Ask The Experts: Money Matters

By Mike Miles

TSP to IRA

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Q. Can I take my money out of the TSP and pay the penalty? Is there any way to get all my money out without having to retire or quit? If so, can I then move it into another self-directed IRA?

A. The only ways to remove money from your TSP account before reaching age 59-1/2 while you are still a federal employee are: a loan and/or an in-service financial-hardship withdrawal. Neither of these may be rolled into an IRA account.

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Roll IRA to TSP?

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Q. I am a 55-year-old Postal employee planning to retire sometime in the next year under CSRS. Many years ago, I purchased a $2,000 Vanguard IRA that has grown to more than $40,000. I also have a separate similarly valued Roth IRA. I know that I can begin penalty-free withdrawals from TSP after separation, but can I roll my Vanguard IRA into TSP?  I also know that I cannot roll my Roth into TSP. My desire is to have the money accessible before 59-1/2 and to avoid having three pots to withdraw MRDs when I’m 70-1/2. Any suggestions?

A. You may transfer the IRA money into the TSP any time, as long as it contains no after-tax contributions.

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TSP rollover

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Q. I am almost 57-1/2 years old, and I have more than 30 years with the Defense Department. Can I roll my TSP into a self-directed IRA now without retiring or quitting? I want control over where it is and how it grows, and I am concerned about the government taking it to pay its debts before I can remove it normally at 59-1/2.

A. No.

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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 50 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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