By Mike Miles
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.
August 8th, 2013 | Uncategorized
Q. I have a Thrift Savings Plan account as a CSRS retiree. I also turned 70½ this year and have non-Roth IRAs. Can I take a distribution from one of the IRAs that will satisfy the required minimum distribution calculation for my TSP account and all non-Roth IRAs? If so, would I still have to take a distribution from my TSP account just because I turned 70½?
A. According to the Internal Revenue Service rules, you should be able to satisfy your entire RMD requirement using one or more withdrawals from any covered account or accounts. The TSP will automatically distribute its share of your RMD each year, however.
June 24th, 2013 | Uncategorized
Q. I am a 66-year-old CSRS retiree with approximately $200,000 in the F Fund. I have no debts, and will likely leave my Thrift Savings Plan untouched until I am forced to start withdrawing it. I am concerned that when interest rates start to rise, bonds will drop and the value of my TSP account may fall. I am considering moving my TSP into the G Fund. However, since I don’t plan on a withdrawal soon, should I put move it to one of the L funds?
A. The G Fund is the only TSP fund that does not pose the risk of loss.
June 20th, 2013 | Uncategorized
Q. I am a 53-year-old CSRS employee with 31 years of service and I am contemplating taking advantage of any early-out retirement option if offered next year. I have heard rumors that the Internal Revenue Service has a rule in place that states that if I retire before age 59½, it will assess a tax penalty of 10 percent on my annuity amount for having retired early? I realize there is a penalty on the Thrift Savings Plan part, but I have never heard of tax penalty on federal pension due to early retirement.
A. Not true.
June 18th, 2013 | Uncategorized
Q. I joined federal service in September 1984 and left at the end of August 1986. The FERS retirement program had not really been implemented and the Thrift Savings Plan did not exist. I declined to participate in CSRS since I was compelled to pay into Social Security and felt the additional retirement payments under CSRS were too much for me. In the summer of 1988, I returned to federal service and was told I had to wait a year before being eligible to participate in TSP. I heard from some employees that when TSP was first created, there was a “catch-up” payment to compensate FERS employees for when there was no TSP system in place (1984-1986). And this catch-up occurred while I was out of federal service. Can you comment on this since, in effect, I was unable to participate in the TSP system for three years of my federal employment and have only been able to purchase my portion of the defined benefit plan more recently?
A. This is outside of my area of expertise. You’ll need to check with your agency payroll administrator to see if you have any option to make up contributions.
June 10th, 2013 | Uncategorized
Q. I am CSRS and plan to retire Jan. 3, 2014. Since my annual leave payout will be part of my final paycheck and thus will be taxed as 2014 earned income, can I contribute part of it to Thrift Savings Plan for 2014 even though I will be retired?
June 3rd, 2013 | Uncategorized
Q. I’ve participated in the Thrift Savings Plan since its inception as a CSRS employee and plan to retire next year. My current contribution allocation is 100 percent to the L2020 Fund and has been since that fund was created in 2005. Prior to the creation of the L funds, I had allocated my contributions equally to the C and G funds, which I have left untouched in the account. The account’s present holdings are approximately 50 percent L2020, with the remainder being 25 percent C and 25 percent G Fund. What should I now be doing, if anything, with those pre-L2020 account assets?
A. You should be competently and diligently monitoring and managing them to serve your financial goals with a minimum of risk. Is your current asset allocation arbitrary? If so, you should rethink it.
May 13th, 2013 | Uncategorized
Q. I am a fully vested CSRS employee with the Environmental Protection Agency for 33 years at age 55. I have received my numbers, but I missed my first date to retire. How long does it take to receive my first full check? Should I take all of my Thrift Savings Plan out at once; leave about $10,000 in and roll it over to a Roth IRA; or leave it in the TSP? Is there a counselor at TSP to speak with about taxes and IRAs.
A. You should leave your money in the TSP for as long as possible and consult your tax preparer or a financial planner with your tax questions.
May 9th, 2013 | Uncategorized
Q. I will be retiring at the end of this year with 37 years and 10 months of service. I am a CSRS employee and will be 57 years old in September. My annual annuity would be $81,958. I will have a little over $200,000 in my Thrift Savings Plan account.
Is it smartest to take the spousal annuity or take out a life insurance policy on myself to sustain my wife once I pass away? My annual annuity will be reduced by around $7,900 a year if I chose the spousal annuity. Which would be the wisest?
A. This isn’t your choice to make. It’s your spouse’s choice. If I were your spouse, I’d favor the full survivor benefit.