Ask The Experts: Money Matters

By Mike Miles

USERRA and new job

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Q. I have a USERRA question. I have been an IRS employee on LWOP for two years to perform military service. During this two years I contributed 5 percent of my would-be IRS salary to TSP. I was offered and accepted a civilian position with the Navy. Can you please advise me if I am entitled to agency matching contributions on my TSP contributions when I start my new Navy job without ever returning to IRS? I understand the IRS and Navy may be considered separate employers; my hope rests on a return to federal service, regardless of the agency, counting as returning to my original employer so I can collect the matching contributions. Read the rest of this entry »

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USAA Roth and TSP contributions

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Q. I took my tax info to a professional to have them done this year. I’ve maxed out my Roth IRA with USAA. I’ve also contributed about $2500 to a traditional TSP as a uniformed service member. I’m being told I’ll be penalized for my contributions to my Roth account since I have an employer-based retirement plan. Is this accurate? Can I only contribute a total of $5500 for both accounts? I’ve always been told to contribute to both.

A. The TSP contribution limit is fixed and not contingent on any other factor. Your eligibility to contribute to a Roth IRA might be limited if your income is sufficient. In the future, I suggest that you max out your TSP contributions before you save to a Roth IRA, and then check with your tax accountant before you attempt to make any IRA contributions since your eligibility depends upon your tax return for the year. See IRA Publication 590 for the limits on IRA contributions.

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Calculating tax withholding

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Q. I recently retired from federal service. I began receiving my FERS annuity Jan. 1. My annuity is $3,190 gross, plus $1,195 special retirement supplement, minus $190.28 health insurance and $36.34 for dental/vision. I am single with no dependents. I am withholding $641 for federal tax purposes. My state has no income tax.

I want to begin monthly distributions from the Thrift Savings Plan at $4,200 per month. How much should I elect to withhold to ensure that I am not hit with a substantial tax bill for tax year 2014? Assume no itemized deductions.

A. I’m not in a position to calculate your estimated tax liability for the coming year. You can consult a qualified tax preparer for help with this, or review Internal Revenue Service Publication 505 to figure it out for yourself.

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Tax implications for TSP withdrawal

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Q. Whether I retire sooner or later than the year I turn 55, what kind of tax implications will I have in taking a partial lump sum or the whole balance lump sum for something like a vacation home?

A. If you retire from Thrift Savings Plan-covered employment during or after the calendar year in which you reach age 55, you will be exempt from the Internal Revenue Service 10 percent early withdrawal penalty for any withdrawals you take.

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Roth TSP and Roth IRA combined contributions

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Q. I have a Roth IRA and Roth TSP, and I am not eligible for catch-up contributions at this time due to my age. What is the maximum I can contribute to both for FY13?

A. There is not a combined maximum, and the limits apply to calendar years, not fiscal years. The most that you can contribute to the Roth TSP for 2014 without catch-up is $17,500. The limit for Roth IRA contributions for 2014 is $5,500, but this might be reduced for you based on your tax filing status and income for the year. You should consult IRS Publication 590 for more information. These limits were the same for CY 2013.

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Special retirement supplement and taxes

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Q. I received a 1099R from the Internal Revenue Service. They do not differentiate the annuity income from the supplement income. I’ve read the IRS Publication 721 tax guide to U.S. Civil Service Retirement benefits. There is no mention of the special retirement supplement. I called the IRS; they said they never heard of the supplement being treated like Social Security. They also advised me to report the income on the 1099R as is (do not separate the supplement from the regular annuity). If it is indeed to be reported like Social Security, how do I go about it without raising red flags?

A. The special retirement supplement is paid out of the Civil Service Retirement and Disability Fund and, as ordinary income, is treated no differently than an employee’s annuity.

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Avoiding a penalty at age 70 1/2

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Q. I will turn 70½ after Feb. 19, and will retire from my full-time position at the end of the month. I have notified Social Security, the state retirement funds in two states where I worked, and my fund in a private approved pension fund with accounts from two other universities of my intention to retire at the end of February and to start receiving distributions in March 2014. Is there anything else that I need to do to avoid being hit with that horrid 50 percent penalty?

I received an unsavory email from the Wisconsin Employee Trust Fund scolding me for not filing at age 69½ and hinting that I would owe a 50 percent penalty for distributions not taken in 2013. I see no federal information that indicates that I needed to act at age 69½, or that I needed to begin withdrawals before age 70½. I have relied on the information posted at the Internal Revenue Service website to guide my action, but it seems to contradict the information now being sent to us prospective retirees. I hope that I have done nothing wrong to merit any penalty.

A. Your first required minimum distribution is due by April 1 of the year following the year in which you reach age 70½. Subsequent RMDs are due by the end of the calendar year. You are not required to take a distribution from an employer-sponsored retirement plan while you are still working, however.

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Is TSP considered ‘traditional IRA’ for tax purposes?

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Q. I own both a Thrift Savings Plan account and several non-TSP IRAs with other institutions and am approaching the age at which I must begin to withdraw the required minimum distribution from both the TSP and the non-TSP IRAs.

I am withdrawing enough money from the TSP to cover the required distribution from all of my accounts combined. Must I withdraw any additional monies from my non-TSP IRAs to comply with the tax laws? The answer may depend upon whether the TSP is considered a “traditional IRA” for tax purposes. I can’t find any information on this point.

A. The TSP is not considered an IRA for any purpose. From the Internal Revenue Service website:

“An IRA owner must calculate the RMD separately for each IRA that he or she owns, but can withdraw the total amount from one or more of the IRAs. Similarly, a 403(b) contract owner must calculate the RMD separately for each 403(b) contract that he or she owns, but can take the total amount from one or more of the 403(b) contracts.
However, RMDs required from other types of retirement plans, such as 401(k) and 457(b) plans have to be taken separately from each of those plan accounts.”

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72(t) distributions

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Q. I’m about to retire at age 47 after 25 years as a federal law enforcement officer. I plan to roll my 401(k) (TSP) over to a traditional IRA and begin taking substantially equal periodic payments per 72(t) from the IRA, which, as I understand, once I start, I have to continue until age 59 ½. I plan to use the annuitization method to make equal monthly withdrawals, but I would like to take the first year’s withdrawal in a lump sum to help pay off some debt. Will the IRS allow that without the 10 percent penalty, or do I have to consistently stick to either monthly or annual payments?

A. The IRS only cares about the annual requirement being met. They don’t care about how the money is distributed. Monthly payments are not required, and as long as you meet the annual 72(t) requirements, there should be no penalty.

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Overcontribution to TSP

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Q. My agency, according to my W-2, overcontributed to my Thrift Savings Plan by $4 on the last pay period of the year. So, with total contributions, I have contributed $17,504 regular contributions and $5,500 in catch-up contributions for a total 2013 amount of $23,004. Is this a problem with the additional $4 being sent to my TSP account? If so, what do I have to do to fix it?  Also, are there IRS penalties I am now responsible for due to my agency’s negligence?

A. You may want to make sure that the TSP returns the $4 in overcontribution, which I think they should do automatically. Consult with your tax preparer for advice.

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