Ask The Experts: Money Matters

By Mike Miles

TSP withdrawal

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Q. I am under the CSRS retirement system. I have 32 years of federal service. I am 56 and plan on retiring at 60. I contribute to the TSP, $17,500 per year and an additional $2,600 catch-up to the TSP per year. I am a GS-13/7. My high-3 would most likely be at this pay grade. How can I calculate how much my monthly annuity would be upon retirement so my financial adviser will have a better understanding of my situation upon retirement? I know about the ballpark estimates, but I would
like something a bit more concrete. When do I need to start withdrawing from my TSP fund upon retirement? At what age? Read the rest of this entry »

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TSP deposits for 2015

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Q. My wife works for the federal government and in the next two years will retire at 60 with 27 years of service. We have been trying to max out her TSP and catch up contributions. We have made deposits per your advice of $673 and $211 for regular contribution and catch-up. However, as I look at the calendar for 2015, it appears that there will be 27 deposits due to the way the holidays fall at the beginning and end of the year. Should contributions be adjusted based on 27 deposits vs. 26 to ensure limits are not exceeded, or am I missing something?

A. The deposits should be adjusted for the actual number of pay periods during the year.

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TSP catch up contributions after IRA rollover

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Q. Yesterday, I read your article dated May 20, 2013, “How to be a good pension fund manager.” I wish I had read it before I moved money from my TSP to an outside IRA last year. I wish I had taken some other steps as well. I now want to add back cash to my Thrift Savings Plan before I retire. I could retire at the end of November 2014. Can I do that with catch up contributions?

My major disappointment is with the TSP staff and the absence of an onsite adviser in human resources. Does it benefit the TSP not to go an extra step to inform investors? For those of us who, as you say, are “unsuspecting” and naïve and succumb to IRA sales people, we need a little more hand-holding. I did get a phone call from the TSP, but they never mentioned anything about the impacts of reducing my TSP through an in-service, age-based withdrawal. How can this be changed?

A. If you’re age 50 or over, you may make catch up contributions to the TSP. You may also move the IRA money back into the your TSP account. The TSP, like most employer sponsored retirement plans, does not give investment advice to its participants because it doesn’t want the liability associated with this activity. One of the reasons employers shifted from defined benefit pension to plans to defined contribution plans was to reduce their liability.

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Roth TSP and Roth IRA combined contributions

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Q. I have a Roth IRA and Roth TSP, and I am not eligible for catch-up contributions at this time due to my age. What is the maximum I can contribute to both for FY13?

A. There is not a combined maximum, and the limits apply to calendar years, not fiscal years. The most that you can contribute to the Roth TSP for 2014 without catch-up is $17,500. The limit for Roth IRA contributions for 2014 is $5,500, but this might be reduced for you based on your tax filing status and income for the year. You should consult IRS Publication 590 for more information. These limits were the same for CY 2013.

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Overcontribution to TSP

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Q. My agency, according to my W-2, overcontributed to my Thrift Savings Plan by $4 on the last pay period of the year. So, with total contributions, I have contributed $17,504 regular contributions and $5,500 in catch-up contributions for a total 2013 amount of $23,004. Is this a problem with the additional $4 being sent to my TSP account? If so, what do I have to do to fix it?  Also, are there IRS penalties I am now responsible for due to my agency’s negligence?

A. You may want to make sure that the TSP returns the $4 in overcontribution, which I think they should do automatically. Consult with your tax preparer for advice.

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TSP contributions in retirement year

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Q. If my retirement date is in May, would I be allowed to contribute the maximum Thrift Savings Plan and catch-up amounts ($17,500 and $5,500) up to my retirement date in May and still receive matching up to 5 percent of basic pay. If not, what are the rules?

A. You can contribute up to your entire paycheck and receive the automatic 1 percent agency contribution, but the matching contributions will be limited to 4 percent of your pay, each pay period.

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TSP maximum contributions

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Q. I am a federal worker who will turn 50 next year. I plan on putting in the maximum amount for contributions ($17,500) and catch-up contributions ($5,500). Thrift Savings Plan form instructions (TSP-1, TSP-U-1-C) require a whole dollar amount for contributions per paycheck, and we get paid every two weeks. $17,500/26 = $673.077.  $673 x 26 = $17,498, which is two dollars short of the limit.  The catch-up limit doesn’t kick in unless you reach $17,500, but there is no way to get there with the current set of instructions. What do you recommend? I don’t want any penalties if I go over the limit but don’t see any way unless they come up with a whole dollar amount divisible by 26. The catch-up contributions also have to be in whole dollar amounts.  $5,500/26 = $211.53846. Do I go with 211 x 26 = 5,486?  At least here there are no built in penalties other than losing out a few dollars from what is being invested. Why don’t they just let you put in an annual dollar amount on the TSP form and catch-up form, since the rules are written as such? 

A. You can simply over-contribute a little, and the TSP will automatically stop your contributions when the annual limits are reached.

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Roth TSP vs. Roth IRA

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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.

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TSP allocation

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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.

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Are 401(k) and catch-up contributions earned income?

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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.

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