By Mike Miles
October 3rd, 2013 | Uncategorized
Q. I was first employed by the Defense Department in October 1982 and placed in CSRS. During a reduction in force, I lost my position in July 1994. In 1996, I withdrew my CSRS contributions and had them rolled into an annuity with American Express (now Ameriprise).
In November 1998, I was rehired by DoD and became a FERS employee. When I was rehired by DoD, I took the funds I had earned at my previous (1994-1998) job’s 401(k) and rolled them into the same annuity with Ameriprise.
I am now nearing retirement age and plan to buy back the CSRS time I lost by withdrawing my funds.
Can any of the annuity I have with Ameriprise be rolled into repaying my CSRS without any penalty or tax burden? I would think that, at the least, the amount that I withdrew in 1996 and rolled into the annuity could be rolled back into the CSRS. I am not trying to increase the amount of the CSRS, only to repay what I withdrew, plus interest due.
A. You made your original CSRS contributions with after-tax dollars and the money was not taxed when it was withdrawn. Your redeposit must again be made with after-tax dollars, so you can’t do what you’re asking about.
September 23rd, 2013 | Uncategorized
Q. After entering retirement from CSRS, are Thrift Savings Plan funds withdrawn classified as income in addition to the 20 percent accessed at the time of withdrawal from the TSP account. Are there ways to avoid double taxation if they are taxed twice other than rolling over into an IRA or Roth IRA?
A. The traditional TSP funds you withdraw are classified as ordinary income on your tax return. They are not subject to double taxation. The 20 percent withheld from your payment(s) is a deposit against your tax liability. If the distribution is not a required minimum distribution and you meet the timing limits, you may roll your distribution over to an IRA to avoid current taxation.
September 23rd, 2013 | Uncategorized
Q. I’m eligible to retire CSRS Offset in a few months. I was considering a Thrift Savings Plan loan prior to retiring to pay off other bills. I understand that upon retirement/separation, I would receive a Form 1099 for taxable income. Is this something I should consider?
A. If you don’t repay your outstanding loan balance within 90 days of separation from service, the amount due will be declared a taxable distribution and will be treated as though you took the money from your account on the date of the declaration. I believe that you should always consider all reasonable options when it comes to making important financial decisions.
September 16th, 2013 | Uncategorized
Q. How will Voluntary Early Retirement Authority/Voluntary Separation Incentive Pay affect my retirement benefits in regard to the Thrift Savings Plan and what I do with the money in the TSP (when do I have to take withdrawals, etc.)? I am a Defense Department civilian, age 53, with 35+ years of service under CSRS.
A. Early retirement does not affect the rules governing access to your TSP account. The usual rules apply and they can be found at www.tsp.gov. In particular, you should understand the information contained in this notice: https://www.tsp.gov/PDF/formspubs/tsp-536.pdf. You’ll be subject to the early withdrawal penalty unless you qualify for one of the exceptions listed on the left side of Page 7.
September 16th, 2013 | Uncategorized
Q. I will be a 56-year-old CSRS employee with 33 years in service and 2,842 hours of sick leave. Since I contributed to the Thrift Savings Plan and plan on doing a one-time complete withdrawal, will I incur a large tax penalty?
A. If you retire at age 56, you will not be subject to penalty for withdrawing money from your TSP account.
September 10th, 2013 | Uncategorized
Q. I plan to retire in 22 months when I will be 62.1 years of age. I will retire in Virginia and immediately move to Texas. I estimate that I will be earning approximately $133,000 from CSRS, $6,900 from Social Security and $18,000 from Army retirement.
I already have two properties in Texas and plan to buy my live-in home in San Antonio shortly after I arrive in Texas.
I plan to cash in my Thrift Savings Plan at age 62 in Texas and use 100 percent of it as a down payment for the purchase of my home in San Antonio.
Based on my earned retirement income, what is the percentage of tax that I will have to pay when I cash out my TSP? Do I have to pay federal taxes on the TSP withdrawal if I am using the TSP withdrawal as a down payment on the purchase a home for my use?
A. I can’t tell you what tax you’ll owe on the TSP withdrawal. That will depend upon the details of your tax return. The withdrawal will be added to your federal tax return as ordinary income. I suggest that you engage a CPA to provide you with a pro-forma tax calculation.
August 27th, 2013 | Uncategorized
Q. I am 56 years old and just found out that I should be in CSRS Offset, not FERS. I’ve paid into my Thrift Savings Plan for more than 10 years. How does this affect my TSP contribution?
A. If you are erroneously covered by FERS and you choose to move out of FERS, the Federal Erroneous Retirement Coverage Correction Act allows you to keep the employee contributions you made in your TSP account (plus the earnings attributable to your contributions) even if the contributions exceed 5 percent of the basic pay you earned for the pay period that contributions had been made. However, all government contributions that were made to your account and the attributable earnings must be removed from your account if you do not choose FERS.
If you choose FERS coverage under FERCCA, you may make up those employee contributions that you could have made had you been correctly covered by FERS, as provided by the current TSP error correction legislation. In addition, you will receive the agency automatic (1 percent) contributions and agency matching contributions that you should have received had you been correctly covered by FERS. Finally, you will receive lost earnings on both your employee and agency make-up contributions. (Prior to FERCCA, lost earnings were payable only on agency make-up contributions.) The lost earnings on both employee and agency contributions will be determined the same way lost earnings are now determined on agency make-up contributions (that is, as provided by the current TSP regulations).
August 27th, 2013 | Uncategorized
Q. I know that you say (almost always) not to pay off the mortgage on retirement with Thrift Savings Plan funds. So when it is a good idea to do so? I’m CSRS Offset ending at GS-14, Step 8 with 32 years of service, $300,000 in TSP, $30,000 in cash on hand, will have no credit card or vehicle debt shortly as we are selling an investment property (taking the tax hit instead of identifying a new investment property because I really don’t want to be a landlord anymore), the usual monthly expenses, and will get the law enforcement/firefighter retirement benefit bump (did my 20, then moved to a noncovered position). I am 60 (and, at 62, the offset kicks in, and beyond my way of thinking, will increase my monthly pension).
We owe about $100,000 on the 6 percent rate 15-year mortgage that has 10 remaining years. We plan on selling the house in six years when the last kid leaves for college and downsizing into a condo up the street for about $300,000. The house will sell for around $600,000+ (100+ year old historic neighborhood, prices and sales were barely affected during the recession so these numbers are pretty solid). The caveat is, we are restoring this historic house ourselves (this is the third one that we have done) and put $1,000 to $2,000 a month in parts or subcontractors for the renovation and probably have about 36 months left of work on weekends to finish the house ($36,000 to $50,000).
The calculator says my retirement income after adjusting my life insurance, tax adjustments (I claim zero now cause I am a lousy-saving person and get $10,000 average back every year) will be 87 dollars less a pay period than what I take home now (without touching the TSP). So the reason for paying off the mortgage is my wife, who works in social work at a low wage, can quit working as not having the mortgage (paid off with TSP funds) will make up for about half of what she brings in and then help me swing a hammer and finish the house and party a bit more. On a final note, we have not taken out old-age insurance for care.
A. You’ve identified an objective: To take a lump sum from our TSP account to pay off your mortgage. So the question is whether or not this is a safe — and, if safe, an optimal thing to do, given your current circumstances and future goals. Unfortunately, it’s not possible to answer this question responsibly without analyzing it in the context of your lifetime plans. Visit my website and www.variplan.com and contact me if you’d like to discuss your needs further.
August 19th, 2013 | Uncategorized
Q. I turned 70 years old in July and have been a CSRS retiree since 1997. I started the required minimum distributions in September 2012 from the Thrift Savings Plan and an IRA with DWS Scudder. Monies were invested in the G Fund with TSP and the DWS GNMA S Fund, which are very low risk. Before retirement, I felt more comfortable taking risk. I started withdrawing RMD only because I had to avoid penalty. My main concern at this stage in my life is to face as little risk as possible and to at least maintain my balance with minimum losses. My IRA over the past year has taken a heavy hit. Although both funds are invested in the GNMA, the fund with DWS Scudder with the highest balance has suffered the most and the shares are valued a little higher in cents.
I was thinking of transferring my DWS Scudder account to my TSP. Since I am not in desperate need of the money, how do I allocate my allotments to minimize my losses? What is a very safe investment with the RMD money received? My TSP is paid in monthly installments and DWS Scudder once a year. The TSP account doesn’t seem to change it value other than the amount of money that is being deducted for the RMD. The account doesn’t appear to show gain or loss. Am I noticing more loss with DWS Scudder because of maintenance fees and higher balance? What is your advice on this matter?
A. Mistakes can be costly, and you’ve made several of them. First: Your initial RMD is not due until April 1, 2015, so you have not been taking required withdrawals — you have been taking needless withdrawals! Second: You’ve subjected yourself to risk for no apparent reason. Third: You’ve invested in things and taken risks you clearly don’t understand. Fourth: You’ve incorrectly concluded that the G Fund has produced no gain in your investment’s value.
Based on the information you’ve provided here, I suggest that you transfer your IRA to the TSP account, if possible, and maintain your entire account in the G Fund. The G Fund bears no risk of loss and always produces a positive return on your investment. In fact, it’s the best risk-adjusted rate of return you’ll find anywhere. You’ll have to continue your monthly withdrawals from the TSP, but you may be able to reduce them until your RMD becomes due.
Unfortunately, there’s no way to recover the damage that’s been done. The time to get things right is when the decisions are being made, not after the fact. We’re all operating in a world where there are lots of very smart people doing everything they can to profit from our decisions. To get the most of what you want out of what you have, you must:
1. Clearly know and understand the rules of the game, and
2. Figure out how to use those rules to your best advantage.
August 8th, 2013 | Uncategorized
Q. I am 56 years old and I work for the Department of Justice. I expect to retire in the next year under CSRS. I have approximately $300,000 in the Thrift Savings Plan. I would like to withdraw $100,000 when I retire at age 57 to pay off a mortgage, and keep the remaining funds in TSP until I am 70. Is there any way to withdraw $100,000 before I am 59½ without sustaining a tax penalty?
A. Yes. If you separate from service during or after the calendar year in which you reach age 55, your TSP withdrawals will be exempted from the early withdrawal penalty.