By Mike Miles
Age 55 exemption
April 24th, 2013 | Uncategorized
Q. I have more than 20 years of service as a federal law enforcement officer and will turn 55 in 2014. I plan to retire under FERS from my agency this year, before my age 55, and immediately (with no break in service) become re-employed on a full-time basis with another federal agency. I understand that my salary during the period of re-employment will be offset by the amount of my FERS annuity, and that retirement deductions (including Thrift Savings Plan contributions) will be made from my re-employment salary. I understand further that I would earn a supplemental annuity upon termination of re-employment if I am re-employed for more than a year, and that I could alternatively elect a redetermined annuity if I am re-employed for at least five years.
However, if my re-employment terminates before I reach age 59½ (but well after 55), and I wish to make withdrawals from my TSP account at that time, how will the Internal Revenue Service calculate my “separation from service” date? That is, will the IRS consider that I “retired” in 2013, prior to age 55, and thus apply the 10 percent penalty for early TSP withdrawals? (That would effectively force me to lock myself into the life expectancy withdrawal option for a full five years after the termination of my re-employment period.) Or, would the IRS determine that I “retired” on the date of the termination of my period of re-employment – after age 55 – enabling me to withdraw from my TSP account penalty-free?
A. To the best of my knowledge, your TSP account, if it is kept going through the transition in federal employment, will be eligible, in its entirety, for penalty-free withdrawal under the “age 55 exemption.” But, you should consult a qualified tax accountant before you make any plans.
Tags: age, annuity, contributions, early withdrawal penalty, FERS, IRS, law enforcement, TSP
TSP matching funds
March 26th, 2013 | Uncategorized
Q. I am a federal law enforcement officer covered by FERS and, by Sept. 30, I will have more than 29 years of service plus more than a year of sick leave. To obtain my annuity beginning Oct. 1, I would like to retire on Sept. 30, but it is in the middle of a pay period. I plan on front-loading my Thrift Savings Plan and TSP catch-up contributions starting in April for the rest of this year to reach the maximum for both. Would there be any TSP match in my last, partial pay period, or should I just aim to reach my TSP limits in the previous complete pay period?
A. There will be matching on every pay period.
Tags: annuity, catch-up contributions, FERS, law enforcement, matching funds, retirement, sick leave, TSP
TSP vs. IRA tax burden to spouse and heirs
March 11th, 2013 | Uncategorized
Q. I will retire April 30 under FERS (law enforcement agent; I will be 66½ years old) and have been exploring options available regarding my Thrift Savings Plan account. I read with interest your Feb. 4 Federal Times article “Don’t overlook TSP for lowest-cost investment” but have the following questions concerning what happens to my TSP account funds if I predecease my wife/heirs before or after the required minimum distribution takes effect.
As the annuitant, upon reaching 70½, I would have 10 years to draw down my TSP funds. What happens if I predecease my wife/heirs during this time frame? It is my understanding they will have a 5-year drawdown period, which would subject them to a heavier tax burden. Is this assumption accurate?
If I roll over my TSP into an IRA and I predecease my wife/heirs, then they would have the option of rolling over the funds into their own individual IRAs therefore avoiding a significant tax burden. Is this accurate?
A. The rules for this are complex and depend upon a number of factors. Your questions leave open too many possibilities to cover here. I suggest that you review the notice at https://www.tsp.gov/PDF/formspubs/tsp-776.pdf and then come back with any specific questions that remain unanswered.
Tags: age, FERS, IRA, law enforcement, Required Minimum Distribution, retirement, rollover, survivor benefits, taxes, TSP
Converting TSP to annuity
December 10th, 2012 | Uncategorized
Q. I am a U.S. Capitol Police officer. I plan to retire in 2014 at age 55, although I can stay until 57. If I convert my TSP funds to an annuity, will I be able to draw on it right away? If not, when? Will I be penalized prior to age 62?
A. If you retire during or after the calendar year in which you reach age 55, you will be exempt from the early withdrawal penalty for all of your TSP assets as you withdraw them and may take them within the usual TSP limits, including using some or all of the money to buy an immediate annuity.
Tags: annuity, conversion rule, early withdrawal penalty, law enforcement, retirement, TSP
Matching contributions
December 10th, 2012 | Uncategorized
Q. I plan to retire under FERS law enforcement on May 30, contributing my full $17,500 and $5,500 catch-up contribution in my first 10 to 12 paychecks. If I purposely make larger contributions early in the year in an attempt to reach the annual maximum contribution before retiring, will I lose out on agency matching contributions?
A. Not if you spread the contributions out evenly over the duration of your remaining employment.
Tags: catch-up contributions, FERS, law enforcement, matching funds, maximum contribution, retirement
TSP withdrawal before age 55
September 24th, 2012 | Uncategorized
Q. I am going to retire with 25 years covered law enforcement. Is there a penalty for withdrawing from the Thrift Savings Plan if I have not yet reached age 55? I heard as long as you are in a covered law enforcement position, there is not penalty?
A. What you’ve heard is wrong. If you separate from federal service before the calendar year in which you reach age 55, you will be subject to the early withdrawal penalty. There are ways around the penalty, however, and they are described on Page 7 of this notice: https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.
Tags: age, early withdrawal penalty, law enforcement, TSP
Roth conversion
September 10th, 2012 | Uncategorized
Q. I am a federal employee with a law enforcement (Department of Justice/Bureau of Prisons) retirement. I am planning to retire at age 51 with 23 years in my current agency, and six years and 11 months military time that has been paid back. This, along with 175 hours of sick leave, should give me a 30+ year LEO retirement.
I have been told that if I wait until age 55, I can withdraw my entire Thrift Savings Plan balance during that year and do so without a penalty (before 59½ years of age) as long as I pay the 20 percent federal tax on the money as I take it out and do it during the year I am age 55.
Is this true, and is there a way to convert my pension as well as my TSP balance to a Roth IRA?
I would much rather pay the taxes now (2016) and have tax-free retirement money in the bank.
A. What you heard is not true. You will have penalty-free access to your TSP balance for the rest of your life if you retire during or after the calendar year in which you reach age 55. There is no requirement — and probably no advantage — to withdrawing your entire account balance during that year to avoid the early withdrawal penalty. If you leave federal service earlier, you’ll be subject to the early withdrawal penalty until you reach age 59½.
There are ways to avoid the penalty before then, like using the money to buy a life annuity, or the more popular series of “Substantially Equal Periodic Payments” available under IRS code section 72(t).
You may not convert your annuity to a Roth IRA, but part of your income from the annuity will be exempt from tax since it is considered return of principal. Converting your TSP assets to Roth assets is possible, but I’m not sure why you’d rather pay taxes now than later. If you’re assuming that there is some inherent economic advantage to doing so, there’s not.
Tags: early withdrawal penalty, law enforcement, retirement, Roth IRA, sick leave, taxes, TSP, withdrawal
Withdraw from Roth or TSP?
July 31st, 2012 | Uncategorized
Q. I’m 52 and a recently retired FERS law enforcement officer. I plan to leave my Thrift Savings Plan alone for at least two more years ($500k+ balance) and then do a 72T Substantially Equal Periodic Payment withdrawal. However, I may need approximately $30K to $40K, probably in 2014, before I do the 72T SEPP withdrawal. Would it be better to do the one-time partial TSP withdrawal, or withdraw from my Roth IRA contributions (tax-free)? I have approximately $140K in the Roth.
A. This is really a question for your tax preparer after a look at some pro forma returns for the relevant years. In general, however, I recommend that you leave your TSP account in tact for as long as possible, unless there is a clear advantage to doing otherwise.
Tags: FERS, law enforcement, one-time partial, Roth IRA, SEPP, taxes, TSP, withdrawal
TSP and early withdrawal penalty
June 11th, 2012 | Uncategorized
Q. I retired under the provisions provided for federal law enforcement officers at age 52 (I’m now 58) under CSRS and am confused concerning under what circumstances and when I can withdrawal my entire Thrift Savings Plan balance without paying a 10 percent tax penalty. It’s my understanding, after reviewing the information in the TSP book, that after age 55, you can begin making withdrawals from your TSP either as a monthly paid annuity based on life expectancy or monthly installment payments but that the 10 percent penalty will apply if I withdraw the balance lump sum if done before I am 59½. On the other hand, I have previously been told that under the law enforcement retirement provisions, I could have made a lump-sum withdrawal at age 55 without the penalty.
A. There is no exception to the early withdrawal penalty for retirement before the calendar year in which you reach age 55 — mandatory or otherwise. The usual rules apply and, in the case you’ve described, you’ll have wait until you reach age 59½ to make a lump-sum withdrawal without penalty.
Tags: CSRS, early withdrawal penalty, law enforcement, lump-sum, retirement, TSP
TSP access and penalty
July 15th, 2011 | Uncategorized
Q. I retired under the provisions of early retirement for law enforcement officers on Jan. 1, 2011, under CSRS after 35 years of federal service. At the time I retired I was 54 years old, but will be 55 years of age in September. From what I have read in the TSP booklet regarding the 10 percent early withdrawal penalty and cited exceptions to this penalty, I would not be subject to the penalty in that I separated from service during the year I reached age 55. Is my interpretation correct, in that I did not have to actually be 55 years of age at retirement, only have retired in the year I would have reached age 55?
A. You are correct.
Tags: law enforcement, TSP, TSP withdrawal