By Mike Miles
October 21st, 2013 | Uncategorized
Q. I retired from the Postal Service on Jan. 31 with a Voluntary Separation Incentive Pay of $15,000. The VSIP was paid out as $10,000 this year and $5,000 in 2014. I know I can contribute to an IRA for 2013 since I had earned income during the month of January. Now that I’m retired, will I still be able to contribute to an IRA in 2014 because of the $5,000 in “income” that I’ll receive from the Postal Service?
A. A VSIP is not considered a basis for contribution to an IRA.
October 16th, 2013 | Uncategorized
Q. As a current furloughed government employee, can I withdraw money from my IRA and not be taxed the additional 10 percent under the exception: being unemployed and paying for health insurance premiums?
A. From IRS Publication 590:
Even if you are under age 59½, you may not have to pay the 10 percent additional tax on distributions during the year that are not more than the amount you paid during the year for medical insurance for yourself, your spouse and your dependents. You will not have to pay the tax on these amounts if all of the following conditions apply:
* You lost your job.
* You received unemployment compensation paid under any federal or state law for 12 consecutive weeks because you lost your job.
* You receive the distributions during either the year you received the unemployment compensation or the following year.
* You receive the distributions no later than 60 days after you have been re-employed.
October 9th, 2013 | Uncategorized
Q. My husband happens to be one of the 800,000 who got furloughed. I have an IRA of $3,400. Would I be able to cash that in without a penalty to get us by for, say, a month or so, depending on how long the furlough lasts?
A. There is no exception to the early withdrawal penalty for a government furlough. You will be subject to the penalty unless you are age 59½ or meet one of the other exceptions to the penalty described in Internal Revenue Service Publication 590.
October 7th, 2013 | Uncategorized
Q. I took the Voluntary Early Retirement Authority on Jan. 31 at my minimum retirement age. I had 26 years at the Postal Service under FERS. After 16 years of marriage, I became a widow. The only income I have is my annuity and the special retirement supplement from the Office of Personnel Management. Will I be eligible to receive Social Security benefits from husband at 60, and will they end at 62? When I turn 62, my supplement will end. I have $190,000 in the L2020 fund. Would it be beneficial to me to start receiving money from my Thrift Savings Plan at 62 and delay Social Security until full retirement at 66 years and four months. A financial adviser told me to roll over my money into an IRA when I turn 59½. Is that a good idea, or should I keep it in the TSP? Would you recommend the G Fund, since I don’t have money to lose?
A. Mike: It’s impossible to give you specific personal financial advice with this tiny amount of information. In general, however, you should invest your money in a way that gives you a high probability of achieving your financial goals with a minimum of risk. There is no one-size-fits-all investment strategy, even for someone your sex and your age. Investment management is an ongoing and complex process. The advice you’re being given about rolling over you TSP to an IRA sounds like a sales pitch to me. You should preserve your TSP assets as long as possible unless a trustworthy analysis indicates that it would be in your best interest to do otherwise. Your question about using TSP funds to delay claiming Social Security is worth considering, but, again, finding the right answer will require some analytic work.
Reg: To find out how your own Social Security benefit would interact with your Social Security survivor benefit, go to http://ssa.gov/pubs/EN-05-10084.pdf.
October 3rd, 2013 | Uncategorized
Q. I am 70 years old and still employed by the federal government. When I am 70½, I understand I must take a required minimum distribution from my traditional IRA/401s, but not clear if this applies to my Thrift Savings Plan account. Can you please tell me what the rules are for those who are 70 and over but still working for the government insofar as taking a required distribution from my TSP account? Can I wait until I retire from government?
A. You may wait until you retire. You may also be able to transfer your IRA/401k balances into the TSP to avoid or delay future RMD. Consult your tax preparer and www.tsp.gov for information and advice.
September 30th, 2013 | Uncategorized
Q. I am covered under FERS. After I retire, may I:
a). Continue to deposit funds into my Thrift Savings Plan?
b). Move money among the various funds, e.g., from F to G, from C to L2040, etc.?
A. After you retire, the only way to deposit funds to your TSP account is to transfer them in from an IRA or other qualified retirement plan. You may continue to manage your TSP investment, as in the past, for as long as you retain the account — potentially for life.
September 23rd, 2013 | Uncategorized
Q. After entering retirement from CSRS, are Thrift Savings Plan funds withdrawn classified as income in addition to the 20 percent accessed at the time of withdrawal from the TSP account. Are there ways to avoid double taxation if they are taxed twice other than rolling over into an IRA or Roth IRA?
A. The traditional TSP funds you withdraw are classified as ordinary income on your tax return. They are not subject to double taxation. The 20 percent withheld from your payment(s) is a deposit against your tax liability. If the distribution is not a required minimum distribution and you meet the timing limits, you may roll your distribution over to an IRA to avoid current taxation.
September 23rd, 2013 | Uncategorized
Q. Can I withdraw money from my IRA in December and have it applied to my 2014 required minimum distribution?
September 23rd, 2013 | Uncategorized
Q. I have a Vanguard 500 Traditional IRA and Roth IRA. Can I transfer these funds into my Thrift Savings Plan? If yes, what forms should I use to make this transfer?
A. You may transfer your IRA money into your TSP account, if it is all pretax money, using Form TSP-60. You may not move your Roth IRA money into the TSP.
September 18th, 2013 | Uncategorized
Q. I am almost 47 years old and have applied for disability retirement from my federal job. I have 27 years of federal service and am covered under FERS. It was my understanding that upon disability retirement, I will not be able to contribute to my Thrift Savings Plan account any longer and the funds would basically sit in TSP until I’m 59½ years old. For that reason, I’m considering rolling over my TSP to a traditional IRA, in which I can then make contributions to until I reach 59½. I’d like to know why leaving the funds with TSP would be better than rolling over to an outside IRA, upon which I can then continue to make contributions? I have six figures in my TSP and have no other retirement accounts. My objective obviously is to continue growing the funds.
A. The TSP has lower expenses and access to the G Fund – two advantages you won’t find anywhere else. The benefit of these advantages is the ability to create a portfolio with better risk-adjusted returns than you’ll find in an IRA.
You don’t need to roll your TSP over to an IRA to contribute to an IRA, however. Open an IRA at a discount broker and make your contributions to it. You can invest in low-cost index funds in the IRA and then, when you’re done contributing, you can transfer your IRA balance into your TSP account. That would be the smarter move.