Ask The Experts: Money Matters

By Mike Miles

Annuity calculation and TSP collection

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Q. I have a two-part question. I am a federal firefighter and, as of December, I will have 25 years and 10 months on the job and I am 50 years old. What is the salary they will be basing my retirement on: base pay or actual pay? When can I collect my Thrift Savings Plan? I would like to receive checks like a retirement.

A. Mike: You may begin withdrawing your TSP balance, or use it to buy an immediate annuity, as soon as you are separated from service.

Reg: Your annuity will be calculated using your basic pay. To see what’s included and excluded from basic pay, go to and scroll to Section 30A1.1-2.

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Firefighters’ benefits

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Q. Is Federal Employees’ Group Life Insurance, survivor benefit and Thrift Savings Plan matching based on GS base pay or firefighter base pay?

A. Mike: TSP matching is based on your pay.

Reg: Your annuity will be based on your highest three consecutive years of basic pay. To determine what is included in the term “basic pay” for a firefighter, you’ll have to check with your personnel and payroll offices.

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Roth TSP and 59 1/2

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Q. Federal employees now have the option of investing a portion of their Thrift Savings Plan contributions into the Roth option. As many of us know, contributions to the Roth TSP are from after-tax income. The benefit comes from tax-free earnings. The way I understand the rules, we must contribute to Roth for five years and not make any withdrawals until we are age 59½. The traditional TSP also uses the 59½ rule, unless we retire at age 55 or later.

When we make withdrawals from our TSP account, the money is divided proportionately from both the traditional and Roth funds. For example: Mr. Smith’s account is evenly divided between traditional and Roth. Each withdrawal will consist of 50 percent from the traditional TSP and 50 percent from the Roth TSP. From the way I read it, selective withdrawals from each fund are not allowed.

I am a firefighter who faces mandatory retirement at age 57. I have been contributing to both funds in TSP for over 30 years. Having met the traditional TSP rule of retiring at 55 or later, I elect to receive equal monthly payments for 20 years.

Since I have not reached 59½, am I going to be penalized for early withdrawal from the Roth TSP? There is no penalty for the traditional fund. If different withdrawal rules apply to each fund, should I not have the option of the leaving the Roth TSP untouched until I turn 59½?

A. Distributions of earnings from your Roth TSP will be subject to tax until you reach age 59½ unless you roll them over to a Roth IRA account.

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FERS firefighter retirement

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Q. I am a federal firefighter and a FERS employee. In 2022, I will have 21 years of creditable service and four years of bought-back active military time and be 48 years old.

1. Will I be able to retire under the provisions of 25 years of service at any age?

2. Will I receive the special category retirement percentages (1.7 x high-3 x creditable service, etc.)?

3. Will I receive the special retirement supplement until 62?

4. Will I not be able to withdraw any Thrift Savings Plan annuities until 62?

A. Reg: 1. No, you won’t be able to retire. Only actual service as a firefighter — not active duty for which you’ve made a deposit — counts toward the 25-year requirement.

2. When you are eligible for retirement and do so, your annuity would be computed using the special category percentage for the first 20 years; the remaining time would be computed using the standard multiplier.

3. When you retire, you would receive the special retirement supplement, regardless of your age, until you reach age 62.

Mike: 4. You will have access to your TSP assets, for withdrawal or to purchase an annuity, as soon as you retire.

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TSP and the fiscal cliff

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Q. I am a federal forestry tech (firefighter) and am facing mandatory retirement in 1½ years. I am wondering if the fiscal cliff will affect the Thrift Savings Plan like a couple years ago and the bottom will fall out. If so, would it be prudent to move my TSP more to more conservative accounts?

A. No one knows what the future holds, but market timing only adds unnecessary risk to your investment strategy. Select and implement the asset allocation scheme that supports your goals with the minimum of risk and stick to it. That’s the safest bet.

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Avoiding the early withdrawal penalty

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Q. I am a firefighter with a county fire department in Florida. As such, I am part of the Florida Retirement System in the special risk class. I started my career early and will be eligible for retirement with full benefits and no FRS penalties by age 48. (This is 25 years of service.) However, because of the Internal Revenue Service penalty for retiring before age 50, I would receive a 10 percent tax penalty in addition to the normal taxes I will pay on my retirement income. I understand that I will receive the penalty of 10 percent. However, I want to know whether that penalty goes away after I have reached age 50, or if it continues until I am 59?

A. The early withdrawal penalty rules will continue to apply until you reach age 59½. You can avoid the penalty by withdrawing from your Thrift Savings Plan account in a series of Substantially Equal Periodic Payments under section 72(t) of the tax code.

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Can I avoid TSP early withdrawal penalties?

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Q: In a Dec. 13 blog post, you answered the following question: “I am a federal firefighter under CSRS Special Retirement due to retire in November 2011 at age 50. At what age will I be able to collect on my TSP retirement?” You said that the writer would be subject to the early withdrawal penalty until age 59 1/2 unless the withdrawal was rolled over, used to buy a life annuity or met one of the other “specific exceptions to the rule.”

I’m an 1811-series federal employee, age 52, and will be retiring in 2011. I’ve read that I can withdraw Thrift Savings Plan funds this year and will not incur the 10 percent early withdrawal penalty based on IRS Form 5329, Line 2, Exception 1: “Qualified retirement plan distributions (does not apply to IRAs) if you separated from service in or after the year you reach age 55 (age 50 for qualified public safety employees).”

Employees in the 1811 series, and I believe federal firefighters, meet the definition of “qualified public safety employees.” Please clarify: Would the above firefighter and I be able to withdraw TSP funds this year and avoid the 10 percent penalty under IRS Form 5329, Line 2, Exception 1?

A: Not as I understand it (remember, I’m not a certified public accountant and am not preparing your taxes) because: First, a federal firefighter is not included in the definition of qualified public safety officer, and second, the exclusion you mention only applies to early distributions from defined benefit plans, and the TSP is a defined contribution plan. Either of these facts alone will disqualify the exception. You may want to review IRS Notice 2007-7 for confirmation.

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