By Mike Miles
December 3rd, 2013 | Uncategorized
Q. I am really confused over the Roth IRA and Roth TSP. I have an individual Roth IRA through Vanguard. I have a Thrift Savings Plan account that I max every year, and because I’m over 50, I also max my TSP catch-up contribution. I’m thinking of changing the catch-up contribution from the regular TSP to the Roth TSP. If I contribute the max to a Roth TSP, can I still contribute the max to my Vanguard Roth IRA ($6,500 to Vanguard and $6,500 to Roth TSP for a total of $13,000). Or do I need to choose just one Roth to contribute to — either Roth TSP or Vanguard Roth IRA?
A. You don’t have to choose. Your Roth TSP contributions don’t reduce your eligibility for contributing to a Roth IRA.
December 2nd, 2013 | Uncategorized
Q. I have reverted back to a more conservative Thrift Savings Plan allocation: 67 percent G Fund/33 percent C Fund. I put in the maximum, including the maximum catch-up and, with match, it’s nearly $30,000 per year. My balance at 60 when I retire in five years should be between $500,000 and $600,000 depending on the return. I am estimating a 4 percent return.
I am wondering about keeping this asset allocation and taking monthly payments starting near 4 percent or slightly higher at age 60. Is a distribution with 70/30 as indicated above a bad idea? I like the conservative allocation and feel fairly comfortable with it. But some people say taking monthly payments out of TSP is a bad idea. Any suggestions?
A. It’s impossible to judge what’s best for you from the information you’ve provided. I can tell you that your asset allocation model is risk-inefficient. That is, you could achieve a higher rate of return for the risk you’re taking.
Adjusting your allocation to 20 percent C Fund, 8 percent S Fund, 2 percent I Fund, 30 percent F Fund and 40 percent G Fund will stay within your preferred 70 percent debt/30 percent equity constraint while increasing sustainable TSP lifetime withdrawal rate by about 20 percent.
Greater increases could be achieved by shifting toward more equity-heavy allocation models.
December 2nd, 2013 | Uncategorized
Q. I plan to retire next year with 35 years of federal service (FERS) at age 56, and eligible to receive a Thrift Savings Plan supplement of about $18,000 per year.
Once I retire, I plan to work to earn approximately $38,000 per year. Of the earned income, I plan to contribute $17,500 to my 401(k) plan and an additional $5,500 toward the catch-up contribution. The remaining $15,000 will be reported as an earned income on my W-2 and Form 1040.
I plan to earn $38,000 for the year, so that my supplemental income will not be deducted $1 from my TSP supplemental benefit payments for every $2 I earned above the annual limit of 15,120.
Are the 401(k) and the catch-up contribution considered earned income that could reduce the $18,000 TSP supplement per year?
A. You’re talking about the FERS special retirement supplement, not a TSP supplement. Earnings you direct into a 401(k) plan are still considered earnings for the FERS Supplement Earnings Test.
November 25th, 2013 | Uncategorized
Q. I understand that a federal civilian employee under FERS can make $52,000 a year to the Thrift Savings Plan. I know that the $17,500 regular contribution and the $5,500 catch-up contribution totaling $23,000 can be put into the Roth TSP. How much of the overall $52,000 limit can be put into the Roth TSP, and how would one contribute to the Roth TSP above the $17,500 and $5,500 limits?
A. You misunderstand the limits. The $17,500 and $5,500 limits are the total deferral limits to either the regular or Roth TSP.
October 28th, 2013 | Uncategorized
Q. Has the maximum contribution allowed for Thrift Savings Plan election and catch-up changed from 2013 to 2014?
A. Not yet.
June 3rd, 2013 | Uncategorized
Q. I understand that to make Thrift Savings Plan catch-up contributions, you are supposed to be making sufficient regular TSP contributions so that the maximum annual amount (currently $17,500) of regular TSP contributions will be reached by the end of the year. What happens if you begin contributing an amount per pay period at the beginning of the year that would result in the maximum regular and catch-up contributions by the end of the year assuming 26 pay periods? However, you retire in the middle of the year. This would result in making TSP catch-up contributions during the year without actually reaching the maximum regular TSP contributions. Is this acceptable? Are there any consequences to doing this?
A. It is acceptable and, as far as I know, there are no material consequences of doing this as long as your total contributions for the year fit within the total contribution limit.
May 28th, 2013 | Uncategorized
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.
March 26th, 2013 | Uncategorized
Q. I am a federal law enforcement officer covered by FERS and, by Sept. 30, I will have more than 29 years of service plus more than a year of sick leave. To obtain my annuity beginning Oct. 1, I would like to retire on Sept. 30, but it is in the middle of a pay period. I plan on front-loading my Thrift Savings Plan and TSP catch-up contributions starting in April for the rest of this year to reach the maximum for both. Would there be any TSP match in my last, partial pay period, or should I just aim to reach my TSP limits in the previous complete pay period?
A. There will be matching on every pay period.
March 19th, 2013 | Uncategorized
Q. I have both a civilian and military Thrift Savings Plan account because I was mobilized for part of 2011-12. Because I was in a combat zone, much of my income was tax exempt (CZTE). The military allowed me to contribute that tax-exempt income into my TSP. It is not a tax deduction because the income wasn’t taxable in the first place.
However, they also made contributions from my taxable income. I thought it was all from my CZTE. When I returned to my civilian job, I began to contribute and maxed out my contributions, not knowing about the earlier tax-deductible contributions.
Obviously, I over-contributed and just paid the income tax on the “overage.” But that overage is still in the TSP account.
Catch-up: $5,474 (Roth)
1. How is that taxable (and taxed) overpayment treated within TSP?
2. Can I combine my military and civilian accounts?
3. If combined, can I move the CZTE money into my Roth TSP?
4. Can I move the “overage” that I have now paid taxes on into the Roth, as well?
Both of the amounts I want to move into the Roth have been taxed or were tax-exempt when earned.
A. The usual limits do not apply to TSP contributions from CZTE pay; they only apply to contributions from taxable basic pay, incentive pay, special pay and bonus pay. The Annual Additions Limit under IRC 415c does apply, however, and it limits the total contributions from all sources to $51,000 for 2013. My guess is that the money was just rearranged in the TSP to fall under the applicable limits for the various types and that you do not, in fact, have excess contributions in your accounts. You may combine your military and civilian accounts as long as you are separated from service covering at least one of the accounts and there are no CTZE contributions left in the military account. Those must be withdrawn first, or they money will be distributed to you when your request to combine the accounts is processed. The CTZE money in the traditional TSP account cannot be transferred to the Roth TSP.
March 19th, 2013 | Uncategorized
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.
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.
5. Yes. And those enrollments would continue until your death.
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.
Tags: 401(k), 403(b), age, annual leave, annuity, catch-up contributions, cost-of-living adjustment, early withdrawal penalty, FERS, health insurance, income, IRA, IRS, life insurance, lump-sum, Medicare, Minimum Retirement Age, Postal Service, sick leave, Social Security, Special Retirement Supplement, TSP, VERA