By Mike Miles
CSRS annuity payments treated as rollover
May 9th, 2013 | Uncategorized
Q. Based on a reading of Internal Revenue Service Publication 721, it appears to say that since the CSRS and FERS retirement systems are considered “eligible retirement plans” you could roll over a distribution (including a regular annuity payment) into another IRA and defer the taxes, or into a Roth IRA and pay the taxes immediately. If this is the case, the normal IRS limitation on contributions to IRAs and Roth IRAs are bypassed. Am I reading this correctly?
A. From IRS Publication 721: “Distributions eligible for rollover treatment. If you receive a refund of your CSRS or FERS contributions when you leave government service, you can roll over any interest you receive on the contributions.You cannot roll over any part of your CSRS or FERS annuity payments.”
Tags: annuity, contributions, CSRS, distribution, FERS, IRA, IRS, retirement, rollover, Roth IRA, taxes
Disability and tax deduction from TSP funds
May 6th, 2013 | Uncategorized
Q. I recently retired from the federal government due to becoming permanently disabled at age 61. I received my disability approval from the Social Security Administration. I withdrew a portion of Thrift Savings Plan funds to cover expenses as a result of not being able to work. Why was 20 percent tax deducted from the distribution of funds at age 61 and with the legal purpose of being disabled?
A. Because that is the default federal income tax withholding rate for the distribution. The money has been applied toward your tax liability for the year.
Tags: age, deduction, Disability, distribution, Social Security, taxes, TSP, withholding rate
Partial TSP withdrawal
April 29th, 2013 | Uncategorized
Q. I will be 63 years old in August. I have made a previous partial Thrift Savings Plan withdrawal but need another for a down payment on a home.
1. Can I make another partial withdrawal? If not, what regulation dictates that I cannot?
2. If I can’t make another partial withdrawal and decide to take monthly payments, can I set the monthly payment amount or does TSP have a required monthly distribution rule? And will the remaining balances continue to earn income?
A. You are limited to one partial withdrawal during your lifetime. I’m not a lawyer, so you’ll have to look up the regulation yourself. You may request automatic monthly withdrawals in any amount you like and change the amount once each year in January. Your remaining balance continues to be invested according to your direction.
Tags: distribution, monthly, partial withdrawal, TSP
TSP rollovers
April 22nd, 2013 | Uncategorized
Q. The guidance on partial withdrawals from the Thrift Savings Plan is somewhat confusing if you have both a traditional and Roth portion. It says that withdrawals will be prorated between the two. However, is it possible to solely roll over the Roth portion into another Roth and still leave the entire traditional portion in tact? Or, since these are two distinct types of investments, can the Roth be rolled over into a Roth and the traditional be rolled over into a traditional in amounts, say $5,000 of one and $10,000, even if the balances are not in this same 1:2 ratio?
A. Distributions are prorated between the two accounts, while direct transfers (rollovers) may be designated as applying to each type of money, independently. I suggest that you review Form TSP-77 to see what can and can’t be done.
Tags: distribution, investment, partial withdrawal, rollover, Roth IRA, TSP
401(k) distributions at age 55
April 9th, 2013 | Uncategorized
Q. So if I follow all the rules related to my current Thrift Savings Plan account, and I begin making systematic withdrawals under the annuity factor method at age 55:
1. Can I contribute to my new employer’s 401(k) while drawing from my TSP? (I may want to take a downscaled job and subsidize the lower income with my TSP distributions.)
2. Are any Internal Revenue Service restrictions in place regarding my Roth IRA because I am taking distributions from my 401(k) at age 55?
A. Yes, you may contribute to a 401(k) while taking distributions from your TSP account, and no, there are no special rules limiting Roth IRA contributions because you are taking withdrawals from your TSP or 401(k) account. Only the usual income limits apply.
Tags: 401(k), age, annuity, contributions, distribution, IRS, Roth IRA, taxes, TSP
TSP loan overpayment
March 20th, 2013 | Uncategorized
Q. I just finished paying off a Thrift Savings Plan loan, and the last loan payment was greater than the necessary last payment. Apparently, the difference will be sent to me by check. Does this count as a disbursement? Will I have to pay a penalty on this money? How can I just put it back into the TSP where it belongs?
A. It doesn’t belong in the TSP. It’s an overpayment and will be refunded to you with no distribution or tax liability accruing.
Tags: distribution, loan repayment, taxes, TSP
Rolling TSP into IRA
March 20th, 2013 | Uncategorized
Q. Can you elaborate more on the “Ask the Experts” answer at http://blogs.federaltimes.com/federal-money/2011/02/16/rolling-a-portion-of-tsp-balance-into-self-directed-ira/. The answer seems to imply that under some circumstances, Thrift Savings Plan funds can be rolled over into self-directed IRAs. Can you explain the circumstances under which it’s legal, and can you provide references? I’d like to create a self-directed IRA for my husband, who is 45 years old and no longer in federal service, and then use the funds to purchase a rental property, with the monthly rents going directly into the IRA.
A. Rollovers are allowed for TSP participants who are no longer federal employees or who are over age 59½. He’ll need to fill out the appropriate TSP withdrawal request form (TSP-70 for a full withdrawal or TSP-77 for a partial withdrawal) and direct the distribution to the IRA custodian of his choice.
Tags: age, distribution, IRA, rollover, TSP, withdrawal
10% tax penalty and VERA
March 19th, 2013 | Uncategorized
Q. My wife retired under a Voluntary Early Retirement Authority in August 2011. Her 1099-R displays a “1” as the distribution code in Block 7 of the form, “no known exceptions.” For years 2011 and 2012, we paid a 10 percent tax penalty for early withdrawal from her Thrift Savings Plan. I know the tax is usually levied unless the person is 59½ years of age, but at what age will the code on the 1099-R change for my wife so we won’t have to pay this tax? Will she benefit at some point because her retirement was a VERA, and at what age can we escape this tax? Her date of birth is Nov. 27, 1959. She retired with 24+ years of service from Natural Resources Conservation Service.
A. I can’t tell you when the code will change, but since she separated from service before the calendar year in which she reached age 55, she will subject to the early withdrawal penalty until she reaches age 59½ unless she can meet one of the exceptions listed on Page 7 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf. A VERA is not one of the exceptions.
Tags: 1099, age, distribution, early withdrawal penalty, taxes, VERA
Workers’ comp and TSP withdrawal
March 19th, 2013 | Uncategorized
Q. I am below the age for Thrift Savings Plan withdrawal without penalty (soon to be 50), but it looks like I will be out on workers’ compensation under permanent disability shortly. Due to the impact on my income and an ongoing issue, I need to make a withdrawal or close my TSP to continue meeting my obligations. I have thoroughly researched the issue of using a TSP but have little choice. A loan is not an option (I’m paying one off and, if I’m on disability, I can’t take one out). And I’ve looked into other avenues, to include financial planners, with no success. Without focusing on the 10 percent penalty, how can I submit for my account funds? Although I am vested with more than 22 years, do the age criteria prohibit access to any funds that are not your own contributions? Due to the previous loan, is it impossible to access these funds to avoid a more onerous financial situation? I have an amount that would make us able to live on the disability funds. Is this a simple matter of age and letter of the law?
A. As soon as you are separated from federal service, you may request a distribution of some or all of your TSP funds. Before you separate, you may request a hardship withdrawal if you can qualify, or you could take a loan and then fail to pay it back, which will result in a distribution.
Tags: age, contributions, Disability, distribution, income, loan repayment, loans, penalty, separating, TSP, vested, withdrawal
Automatic monthly distributions
March 19th, 2013 | Uncategorized
Q. How often am I able to change my allotment amount being drawn from my Thrift Savings Plan account yearly monthly, etc., while retired? Can I still move my money between funds after I start receiving the allotment?
A. If you’re referring to automatic monthly distributions, the amount can be changed once each year, effective in January. You may, and are responsible to, continue to manage your account for as long as it continues.
Tags: distribution, monthly, retirement, TSP