Ask The Experts: Money Matters

By Mike Miles

Fund allocation

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Q. I am a FERS employee and plan to retire in December 2015 at age 68-1/2 with 30 years, nine months of government service. I presently invest my TSP with G Fund 60%, F Fund 10%, C Fund 10%, S Fund 10% and I Fund 10%. Should I switch the money out of the G Fund and invest in C Fund 60%, S Fund 20% and I Fund 20%, as they seem to be doing so much better than the G Fund? Read the rest of this entry »

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TSP payouts

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Q. Will TSP only pay out over a 30-year period? If so, then what happens to the money if I happen to pass away at 70? Can a beneficiary be set up so the rest of the money in the TSP will be paid out??

A. The TSP does not limit monthly payments to 30 years. If you pass away at any time, your account balance will be paid to your beneficiaries. I suggest that you review the information available at and then ask a specific question that is not answered by the literature.


Partial withdrawal, Part II

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Q. I retired from an air traffic control job at age 53. I am receiving monthly payments based on my life expectancy. I will be age 55 in April. Can I take a partial withdrawal? If not, are there any options? I need to access more funds. Will there be a tax penalty on the amount I have received? Will my partial withdrawal be penalty-free now that I am 55? Are there other options, such as increased monthly payments?

A. You may not take a partial withdrawal once monthly payments have begun. You may increase your monthly payment amount using Form TSP-73 or you may request a final withdrawal, but making any change to the series of substantially equal periodic payments before you reach age 59½ will subject all of your early distributions to the early withdrawal penalty.

The rules for all of this are complicated. You should consult a CPA before proceeding.

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Waiting to claim Social Security

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Q. I retired in July 2013 and have $500,000 in my Thrift Savings Plan. I need more money to support retirement and would like to take a lump sum of $30,000 out of TSP. I was thinking about taking the rest of the money as an allotment. Does this make sense? I have delayed my Social Security until I am 66 (I’m 64 now). My wife is taking her Social Security.

A. Waiting to claim Social Security is probably a good idea unless you have a shorter than average life expectancy and are single. If your only other source of income until you reach age 66 is your TSP account, then I think it’s reasonable to consider using it to fill the gap. If you have other resources, I encourage you to leave your TSP account for last.

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Starting TSP withdrawals now vs. at 70 1/2

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Q. I retired under FERS two years ago, and I haven’t needed to touch my Thrift Savings Plan account so far. I am receiving Office of Personnel Management, Social Security and military retirements. I am 68½ years old. I just received a 100 percent Veterans Affairs Department disability award, which will change my taxable military retirement to a nontaxable VA retirement. I don’t think this will have any effect on my long-term life expectancy. I have determined that I do not want to elect an annuity on withdrawing from my TSP. I am considering immediately starting a monthly TSP withdrawal based on life expectancy. What are the advantages and disadvantages of starting withdrawals immediately versus waiting until the 70½ mandatory withdrawals? I am a married man, and we declined a survivor benefit plan.

A. Starting withdrawals now will provide you with more income now but will produce a larger taxable income and begin to deplete your account. Waiting will reduce your current taxable income and preserve your account’s value (if you don’t lose it to the markets), but also reduce your current standard of living and increase your taxable income later in life.

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Q. I’m unsure of what to do with my Thrift Savings Plan account. I understand that I could leave it in the account as it is until I’m 70½. I can also make a full or partial withdrawal.  Full withdrawal is not an option for me. A TSP life annuity (both single or joint life) option is based on life expectancy or until the money runs out. Also there is the TSP annuity vendor (MetLife) where I could get the annuity but money used to purchase this annuity goes to the insurance company if you die before it’s used up.

I’m thinking of purchasing a fixed index annuity with my TSP. This fixed index annuity guarantees that I will receive at least the minimum guaranteed interest (3 percent to 7 percent) credited to the contract. Taxes are deferred until you receive money from the contract. I can choose from several different payout options based on personal needs, including option for lifetime income, guaranteed. I’m wondering what to do with my TSP. I don’t need the money right away. I don’t want to lose money when the market falls. I would like to make as much as possible.

A. 1. Your assumptions about the options available to you are incorrect. You need to review the information available at more carefully or seek guidance.

2. You don’t need the money now, so why would you consider converting it to income now? Don’t.

3. You don’t want to lose money but want to make as much as possible. The only investment option that meets both of these requirements is the G Fund. Use it.

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L Fund

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Q. I don’t understand what you mean by invest in the L Fund based on your life expectancy. My husband plans to retire in 2014 when he turns 62. If his life expectancy is 85 years old, does that mean he should put his money in the L2020 or L2030 Fund? He is still employed, but his Thrift Savings Plan money is in the L  Income Fund.

A. Recommendation to invest in the L Fund that most closely corresponds to your life expectancy (or joint life expectancy with your dependent) assumes that you don’t have the basis for a more suitable strategy. It’s like recommending that you fly a plane straight and level because I have no idea where you are or where you’re going. It’s the safest bet, but there is no assurance that it will get you where you want to go safely. Still, it’s better than recommending that you dive or climb.

Based on the information you’ve provided, you expect your husband to live until 2037, when he is 85 years old, so my rule of thumb would lead him to the L 2040 fund.

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Minimizing the tax burden of RMDs

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Q. I am 70 years old and have about $100,000 in my Thrift Savings Plan accounts. Can you guide me toward the best options to withdraw the amount? I would prefer to pay the least in taxes to Uncle Sam.

A. To minimize the tax burden from required minimum distributions, you should request distributions based on your life expectancy under IRS rules. For the first distribution — the one due for the year you reach age 70½ or retire, whichever comes last) — you should consult a tax adviser to determine whether it is better to take it in that year, or defer it into the following year. If you’re not sure, it’s probably best to take in the first year.

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Life annuity vs. TSP monthly payments

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Q. I am retired and turn 70 this month. Even though I do not want to begin distribution of my Thrift Savings Plan investment, I understand that by law I must select a required minimum distribution program. My dependent spouse is 76 and also retired.

I am healthy and, with my family genetics, could expect to live to age 100. I do not need the TSP to live on and want to maintain it in the TSP investment form for as long as possible.

Under these circumstances, what is the best RMD to select: a life annuity or a TSP monthly payment? Should it be a single, or joint with survivor benefits? What is the tax exposure for the recommended way to go?

A. You should request automatic monthly payments based on your life expectancy. This will minimize the size of the payments.

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RMD and taxes

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Q. I retired in 2011 and must start required minimum distributions soon. I understand taxation if the Thrift Savings Plan sends me fixed dollar payments or if TSP pays out based on life expectancy. But what if I have TSP buy an annuity with part of my TSP and I leave the balance in the TSP? How are taxes figured?

A. Your annuity income will be taxable as ordinary income and you will be required to take RMD from the remaining TSP balance, which will also be taxed as ordinary income.

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