Ask The Experts: Money Matters

By Mike Miles

TSP catch up contributions after IRA rollover

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Q. Yesterday, I read your article dated May 20, 2013, “How to be a good pension fund manager.” I wish I had read it before I moved money from my TSP to an outside IRA last year. I wish I had taken some other steps as well. I now want to add back cash to my Thrift Savings Plan before I retire. I could retire at the end of November 2014. Can I do that with catch up contributions?

My major disappointment is with the TSP staff and the absence of an onsite adviser in human resources. Does it benefit the TSP not to go an extra step to inform investors? For those of us who, as you say, are “unsuspecting” and naïve and succumb to IRA sales people, we need a little more hand-holding. I did get a phone call from the TSP, but they never mentioned anything about the impacts of reducing my TSP through an in-service, age-based withdrawal. How can this be changed?

A. If you’re age 55 or over, you may make catch up contributions to the TSP. You may also move the IRA money back into the your TSP account. The TSP, like most employer sponsored retirement plans, does not give investment advice to its participants because it doesn’t want the liability associated with this activity. One of the reasons employers shifted from defined benefit pension to plans to defined contribution plans was to reduce their liability.

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Partial TSP withdrawal

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Q. I am 60 and had to retire early due to disability. I am receiving Social Security disability and a small annuity. Can I take a small amount — say, $10,000 — from my account but then start monthly draws when/if it becomes necessary? Should I leave all of my money in this account or do a rollover into a regular or Roth IRA?

A. Yes, as long as you have not previously used your single partial withdrawal. I think you should retain your Thrift Savings Plan account for as long as possible.

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TSP, Roth and IRA transfers

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Q. I understand that you can transfer funds into and out of your Thrift Savings Plan from either eligible pretax plans and/or after-tax plans. However, withdrawals (loans, withdrawals and interfund transfers) are made proportionately from both the traditional and Roth. Thus, you cannot specify withdrawals from only the traditional or the Roth. This is seen as a major drawback for some who would like to participate in the Roth option only or make withdrawals from only the traditional or the Roth option.

Would it be possible, at or near retirement, to transfer a major amount of your TSP balance — for example, 90 percent of your TSP (which would take 90 percent of both the Roth and traditional balances on the day of the transfer — leaving 10 percent in each) to a traditional IRA and Roth IRA outside of the TSP, then later transfer from the traditional IRA back into the traditional TSP? This would result in a small Roth TSP balance and restore the traditional TSP balance.

Doing that would provide greater flexibility for accessing the tax-free funds in the Roth (with the possibility of leaving those tax-free funds to your heirs) and still taking advantage of the lower management costs associated with the TSP for the traditional balance.

A. It seems to me that this will work as long as the traditional IRA does not contain any after-tax money when it’s time to move it back into the TSP.

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Full TSP withdrawal

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Q. I am 67 and retired. I made a partial withdrawal a few years ago. I need some cash for a family matter, so I want to make a full withdrawal now. I don’t want an annuity, but I’ll invest half in a commercial IRA or retirement instrument in hope of reducing the immediate tax impact of this full withdrawal. Can I do so? — that is, invest half of this full withdrawal in another commercial instrument, thus avoiding for now the tax on this “re-invested” amount?

A. Yes.

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TSP administrative fees

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Q. I am a federal employee under FERS. My financial adviser claims that the famously low Thrift Savings Plan administrative fees increase substantially after a federal employee separates from service. He is using this as justification to roll over my TSP into one of his firm’s IRAs. Is it true?

A. Not true. The TSP’s expenses are the same for all participants, employed or retired. In the future, you should avoid confusing a salesperson with an adviser.

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TSP-to-IRA rollover

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Q. During the retirement process, how do you move the Postal Service Thrift Savings Plan account to a private, individual IRA so that there are no taxes?

A. After you’ve retired, you use Form TSP-70 to request a direct rollover to an IRA.

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Early withdrawal penalty?

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Q. I retired under a Voluntary Early Retirement Authority from the Department of Agriculture in July at age 56. I chose to receive monthly payments from my Thrift Savings Plan account. I would like to pay off my mortgage and a student loan. The only thing I can come up with is to transfer my TSP funds into an IRA and withdraw from the IRA. If I roll my TSP funds into a traditional IRA and make withdrawals before 59½, will I be subject to the 10 percent early withdrawal penalty?

A. Yes, I believe you will, but you should check with your tax preparer to be sure.

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Canceling a TSP age-based withdrawal

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Q. We have applied for an age-based withdrawal from our Thrift Savings Plan account (husband works for the Postal Service) in the amount of $16,000. However, we found out that the tax was simply too high. We have already received the check, but we are now considering canceling it. Is this allowed?

A. You can ask the TSP to be sure, but I don’t think it can be canceled. You have constructively received the payment. You may be able to roll the money over to an IRA to further defer the tax, however. There is a window of 60 days for this. Consult your tax preparer for further guidance.

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RMD from TSP and IRAs

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Q. My first required minimum distribution at age 70½ was made in August, when I took the total RMD required for both my IRA and Thrift Savings Plan accounts from one IRA fund. However, I have just received my notice from TSP stating I must make a withdrawal by April 1 from the TSP account to avoid dire circumstances. I am not clear on whether what I have already done meets my obligations for the first withdrawal, based on two of your answers concerning this matter.

Q: “Also, I thought if I have other IRAs, I could take the RMD from those and leave my Thrift Savings Plan unscathed. If I withdraw the entire account balance from my TSP, I will have to pay federal tax on whole amount. Can you clarify?
A: Unfortunately, the TSP does not allow you to waive the RMD for your TSP balance. It must be taken from your TSP account.”

Q: “Can I add all of my accounts together — IRA and Thrift Savings Plan — compute the required minimum distribution, and then withdraw from one account?”
A: “…but you may take your RMD from any account or accounts you wish. You should leave your TSP account untapped for as long as possible.”

If the original RMD I made in 2013 meets the requirement for the TSP account, should I notify TSP in some way that this has been done so they do not withdraw it again on April 1 and mail to me? I have made my one withdrawal allowed back in 2009 and do not wish to change to monthly withdrawals, an annuity or a total lump-sum transfer to another IRA. Are yearly RMD withdrawals allowed?

A. I’m sorry for the confusion. You must take your TSP RMD from your TSP account. You will have to begin monthly withdrawals, and I suggest that you use fixed monthly withdrawals since they may be changed in the future and the TSP will send you an extra payment, if necessary, to make sure that your RMD is taken each year. Annual withdrawals are not allowed.

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Rollover and TSP matching

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Q. I am a 56-year-old federal employee with six years of service. I have traditional and Roth Thrift Savings Plans. I also have a traditional IRA with TIAA-CREF. Since my budget is too tight to take advantage of the full federal matching amount, can I use my TIAA-CREF IRA funds to maximize my federal match? If I roll over TIAA-CREF funds into my traditional TSP, will these funds receive federal matching?

Also, I understand early withdrawal of traditional TSP funds is subject to income tax, but if I roll over TIAA-CREF funds into my traditional TSP, are withdrawals at age 56 penalized?

A. Your transfers into the TSP will not be matched. If you transfer the IRA into the TSP, it will, from that point forward, be treated just like your other TSP money. Any exemption to the early withdrawal penalty for which you may qualify will apply to all of your TSP money, regardless of its original source.

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