By Mike Miles
May 9th, 2013 | Uncategorized
Q. I will most likely be medically separated from the military next year after 25 years of service. I have bone cancer that is incurable but manageable — 50 percent life expectancy is 10 years. I am 47, so if I live 10 years, I would be 57 and still ineligible to withdrawal my Thrift Savings Plan. Are there exceptions for terminal disease that allow you to withdraw early without penalty?
A. The list of available exemptions appears on Page 7 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.
May 9th, 2013 | Uncategorized
Q. I have been in the Foreign Service since 1986 and am being involuntarily retired for expiration of my time in class on Sept. 30, 2014. I will be 49 years old at the time. Even with an involuntary retirement, do I still get penalized for any lump-sum payment I take from the Thrift Savings Plan? I know annuities and equal payments are not penalized.
A. There is no exception to the early withdrawal penalty for involuntary retirement.
April 24th, 2013 | Uncategorized
Q. I have more than 20 years of service as a federal law enforcement officer and will turn 55 in 2014. I plan to retire under FERS from my agency this year, before my age 55, and immediately (with no break in service) become re-employed on a full-time basis with another federal agency. I understand that my salary during the period of re-employment will be offset by the amount of my FERS annuity, and that retirement deductions (including Thrift Savings Plan contributions) will be made from my re-employment salary. I understand further that I would earn a supplemental annuity upon termination of re-employment if I am re-employed for more than a year, and that I could alternatively elect a redetermined annuity if I am re-employed for at least five years.
However, if my re-employment terminates before I reach age 59½ (but well after 55), and I wish to make withdrawals from my TSP account at that time, how will the Internal Revenue Service calculate my “separation from service” date? That is, will the IRS consider that I “retired” in 2013, prior to age 55, and thus apply the 10 percent penalty for early TSP withdrawals? (That would effectively force me to lock myself into the life expectancy withdrawal option for a full five years after the termination of my re-employment period.) Or, would the IRS determine that I “retired” on the date of the termination of my period of re-employment – after age 55 – enabling me to withdraw from my TSP account penalty-free?
A. To the best of my knowledge, your TSP account, if it is kept going through the transition in federal employment, will be eligible, in its entirety, for penalty-free withdrawal under the “age 55 exemption.” But, you should consult a qualified tax accountant before you make any plans.
April 22nd, 2013 | Uncategorized
Q. I retired at age 52 from the Postal Service. When can I fully withdraw my money without a penalty? If I decide to receive monthly checks, when can I begin receiving them without any penalties?
A. Unless you qualify for one of the exceptions listed on Page 7 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf, you’ll have to wait until you reach age 59½ to avoid the early withdrawal penalty.
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.
March 19th, 2013 | Uncategorized
Q. I am a letter carrier, age 52, started in 1985 and have 28 years of creditable service.
If I understand what I’ve gleaned from the posts here and the Postal Service were to offer me a Voluntary Early Retirement Authority this year,
1. Would I begin my annuity immediately?
2. Would I have no reductions in calculations of my annuity? (average high-3 x 1 percent x 28)
3. Would I receive credit for half of my sick leave and all of my annual leave? (How are these applied?)
4. Would I receive the special retirement supplement beginning at age 56 (my minimum retirement age), and receive it until I reach age 62?
5. Would I be able to continue carrying my current health and life insurance at non-USPS rates? (I couldn’t find how long these could be carried. Until death?)
6. Could I begin receiving Social Security as early as age 62?
7. Any withdrawal from my Thrift Savings Plan prior to age 59½ would be penalized 10 percent as per Internal Revenue Service regulations? (Can I continue to contribute to TSP after retirement?)
8. As a FERS annuitant, is there no limit to what I can earn after separation from the Postal Service as it pertains to my annuity payment?
9. At age 56 (my MRA), the special retirement supplement from Social Security would begin and would be subject to yearly income limits. Would supplement payments be reduced by approximately $1 for every $2 I earned above that year’s Social Security income limit?
10. At age 65, I’d be eligible for Medicare parts A and B? (Would this affect my health insurance coverage through Federal Employees Health Benefits?)
11. Would there be cost-of-living increases at any point for my annuity?
12. Is there a date during the year that maximizes the benefits of retirement?
Did I get this right, and are there any other things I should know before considering a VERA if it is offered?
A. Reg: 1. Yes.
3. Yes. Half of your unused hours of sick leave would be added to any hours of service that were left over when your annuity was computed. Any additional months created would increase the amount of your annuity. Any unused annual leave would be paid to you in a lump sum at your current hourly rate.
5. Yes. And those enrollments would continue until your death.
Mike: 7. You will be subject to the early withdrawal penalty until you reach age 59½ unless you can qualify for one of the exceptions listed on Page 7 of the notice: https://www.tsp.gov/PDF/formspubs/tsp-536.pdf. You may not contribute to the TSP after you retire, but you may transfer eligible balances into the TSP from other retirement accounts such as IRA, 401(k), 403(b), etc.
Tags: 401(k), 403(b), age, annual leave, annuity, catch-up contributions, cost-of-living adjustment, early withdrawal penalty, FERS, health insurance, income, IRA, IRS, life insurance, lump-sum, Medicare, Minimum Retirement Age, Postal Service, sick leave, Social Security, Special Retirement Supplement, TSP, VERA
March 13th, 2013 | Uncategorized
Q. I spent 22 years with the Postal Service and quit in 2010 to take another career. I was under FERS. Do I get a pension from the Postal Service, or is that what the Thrift Savings Plan is? And can I collect it at 55?
A. Mike: If you left FERS service before the calendar year in which you reach age 55, you will be subject to the early withdrawal penalty rules.
Reg: If you didn’t take a refund of your retirement contributions when you left, you can apply to the Office of Personnel Management for a deferred annuity at age 60.
March 5th, 2013 | Uncategorized
Q. I was approved for disability retirement in November under FERS due to my diagnosis of a malignant, incurable brain cancer (my life expectancy is six to nine months). I withdrew my Thrift Savings Plan in lump sum ($29,000) to pay my medical and living expenses. I am including my TSP distributions in my tax return. If I understand correctly, my TSP money should be added to my earned income (for example, if I earned $50,000 + $29,000 TSP =$79,000 total year of 2012 income) and it will be taxed as ordinary income. Is there any way for a terminally ill person to exclude this TSP amount from my gross income tax return category? Because I am separating from service during or after the calendar year in which I reach age 55, no early withdrawal penalty will apply.
A. I’m not aware of any exception to the tax imposed on TSP withdrawals for a terminal illness. You should consult a CPA in your state for specific tax advice.
February 27th, 2013 | Uncategorized
Q. I am retiring soon (four months) under MRA+10. Will I be penalized for a Thrift Savings Plan withdrawal at my retirement? I will be 56 at the time of retirement. I am moving from my present location to another state and plan to use the better part of it as a down payment on a home.
A. As long as you retire during or after the calendar year in which you reach age 55, your TSP withdrawal will not be subject to the early withdrawal penalty.
February 21st, 2013 | Uncategorized
Q. I am retiring in six months with 30 years under FERS at age 57 (my minimum retirement age). I am planning on using my Thrift Savings Plan to buy a house with equal payments for five years. The payments will start one or two months after retirement. Will I be penalized for early withdrawal because I am not 59½ ? I was under the impression that TSP was considered one-third of my retirement, and that at time of retirement, I would be eligible to withdraw. Is this correct?
A. Since you are retiring during or after the calendar year in which you reach age 55, you will not be penalized for withdrawing from your TSP account before age 59½.