Ask The Experts: Money Matters

By Mike Miles

USAA Roth and TSP contributions

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Q. I took my tax info to a professional to have them done this year. I’ve maxed out my Roth IRA with USAA. I’ve also contributed about $2500 to a traditional TSP as a uniformed service member. I’m being told I’ll be penalized for my contributions to my Roth account since I have an employer-based retirement plan. Is this accurate? Can I only contribute a total of $5500 for both accounts? I’ve always been told to contribute to both.

A. The TSP contribution limit is fixed and not contingent on any other factor. Your eligibility to contribute to a Roth IRA might be limited if your income is sufficient. In the future, I suggest that you max out your TSP contributions before you save to a Roth IRA, and then check with your tax accountant before you attempt to make any IRA contributions since your eligibility depends upon your tax return for the year. See IRA Publication 590 for the limits on IRA contributions.

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Combining TSP accounts

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Q. I was enlisted in the Marine Corps from 2004 to 2008 and have been a full-time employee at the Social Security Administration since March 2012.

So, I have a uniformed services Thrift Savings Plan account and a civilian TSP account (using pretax and Roth contributions).

Nothing has been contributed to the uniformed services account since I left the Marines in 2008, so I asked someone in human resources here if I could combine the accounts. I was initially told this wasn’t possible, but after my own research, I found Form TSP-65 – Request To Combine Civilian and Uniformed Services TSP Accounts.

After I showed this to the HR office, I was told it wouldn’t be beneficial to combine the accounts because I would take a tax hit on the tax-free money that I made overseas while deployed to combat areas. This explanation doesn’t make too much sense to me because my TSP contributions were pretax contributions anyway (there was no Roth option at the time). Also, I don’t trust the info from my HR office after they were wrong about the ability to combine accounts.

Should I combine the accounts or leave them separate?

A. If you contributed tax-free combat pay to the TSP, you should keep the military account to preserve your ability to withdraw that money later without having to pay tax on it. Combat pay contributions are not the same as Roth contributions, and the two are not interchangeable.

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Early withdrawal penalty

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Q. I retired from civil service in January 2012 with 25 years contributing to CSRS and FERS. I will be 59½ in April. I plan to make a partial withdrawal and have the balance as monthly payments when I turn 60. Will I incur an additional 10 percent early withdrawal penalty before age 59½ since I retired or do I need to wait until 59½? Do I need to wait until 60 to begin receiving monthly payments, or can that start any time?

A. Since you retired after the calendar year in which you reached age 55, your Thrift Savings Plan withdrawals will not be subject to the early withdrawal penalty. You may withdraw your money at any time.

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TSP agency contributions

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Q. I was hired into federal service Sept. 28, 1992. At this point, shouldn’t the government have started contributing to a Thrift Savings Plan account in my name 1 percent of my salary automatically? Contributions didn’t begin until I manually enrolled in TSP a year later.

This seems to be the bit from the TSP website that applies to me:

“If you are a FERS participant and were hired before Aug. 1, 2010:

* The TSP would have begun receiving automatic contributions equal to 1% of your pay from your agency — beginning with your first pay period. If you contribute your own money, your agency will send matching contributions to the TSP (on up to 5% of your contributions per pay period).”

Did someone screw up? Is there any recourse to get those initial contributions plus interest? Or have I misread everything?

A. Check with your agency. There have been varying waiting periods for TSP agency contributions in the past.

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S Fund to G Fund

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Q. I am 47, have been investing for seven years, have reached maximum contributions at a total of $115,328.22 and will eventually retire at 63.

Recently, there is talk in the stock market of a global sell-off. I have had all of my investments in the S Fund and doing quite well. As of Jan. 23, I’ve shifted my contribution of 100 percent from S to G. Was this a financially dumb move?

A. Not if you’ve guessed right. Only time will tell. For what it’s worth, if we’re talking about your entire portfolio here, you should be invested in all five funds, all the time.

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TSP vs. IRA

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Q. I am a federal employee, almost 30 years old and contribute to my Thrift Savings Plan, as well as a Roth IRA toward retirement. I contribute the maximum to my Roth IRA at $5,500 a year and contribute 15 percent of my $82,500 salary (approximately $12,500 a year). I have a comfortable emergency account, life insurance, $500 per month to a 529 plan for my 1-year-old, on top of the basic necessities.

How much should I be contributing if I can’t max both my TSP and Roth IRA? Should I continue with this allocation, or should I be maxing my TSP at $17,500, only putting $500 into my Roth IRA. After reviewing some items, I do not know the pros and cons to each as far as this allocation of funds.

A. I suggest that you maximize your TSP contributions before contributing to any other retirement account. The TSP is the best retirement savings and investment vehicle you’ll find. Its low cost and access to the G Fund make it so. What makes you think that your Roth IRA is a better choice?

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Changing TSP contributions

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Q. If I am contributing to a traditional Thrift Savings Plan, can I now change my future contributions to a Roth TSP, or do I have to wait until open season?

A. You may start, stop or change your TSP contributions at any time.

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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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Roth TSP rollover

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Q. A recent question read in part: “I have more than four years until military retirement (April 2018). At that time, will I be able to transfer all Roth TSP contributions to my Roth IRA? I have no plans of transferring the traditional TSP balance. The goal is to combine Roth TSP/Roth IRA contributions and pay cash for retirement home.”

 I agree that if you take a monthly withdrawal from the Thrift Savings Plan, they take from both traditional and Roth accounts. But I thought the TSP 90 form allowed transfer of Roth TSP contributions to a Roth IRA fund or Traditional TSP contributions to a traditional IRA (essentially a type to type rollover at retirement)? So if they did the transfer of only Roth TSP funds to the Roth IRA, couldn’t they use this strategy (independent of merit)? Is it different with military retirement?

A. You are correct. I misunderstood the constraint imposed as part of the question. You may request a withdrawal, which must include both traditional and Roth money, and then roll over only the Roth part of the distribution.

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Transferring 401(k) post-tax funds from previous employer to Roth TSP

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Q. My previous employer allowed post-tax contributions to the 401(k) plan after the maximum allowed pretax contributions had been reached. Can I transfer the post-tax contributions of my previous employer’s 401(k) plan to the Roth TSP?

A. No.

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