Ask The Experts: Money Matters

By Mike Miles

TSP penalties for retiring at 62?

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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.

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Benefits after termination

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Q: Does a federal employee who is fired get to retain Federal Employees Retirement System defined benefit plan annuity and government contributions to his Thrift Savings Plan?

A: You are always fully vested in your contributions and the government’s matching contributions. The automatic 1 percent agency contribution under FERS vests after you have completed three years of federal civilian service (two years for congressional and certain other noncareer positions).

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Use TSP for military buyback?

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Q: I have five years of military service that I am considering applying to my federal retirement years. I have waited way to long to do this and am hoping I could use my Thrift Savings Plan monies to pay for the military service, similar to rolling over an individual retirement account. Is this possible?

A: A rollover to the Federal Employees Retirement System or the Civil Service Retirement System for service is not allowed.

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Moving funds into TSP

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Q: I am under the Federal Employees Retirement System and have money in the Thrift Savings Plan. I returned to government service after 16 years in the private sector (I was under the Civil Service Retirement System from 1975 to 1987 but was placed in FERS in 2004 when I returned). I have retirement accounts outside TSP, but I find TSP to be easy to manage. I have considered transferring my other 401(k) accounts into TSP, but I have also heard concerns that Congress may target TSP as a source of “revenue.” I will be considering retirement in the next seven to 10 years and would like to manage my funds from one place. Are you aware of any negatives I should consider?

A: The rumor you’ve heard also applies to private-sector retirement plans and individual retirement accounts. I don’t think that it’s worth worrying about at this point. The TSP is the best place to save for retirement, and I encourage you to transfer you outside balances into it whenever possible.

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Payroll tax holiday

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Q: I’m a Federal Employees Retirement System employee and I am confused about what advantages there are to the payroll tax deduction reducing the contribution into Social Security from 6.2 percent to 4.2 percent in 2011 as part of a payroll tax holiday. Won’t I still need to pay 6.2 percent at the end of the year when I’m filing my taxes? And will it not also affect my Social Security?   

A: No, you won’t have to pay the difference at the end of the year. Right now, Social Security benefits are not indexed to the rate at which you pay into the system, so under the current rules it will not affect your benefits. What happens in the future is anyone’s guess.

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Competing annuities, benefits

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Q: Will I get full Social Security and a “full” Federal Employees Retirement System annuity when I retire at age 66? And when I invest my Thrift Savings Plan money, will that affect how much I receive from Social Security?

A: I can’t say whether you’ll get a “full” FERS annuity, but none of these benefits, on their own, will affect the others.

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