By Mike Miles
January 9th, 2013 | Uncategorized
Q. Can I make a voluntary contribution and roll it over to a Roth IRA as a retiree? Am I correct that this would have to have been done before retirement? I took a voluntary early pension in 2004 at age 50.
A. You are correct in that you may not make a VC after you retire.
November 13th, 2012 | Uncategorized
Q. I will be taking the early-out offered by the Postal Service. I am a 54-year-old CSRS employee of 35 years. I have a Thrift Savings Plan account. Please give your opinion on the best option such as taking the MetLife annuity, joint with spouse, level or increasing, cash refund compared with simply leaving the money in TSP and getting monthly payments either by specific amounts or increasing by life expectancy. I don’t quite understand the difference in the two options.
A. There is no “best” choice. Using your money buy an immediate annuity guarantees income for life. You give up control of the principal and risk losing buying power to inflation in exchange for the guarantee, however. Alternately, you may retain control of the principal, manage it for your benefit and withdraw money as you need it. One of the withdrawal options available is a series of monthly payments — either as a fixed dollar amount, or a varying dollar amount that is adjusted each year, automatically, based on your life expectancy. With this method, the previous year’s ending account balance is divided by your remaining life expectancy to determine the new year’s payment amount. If you want to know more, you should read the material available at www.tsp.gov.
July 25th, 2012 | Uncategorized
Q. I qualify for a buyout with 25-plus years of service. If I take the buyout, it is my understanding that I must wait until my normal minimum retirement age of 56 to begin receiving the Social Security supplement. Would this prevent me from receiving increases in Social Security supplemental benefits that I would have received had I waited until 56 to retire? I believe I would get the increases at 62, in any event, when I could first draw reduced SS benefits.
Also, what happens to my Thrift Savings Plan account? May I purchase an immediate annuity and/or take a lump sum at the time even though I am below the MRA? Would this cause me to have to wait until I was 59½ to begin being able to access TSP if I took an early-out? Do you believe the $25,000 buyout and the extra six or so years of retirement payments I would receive with an early-out would make up for the growth in my TSP and the loss of the extra 1 percent a year I would have received for staying until my MRA? I am at about the top of the GS-12 scale. I have been contributing the maximum allowed to my TSP and will be eligible to make catch-up contributions soon. I know you may not want to make a prediction, but I would love your opinion based on what you have observed with others in this situation.
Mike: Once you retire, you are free to access your TSP in any way usually allowed for retirees. The MRA does not apply to the TSP. You do not have to wait until you reach age 59½ to take money from your TSP once you are retired, but withdrawals taken before reaching age 59½ might be subject to the early withdrawal penalty if you retire before the calendar year in which you reach age 55. It’s impossible to say whether the early-out income will be enough to offset the potential TSP gains in the future without knowing how you’ll invest the TSP money along the way.
I think that accepting the buyout/early-out offer will substantially reduce your maximum standard of living in retirement if you don’t continue to work, though. I think it’s reckless to make such a big, irreversible decision without a clear understanding of the financial implications. Based on your questions, I suggest that you keep working and skip the buyout offer. This is the safer bet without the right decision analysis and support.
Reg: You can estimate what your special retirement supplement would be at age 62 by multiplying your estimated Social Security benefit at age 62 by your years of FERS service (rounded up to the next higher year) and dividing the product by 40. Your actual Social Security benefit at age 62 would be determined by the Social Security Administration based on such factors as your average indexed monthly earnings.
June 4th, 2012 | Uncategorized
Q. I am confused by your statement May 29 that the postmaster who is considering “early retirement” after 24 years would be subject to a TSP early withdrawal penalty. My understanding is that if one is 55 years of age and retires, he/she can access his/her TSP funds without a penalty. Because this person is 55½, he or she would not be subject to a penalty. The authority you cite on page 7 appears to support my understanding. Have I misread your thoughts here as written?
A. You’re right. Thanks for bringing this to my attention. There was a typo in the response and I have submitted a comment to correct it.
May 29th, 2012 | Uncategorized
Q. I will be taking the early-out in July. I have been a postmaster for 24 years, and I am 55½ years old. I have plans to withdraw my Thrift Savings Plan. Will there be any penalties, and will taxes be taken out?
A. There will be penalty for early withdrawal. You’ll find the tax withholding requirements on Page 3 of this notice: https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.
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.
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.
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.
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.
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?