By Mike Miles
March 21st, 2013 | Uncategorized
Q. I am 64 years old and will be retiring in a year. I have 15 years with the federal government. Do all of my Thrift Savings Plan contributions have to be withdrawn prior to a specific age?
I also understand that my total TSP account will be charged 20 percent. Am I to understand that after the 20 percent is subtracted from my TSP account, I have to pay income taxes per year for withdrawals I make from my TSP account that will be added to my total gross income?
A. You will be required to begin taking minimum annual distributions from your TSP account when you reach age 70½, but there is no requirement to deplete your TSP account during your lifetime. Under certain circumstances, the TSP may withhold 20 percent from your withdrawal as a deposit against your tax liability for the year of the withdrawal. Your TSP withdrawals are added to your gross income for the year and taxed as ordinary income.
March 19th, 2013 | Uncategorized
Q. I have both a civilian and military Thrift Savings Plan account because I was mobilized for part of 2011-12. Because I was in a combat zone, much of my income was tax exempt (CZTE). The military allowed me to contribute that tax-exempt income into my TSP. It is not a tax deduction because the income wasn’t taxable in the first place.
However, they also made contributions from my taxable income. I thought it was all from my CZTE. When I returned to my civilian job, I began to contribute and maxed out my contributions, not knowing about the earlier tax-deductible contributions.
Obviously, I over-contributed and just paid the income tax on the “overage.” But that overage is still in the TSP account.
Catch-up: $5,474 (Roth)
1. How is that taxable (and taxed) overpayment treated within TSP?
2. Can I combine my military and civilian accounts?
3. If combined, can I move the CZTE money into my Roth TSP?
4. Can I move the “overage” that I have now paid taxes on into the Roth, as well?
Both of the amounts I want to move into the Roth have been taxed or were tax-exempt when earned.
A. The usual limits do not apply to TSP contributions from CZTE pay; they only apply to contributions from taxable basic pay, incentive pay, special pay and bonus pay. The Annual Additions Limit under IRC 415c does apply, however, and it limits the total contributions from all sources to $51,000 for 2013. My guess is that the money was just rearranged in the TSP to fall under the applicable limits for the various types and that you do not, in fact, have excess contributions in your accounts. You may combine your military and civilian accounts as long as you are separated from service covering at least one of the accounts and there are no CTZE contributions left in the military account. Those must be withdrawn first, or they money will be distributed to you when your request to combine the accounts is processed. The CTZE money in the traditional TSP account cannot be transferred to the Roth TSP.
March 19th, 2013 | Uncategorized
Q. I am below the age for Thrift Savings Plan withdrawal without penalty (soon to be 50), but it looks like I will be out on workers’ compensation under permanent disability shortly. Due to the impact on my income and an ongoing issue, I need to make a withdrawal or close my TSP to continue meeting my obligations. I have thoroughly researched the issue of using a TSP but have little choice. A loan is not an option (I’m paying one off and, if I’m on disability, I can’t take one out). And I’ve looked into other avenues, to include financial planners, with no success. Without focusing on the 10 percent penalty, how can I submit for my account funds? Although I am vested with more than 22 years, do the age criteria prohibit access to any funds that are not your own contributions? Due to the previous loan, is it impossible to access these funds to avoid a more onerous financial situation? I have an amount that would make us able to live on the disability funds. Is this a simple matter of age and letter of the law?
A. As soon as you are separated from federal service, you may request a distribution of some or all of your TSP funds. Before you separate, you may request a hardship withdrawal if you can qualify, or you could take a loan and then fail to pay it back, which will result in a distribution.
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 11th, 2013 | Uncategorized
Q. At age 65, I’ve taken your advice and have taken a full physical. I’m being very positive and very optimistic when I say I expect to be around for another 15 or 20 years. In retirement, I’ve put all of my money in the L-2030 fund, as suggested. Does it stay in the L-2030 fund when I reach the required minimum distribution age, or does it get put in the L-income fund?
A. The management decisions are up to you, but my default recommendation, if you don’t know what else to do, is to continue to use the L Fund that most closely matches your life expectancy. But that’s kind of like recommending that if you don’t know which way you should turn to get to your destination, keep driving straight. The recommendation is intended to minimize the risk of making a big mistake, but it doesn’t guarantee that you’ll get where you want to go. It takes some careful navigation to make that happen with a high degree of confidence.
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 over 50, my wife (unemployed) is under 49. In 2013, if I contribute the maximum amount (including catch-up) of $23,000 to my Roth TSP and traditional Thrift Savings Plan, can I also contribute the maximum of $6,000 to a Roth IRA or traditional IRA for a total contribution of $29,000? Can I also contribute the maximum of $5,000 for my wife into a Roth IRA or traditional IRA for a total contribution of $34,000, assuming that I fall within the adjusted gross income limits as addressed by the Internal Revenue Service? If there are limitations on contributing to a Roth IRA or traditional IRA when active in the TSP, what are they?
A. Subject to the income limits outlined in IRS Publication 590, you may contribute to the TSP and an IRA or Roth IRA.
February 27th, 2013 | Uncategorized
Q. I will have about $1.5 million in my Thrift Savings Plan when I retire. I am planning on getting an annuity with those funds. Because it is part of my retirement funding, will this be counted against me with respect to the Social Security earnings limits? In other words, will I have to pay additional taxes on what I have earned in my retirement account because my income will be in excess of the Social Security earnings limits?
A. The income will not be counted as earned income for means testing but will be counted as income for determining the taxability of your Social Security benefits.
February 20th, 2013 | Uncategorized
Q. The Thrift Savings Plan allows contributions this year of $17,500 plus a $5,500 catch-up, whether to Roth or traditional IRA. Internal Revenue Service rules also allow (for certain income brackets) a Roth contribution of $5,000 plus $1,000 catch-up. Can a person over the age of 55 make the $6,000 Roth contribution allowed under IRS rules to a secondary Roth IRA and still make the difference ($13,000) in a contribution to the TSP?
A. You are always free to make the full Roth TSP contribution. It’s your eligibility to make the Roth IRA contribution that may be limited, depending upon your tax filing status and your income. See IRS Publication 590, which includes a worksheet to determine your Roth IRA contribution eligibility, for the rules.
February 18th, 2013 | Uncategorized
Q. I am a federal employee under CSRS and over the age of 50. I understand that the 2013 contribution limit for TSP is $17,500 plus an additional catch-up contribution of $5,500, for a total contribution limit of $23,000. My question concerns contributions also made to a Roth IRA account outside the Thrift Savings Plan. For the general public, I understand if you are under the Internal Revenue Service income limit, you can contribute $5,000 plus a $1,000 catch-up contribution to a Roth IRA. I am under this income limit. Therefore, can I contribute the $6,000 to my Roth IRA outside TSP and still contribute to the TSP, as long as I limit my contribution to the TSP to no more than $17,000 ($23,000 limit less $6,000)? Also, can my TSP contribution be made to the regular IRA even though my outside contribution is made to a Roth IRA?
A. The limit applies to IRA contributions, and not to your TSP contributions. If you participate in an employer-sponsored retirement plan, like the TSP, your eligibility to contribute to an IRA or a Roth IRA may be limited by your filing status and your income. Calculators to determine this eligibility are available all over the Internet, or you can check with a qualified tax preparer.