By Mike Miles
December 9th, 2013 | Uncategorized
Q. I retired in 2010 and, at that time, I was informed that I was in the wrong retirement system (FERS). I chose to be put in the proper program (CSRS Offset). I was also told by my human resources manager that, since I was in retirement, I would be able to keep all of my Thrift Savings Plan contributions, including the agency’s matching contributions. On Dec. 3, the agency forfeited about a fourth of the value of my TSP account, without any notification that this was going to happen. Is this a legal action? Why was I not informed with a letter that this was going to happen?
A. I’m not a judge, so I won’t comment on the legality of what has happened, but I have consulted on more than one Federal Erroneous Retirement Coverage Corrections Act case, and this is consistent with my expectation. You would not have been entitled to the FERS employer contributions under CSRS Offset, and so they are typically recaptured when you retroactively switch to CSRS from FERS.
November 18th, 2013 | Uncategorized
Q. I’m FERS and will be retiring in January as soon as we get 100 percent credit for sick leave. I anticipate two checks coming in.
If I were to put as much as possible into my Thrift Savings Plan — let’s say I was able to put in $16,000 over the two pay periods — how does the government match this? Is it per pay period or the amount I contribute? What is the consensus to get the most in a short period of time?
If I put in all available funds, after deductions, and it is considered pretax, can I avoid being federally taxed, or is the amount into TSP pretax calculated after it is first federally taxed by the National Finance Center? I’m looking for ways to reduce my tax burden and make the most of government matching funds.
A. The matching is maxed out when you have contributed 5 percent of your pay for the pay period. The way to maximize the match is to contribute 5 percent of you pay for as many pay periods as possible. This is a matter of fact, not consensus.
Your TSP contributions from pay are pretax. That means they are not subject to income tax — federal or state — until they are later withdrawn.
In the case where you only have two pay periods to work with, and those pay periods are in the same tax year, you’ll minimize your current tax burden and maximize your matching by contributing as much as possible, split evenly between the two periods.
July 24th, 2013 | Uncategorized
Q. If the lump-sum payment is considered earned income for tax purposes but is not eligible to Thrift Savings Plan deferral nor does it serve as the base for automatic agency contributions, wouldn’t it make better sense not to cash in the leave? Rather, wouldn’t it be more lucrative to continue working, take the earned vacation over the year, collect matching funds for TSP, matching funds for health insurance, and on top of that, continue to accrue more annual leave, more sick leave, and enjoy the vacation time off? I understand no supervisor/manager would approve a single vacation of 5+ weeks, but spreading a vacation out over a period of time can’t be denied.
A. Yes, financially, it would be better.
June 24th, 2013 | Uncategorized
Q. I am a FERS employee with 14 years service, age 53. Tired of the pay freeze and “no money for promotions” line. Also tired of doing the jobs of higher paid co-workers while they call in sick two to three days a week.
If I resign, can I take my FERS and Thrift Savings Plan in one lump sum and walk away? I am also a military retiree and have my pension and Tricare health care plans from that, so that is not a concern.
Understanding the tax hit, will I just receive what I contributed, or the fed matching, as well?
A. Mike: If you leave federal service at age 53, and you are not disabled, you may take your TSP vested balance in one lump sum, but you will be subject to the IRS 10 percent early withdrawal penalty.
Reg: You would only receive your contributions to the retirement fund, not the matching ones from the government.
June 18th, 2013 | Uncategorized
Q. If I resign at age 51 with 25 years of service, will I lose the government matching funds that went into my Thrift Savings Plan? Will I be able to receive a deferred annuity at age 62? What would that be — 25 percent of high-3?
A. Mike: Agency matching contributions are not subject to a vesting requirement and are not forfeited at termination.
Reg: Because you have at least 20 years of service, you could apply for a deferred annuity at age 60. Since each year of service would be worth 1 percent, with 25 years, your annuity would be 25 percent of the high-3 you had on the day you left government.
June 17th, 2013 | Uncategorized
Q. I’m a 28-year-old FERS employee contributing 10 percent of my salary plus my agency’s 5 percent match to a traditional Thrift Savings Plan. I’m planning to increase my contribution by 1 percent each time I approach a step increase or other pay increase until I eventually max out my contributions. My decision now is to determine whether to put these additional contributions into a traditional or a Roth TSP. My understanding of the trade-off analysis is that it essentially comes down to an assessment of my current effective tax rate compared with what I project my effective tax rate will be in retirement. I realize that projection is not an easy thing, since there are numerous uncertain factors. However, is that the crux of the decision, or is there more to it (i.e., if I project my current effective tax rate to be higher than my effective tax rate in retirement, is there any other compelling reason to contribute to a Roth TSP instead of a traditional TSP)?
A. That’s the crux of the decision.
June 17th, 2013 | Uncategorized
Q. I have selected a retirement date of June 28, 2014. I will be 59½ years old with 33½ years of government service. I have been FERS my whole career. I have $365,000 in my Thrift Savings Plan. I will retire with a high-3 at GS-13, Step 4 and a 16.51 percent locality pay. I am debating paying off my mortgage on my retirement home by taking a partial withdrawal from my TSP.
The reasons for this are:
1) Escrow of property taxes
2) Flood insurance imposed by Dodd-Frank
3) Desire to be mortgage-free in retirement.
I owe $185,000 on my mortgage. I am single and will have no other debt once I retire. Does this make sense? What are the tax liability consequences if I pay off the mortgage in July 2014?
My TSP distribution is 50 percent C Fund, 25 percent L2020, 15 percent S Fund, and 10 percent G Fund. I am only able to fund my TSP at 5 percent to take advantage of matching funds. Would you recommend a more conservative distribution at this point in my career or continue with this risk model that I have been comfortable with for several years?
I have enclosed my most recent annuity estimates from my human resources center.
Also, if I were to marry after retirement what is the policy for covering my future spouse on my Federal Employees Health Benefits? If I choose a survivor benefit for my future spouse, is it possible to change from a self-only pension to one with survivor benefits?
A. You’re asking for personal financial decision support, which I can’t provide without an engagement agreement and some analytic work. If you’d like to consider hiring me to do the work necessary to answer your questions about using the TSP to pay off your mortgage and how you should invest your TSP to support your goals, visit www.variplan.com.
May 30th, 2013 | Uncategorized
Q. When the Thrift Savings Plan calculates my Personal Investment Performance, are the matching funds that the government deposits considered part of the investment, or are they considered part of the investment return? For example, if my PIP for the past year is 10 percent, did I actually earn 10 percent on all of the money in the account, or is it only 10 percent because the government added to my balance?
A. From the TSP website:
“Personal Investment Performance (PIP) — The rate of return earned by your entire account during the 12-month period ending on the date indicated on your annual statement or on your Account Balance page of the TSP website. The PIP is a time-weighted return that has been calculated using a modified-Deitz method (a method used by many financial institutions and an industry standard). The PIP adjusts for the distorting effects of cash flows into or out of your account. It is an estimate; therefore, your PIP may not be the same as the 12-month performance of the TSP funds, which are time-weighted returns.”
May 28th, 2013 | Uncategorized
Q. I was wondering if the federal government will match my Roth TSP contributions like they do the Traditional Thrift Savings Plan contributions?
A. Yes, but the matching will go into your traditional TSP account.
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.