Ask The Experts: Money Matters

By Mike Miles

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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Roth and total TSP contribution limits

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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.

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TSP maximum contribution and catch-up

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Q. Has the maximum contribution allowed for Thrift Savings Plan election and catch-up changed from 2013 to 2014?

A. Not yet.

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