Ask The Experts: Money Matters

By Mike Miles

TSP transfer in divorce

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Q. My wife and I are getting a divorce. We are both federal employees with Thrift Savings Plans. My plan greatly outvalues hers. In my state, she is entitled to half of the value of my retirement account, and vice versa. Since we are both on the TSP, can I just transfer her entitlement from my account to her TSP account without a tax penalty, as this would be of greater benefit to her?

A. She may request that her share be transferred to her TSP account using the appropriate TSP form.

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TSP and debt

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Q. I have power of attorney for my military retired son who is not employed and only receiving retirement benefits, as well as undergoing a divorce. There is just not enough money to go around. I am paying what I can with his funds, but there is one large debt that there is no way to make payments on (they’ve refused what little is available) since he is only getting half of his retirement income due to the pending divorce. He has an IRA and a Thrift Savings Plan account. Would the creditor be able to take the TSP monies?

A. TSP assets are protected from creditor claims in cases of bankruptcy and civil suit.

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TSP and defined retirement benefits

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Q. My former spouse retired from the military after 23 years and immediately started his FERS job. I was married when he started his new federal position, then 12 days later, he asked for a separation. Two years have passed and we just became legally divorced. Am I entitled to former spouse defined retirement plans and Thrift Savings Plan 401(k). If so, where can I locate this under CFR?

A. Your share of his TSP account was determined as part of your divorce settlement or decree.

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Divorce and TSP

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Q. I am about to divorce my husband, who works for the Federal Aviation Administration.

1. Can I keep his health insurance as an individual? Does this cost anything to him? How much will it cost me?

2. How can I be eligible for his life insurance after divorce?

3. Which is more beneficial: Getting a survivor benefit or getting a higher pension?

4. When can he start taking money from his Thrift Savings Plan?

A. You can’t withdraw money from his TSP account. Your divorce settlement will govern how the TSP is divided and distributed and you’ll likely wind up with your share in an IRA in your name. The usual rules for distributions will then apply.

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Divorce and taxes on TSP

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Q. In the divorce proceeding, I have to give my ex-spouse 57 percent of my Thrift Savings Plan, which is about $128,000; 57 percent of my pension comes out to $2,800 monthly.

When the money is withdrawn from my TSP, is it taxable? If so, how much? Is the tax withdrawn before he gets it? Or does he have to file taxes at the end of the year? He is 64 years old. We live in Pennsylvania.

A. I can’t give you tax advice since I’m not a CPA. I suggest you check Page 3 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf and consult a qualified tax adviser in your state.

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Penalty on TSP in divorce

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Q. In our divorce settlement, my wife wants to have her marital share available to spend on housing. What would the total penalty amount on her portion be?

A. If there’s no exception for a court order, an early withdrawal will generate a penalty equal to 10 percent of the earnings withdrawn. Consult a tax accountant for advice.

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Divorce and taxes

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Q. I am going through a divorce. My husband works for the federal government. If and when the account is split, can I take out partially or totally, the money in my account? If so, what percentage in taxes will I be required to pay?

A. I suggest you review the material in the booklet at https://www.tsp.gov/PDF/formspubs/tspbk11.pdf.

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TSP after divorce

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Q: I’ve been married for 12 years, have two children (minors) and am in the process of a divorce. How would this affect my TSP account? What amount would my former spouse be entitled to and how would the disbursement of said amount be handled? I live in Florida.

A: This is a state-specific legal question best posed to your divorce attorney.

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TSP and divorce

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Q: I have been separated from my spouse for six years, and he refuses to sign the paperwork for me to receive funds from my Thrift Savings Plan. What are my options? Should I just leave the money in the account?

A: This is a divorce matter. You should consult an attorney.

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