By Mike Miles
May 9th, 2013 | Uncategorized
Q. I will most likely be medically separated from the military next year after 25 years of service. I have bone cancer that is incurable but manageable — 50 percent life expectancy is 10 years. I am 47, so if I live 10 years, I would be 57 and still ineligible to withdrawal my Thrift Savings Plan. Are there exceptions for terminal disease that allow you to withdraw early without penalty?
A. The list of available exemptions appears on Page 7 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.
March 19th, 2013 | Uncategorized
Q. I have both a civilian and military Thrift Savings Plan account because I was mobilized for part of 2011-12. Because I was in a combat zone, much of my income was tax exempt (CZTE). The military allowed me to contribute that tax-exempt income into my TSP. It is not a tax deduction because the income wasn’t taxable in the first place.
However, they also made contributions from my taxable income. I thought it was all from my CZTE. When I returned to my civilian job, I began to contribute and maxed out my contributions, not knowing about the earlier tax-deductible contributions.
Obviously, I over-contributed and just paid the income tax on the “overage.” But that overage is still in the TSP account.
Catch-up: $5,474 (Roth)
1. How is that taxable (and taxed) overpayment treated within TSP?
2. Can I combine my military and civilian accounts?
3. If combined, can I move the CZTE money into my Roth TSP?
4. Can I move the “overage” that I have now paid taxes on into the Roth, as well?
Both of the amounts I want to move into the Roth have been taxed or were tax-exempt when earned.
A. The usual limits do not apply to TSP contributions from CZTE pay; they only apply to contributions from taxable basic pay, incentive pay, special pay and bonus pay. The Annual Additions Limit under IRC 415c does apply, however, and it limits the total contributions from all sources to $51,000 for 2013. My guess is that the money was just rearranged in the TSP to fall under the applicable limits for the various types and that you do not, in fact, have excess contributions in your accounts. You may combine your military and civilian accounts as long as you are separated from service covering at least one of the accounts and there are no CTZE contributions left in the military account. Those must be withdrawn first, or they money will be distributed to you when your request to combine the accounts is processed. The CTZE money in the traditional TSP account cannot be transferred to the Roth TSP.
March 5th, 2013 | Uncategorized
Q. I will be retiring from the military at age 66 in June. I only have about $40,000 in my Thrift Savings Plan account and would like a lump-sum withdrawal. How can you figure out how much will be taken out of that amount in taxes?
A. The information you’re looking for is here https://www.tsp.gov/PDF/formspubs/tsp-536.pdf on Page 3.
February 20th, 2013 | Uncategorized
Q. I am separating from the military in January 2014. From there, I will be pursuing my education. I will be 60 in 2042. My Thrift Savings Plan is 100 percent G Fund. I stopped my TSP contribution and started the Roth TSP because I like the idea of not paying tax when retirement comes. I am aware that the account needs to be in place for five years and can only be withdrawn at age 59½, and that the money is deducted from taxed income. Is this a wise decision?
Since my traditional TSP can’t be transferred to TSP Roth, I decided to just leave it there. Would it be better to leave it entirely to G fund or allocate certain percentages to other funds? And which would be a good one to put them into?
A. It is not generally better to contribute to the TSP or the Roth TSP. Which is better entirely depends upon your tax circumstances now, and what happens in the future. Knowing what we know today, it is likely to be far more important that you save the money than it is where you save the money.
If you have no idea what to do, I suggest that you put your TSP holding into the L Fund that most closely corresponds to your life expectancy and cross your fingers.
January 21st, 2013 | Uncategorized
Q. I am 47 years old and retired from the uniformed services almost three years ago. I work as a federal civilian. I have two Thrift Savings Plan accounts and two questions.
1. Can I roll my uniformed service account balance into my federal civilian account balance? If yes, how? If no … 2. If I don’t reinvest in another tax-deferred retirement account, and elect to withdraw 100 percent of my uniformed service balance, what penalties will I pay (if any) in addition to taxes?
A. You may combine your uniformed services TSP account into your civilian TSP account. Use Form TSP-65, which is available at www.tsp.gov.
January 16th, 2013 | Uncategorized
Q. I am a military member retiring in January 2014. I will have approximately $57,000 invested in my Thrift Savings Plan account when I retire. If I decide to withdraw my account in one lump sum, how much will I pay in taxes? I’ve heard that I would be taxed up to 30 percent of my balance at time of withdrawal, which would leave me with about $39,900 after taxes. Is this accurate?
A. Your check will be reduced by 20 percent for mandatory federal tax withholding. This is just a deposit against your federal tax liability, however, which you won’t determine until you file your tax return for that year. You may also owe state income tax on the distribution.
January 9th, 2013 | Uncategorized
Q. I have 21 years of federal service including four years of military time. The redeposit is about $6,500. I will be eligible for Social Security at 62, and the reduction to my annuity will be about $250 a month. In your opinion, would it be advisable to take this money from my Thrift Savings Plan account to pay the redeposit? The break-even point is about 2½ years. What factors should I take into account?
A. The answer depends upon what retirement system you’re under, whether or not you have dependents who will be relying on a survivor annuity, your tax situation and how you’ll manage the money if you leave it in the TSP. If you’re covered by FERS, single, not subject to the highest tax bracket, have no dependents, and I will be providing you with investment decision support for the rest of your life, then you’re probably better off leaving the money in the TSP.
January 7th, 2013 | Uncategorized
Q. I will be retiring this year after 21 years in the Air Force. I have $20,000 in the Thrift Savings Plan and was wondering if it would be better to roll it over into an IRA or pay off all of my credit debt. How big of a hit would I take for withdrawing my TSP early?
A. It’s impossible to say which is better without some careful planning and analysis. If you trigger the early withdrawal penalty on a TSP distribution, you’ll pay 10 percent of the earnings distributed.
December 31st, 2012 | Uncategorized
Q. My husband has been in the military for six years, and he plans on retiring at 20 years from the military. He will then work with the State or Defense Department and work for another 20 years before we retire. I am a DoD civilian employee. We would like to enroll him in the Thrift Savings Plan. But, we are not sure of which TSP plan (traditional or Roth) would benefit us the most. Any advice?
A. It’s impossible to know now which will work out to be best for you. Without that knowledge, I prefer the tax break today over the promise of a tax break tomorrow, so I would choose the traditional TSP over the Roth.
November 5th, 2012 | Uncategorized
Q. I’m a 45-year-old reservist who has been recalled to active duty. I’m also an E-6 with more than 18 years of service.
I can afford to invest my entire pay, including incentive pays, and wondered if it would be better to pay off an existing mortgage, approximately $60,000, just refinanced last month at 3.5 percent and a 15-year term? Or would it be better to max out the Roth TSP and set up another deferred account or IRA of some sort?
My wife makes about $55,000 per year.
A. It’s impossible to say what’s best for you without the proper analysis and understanding of your particular goals, resources and constraints. In general, however, I prefer to see you retain the mortgage and invest the money prudently instead of using it to pay off the mortgage.