’t be known in advance, however. You’ll have to wait until the payments stop to figure it out. To illustrate, what if you buy a single life annuity with no refund and then die right away? Your return on investment will be hugely negative. The longer you live, the better the rate of return.

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Holding on to capital

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Q. I’ve just been flying straight with the L2030 plan until I can get some reliable advice. I would like to keep my capital I have in the Thrift Savings Plan, receive a monthly or quarterly check, and reinvest the amount I don’t need back into my capital. When I turn 70½ (in four years) I’ll have to start receiving the required minimum distribution, which I can’t reinvest. I don’t want to get an annuity because I’d have to give up my capital. How can I hold on to my capital, reinvest in it and possibly leave that money to my children or even my grandkids?

A. I don’t see a problem. The money in your TSP carries a tax liability that must be paid, eventually. There is no requirement that you spend the RMD. You can just move it from the TSP to a similar investment in a taxable discount brokerage account.

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TSP

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Q. I’m unsure of what to do with my Thrift Savings Plan account. I understand that I could leave it in the account as it is until I’m 70½. I can also make a full or partial withdrawal.  Full withdrawal is not an option for me. A TSP life annuity (both single or joint life) option is based on life expectancy or until the money runs out. Also there is the TSP annuity vendor (MetLife) where I could get the annuity but money used to purchase this annuity goes to the insurance company if you die before it’s used up.

I’m thinking of purchasing a fixed index annuity with my TSP. This fixed index annuity guarantees that I will receive at least the minimum guaranteed interest (3 percent to 7 percent) credited to the contract. Taxes are deferred until you receive money from the contract. I can choose from several different payout options based on personal needs, including option for lifetime income, guaranteed. I’m wondering what to do with my TSP. I don’t need the money right away. I don’t want to lose money when the market falls. I would like to make as much as possible.

A. 1. Your assumptions about the options available to you are incorrect. You need to review the information available at www.tsp.gov more carefully or seek guidance.

2. You don’t need the money now, so why would you consider converting it to income now? Don’t.

3. You don’t want to lose money but want to make as much as possible. The only investment option that meets both of these requirements is the G Fund. Use it.

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