By Mike Miles
Early-outs
May 7th, 2012 | Uncategorized
Q. I will have 25 years of service soon but will only be 48. If the government offers early-outs, what will I be eligible for? Pension at one-quarter of my salary for the last three years? Health insurance? What if I get a part-time job? Will this affect my pension or annuity? Also, if I do an annuity on my Thrift Savings Plan, can I start that now? Will there be a penalty? Do I get this same amount for the rest of my life, or does it stop after a certain number of years?
A. Reg Jones: Because you have at least 25 years of service, you could retire at any age. Your annuity would be based on the standard FERS formula: 0.01 percent x your highest three consecutive years of average salary x your years and full months of service. If you were to return to work for the government either full or part time, as a rule, the salary of your new position would be reduced by the amount of your annuity. If you worked anywhere else, either full or part time, it wouldn’t have any effect on your annuity.
Mike Miles: You may use your TSP money to buy a life annuity once you separate from service. Life annuity payments are excepted from the early withdrawal penalty. As the name implies, life annuity payments are guaranteed to last for life.
Tags: annuity, early retirement, FERS, penalty, TSP
TSP loan and taxes
March 30th, 2012 | Uncategorized
Q. I owe $24,000 to my Thrift Savings Plan from a loan I made. If I take the early retirement, how much will I owe in taxes to the government? I live in Florida.
A. The amount you’ll owe on the unpaid loan balance can only be determined by completing your tax return for the year. If you’re not prepared to make the estimates by running a pro-forma return, then you should consult a tax adviser who is.
Tags: early retirement, loans, taxes, TSP
Loan repayment and early-out
March 28th, 2012 | Uncategorized
Q. I have worked for the Postal Service for 24 years as postmaster. I would be able to take an early-out offer. I want to borrow on my Thrift Savings Plan for a residential loan. If I do a 10-year loan from my part of the TSP next month and then they offer early retirement and I take it, will I still have to continue making the payments? Also, when I retire, will I be able to pull out all my savings in TSP?
A. If you retire, your outstanding TSP loan will become due. If you don’t repay it shortly after retiring, it will be declared a taxable distribution from your account. You may withdraw funds from the TSP any time after you separate from service.
Tags: early retirement, loan repayment, Postal Service, taxable distribution, TSP, withdrawal
Retirement and TSP loan
March 8th, 2012 | Uncategorized
Q. I am 54 years old with 33 years of federal service, 27 in the Postal Service and six as a military buyback. If the USPS offers voluntary early retirement, Iwould take it; but I have an outstanding loan with my TSP and not enough cash or credit for a loan to pay it off. How would this work? May I use my TSP to pay it back, and would I be able to withdraw funds from TSP, even with the 10 percent tax penalty? How does TSP figure what has been paid in and what is interest accrued, and am I able to use the noninterest funds to pay my loan off? Also, I turn 55 in August. Once I turn 55, will there be any penalty removed or will this happen at my minimum retirement age of 56?
A. Since you will be retiring in the calendar year in which you reach age 55, once you retire, you will have access to your TSP funds without the early withdrawal penalty. After you retire, your agency will notify TSP of your separation, and it, in turn, will notify you that you have an outstanding loan balance. If you do not repay the loan amount due promptly after receiving the notice, the TSP will declare the unpaid balance as a taxable distribution. This is effectively the same as withdrawing the money to repay the loan. In addition, you will have access to your TSP money, according to the usual rules, after you retire.
Tags: early retirement, loans, TSP, TSP withdrawal
TSP penalties for retiring at 62?
February 27th, 2012 | Uncategorized
Q: I plan on retiring at 62 from the Federal Employees Retirement System. Will I be penalized for withdrawing money from my Thrift Savings Plan account at that age?
A: No.
Tags: early retirement, Federal Employees Retirement System, FERS, thrift savings plan, TSP, TSP withdrawal
SEPP question
February 14th, 2012 | Uncategorized
Q: I’m considering retiring at the end of this year if VERA’s are offered again in my agency. I will be 54. I have two questions related to TSP withdrawls: 1. If I choose to take dollar-specified (vs. lifetime expectancy) monthly distributions from my TSP, it’s my understanding that I’ll be penalized 10 percent since I’m under 55 when I separate and since there’s not a waiver for the dollar-specified monthly payments option. Is that correct? Or is there some way to structure dollar-specified monthly distributions so as to be included in the “substantially equal payments” waiver? Would starting out with life-expectancy monthly payments from 54-59 1/2 and then switching over to dollar-specified payments after 59 1/2 be a way to avoid the penalty? 2. Assuming I do get hit with the penalty, will I be penalized 10 percent each year until I hit 59 1/2 and then, from that time on, not be penalized? Or does the penalty continue forever once it’s been “triggered” and not stop at 59 1/2?
A: There are three ways to calculate Substantially Equal Periodic Payments (SEPP). Only the life-expectancy method produces varying amounts. The other two produce fixed payment amounts. To avoid the early withdrawal penalty, your SEPP series must continue for five years or until you reach age 59 1/2, whichever is longer. The penalty is calculated year by year and will not apply to any distributions processed after you reach age 59 1/2. The rules regarding SEPP are complicated, and I suggest you seek professional guidance before proceeding down that path.
Tags: early retirement, TSP
TSP rollover
January 17th, 2012 | Uncategorized
Q. I am considering taking an early retirement offer. If I were to have another financial institution purchase an annuity that is offering a better interest rate than what MetLife is offering through the Thrift Savings Plan and do so directly so that it would not be deposited to a personal checking or savings account, would it be exempt from tax penalties because I am under 59½, even though it would be taxed as regular income through the payments from the annuity provider as it would if TSP purchased the annuity for me?
A. Yes. You may roll TSP money over to an IRA where it can be used to purchase an annuity (a qualified annuity) without penalty.
Tags: annuity, early retirement, IRA, rollover, TSP
Retirement annuity
December 7th, 2011 | Uncategorized
Q: I am 62 with 22 years of federal service. Recently, my agency offered a buyout. I was thinking about taking the buyout and retiring. Here is my reason for not doing so. I have been reading horror stories regarding OPM’s incompetency regarding our annuity checks. Some people have been waiting as long as a year. They cannot get any response from OPM. Since the third leg of my retirement TSP has lost so much money, I would have to drain it in order to survive. Should I stay or go? I also will have surgery in early 2012 and will be out of work around two months. Does anyone know what is happening at OPM? What are we supposed to do? Congress does not care. No one cares. Why is OPM getting away with treating new retirees in such a manner? Is there anything that can be done about this?
A: This is an incredibly important and complex decision. It would be irresponsible for me to give you an answer based on this tiny amount of information and foolish for you to rely on it. If you’re not up to the task, find someone competent and trustworthy to help you.
Tags: annuity, early retirement
Using incentive pay for loan
December 6th, 2011 | Uncategorized
Q: If I am offered early retirement with incentive pay, can I have the money used to pay off a TSP loan, with the remainder sent to me?
A: Probably not, but you can accept the money and then use it to repay your loan.
Tags: early retirement, loans, TSP
Postal Service early retirement
November 11th, 2011 | Uncategorized
Q. With talk of the Postal Service downsizing I was wondering: I am 48 years old, have 25 years at the Postal Service and four years active military. I realize at 25 years I can retire, regardless of age. But can I access any of my TSP without penalty or must I wait until my MRA of 56? How about the Special Retirement Supplement?
Mike Miles:
A. If you retire before the calendar year in which you’ll reach age 55, your TSP withdrawals will be subject to the early withdrawal penalty until you reach age 59 1/2, unless you can meet one of the exceptions listed on Page 4 of the notice at https://www.tsp.gov/PDF/formspubs/octax92-32.pdf.
Reg Jones:
You would be eligible to receive the special retirement supplement when you reach your minimum retirement age, which in your case would be 56.