By Mike Miles
November 11th, 2013 | Uncategorized
Q. If I roll over my military Thrift Savings Plan into my civilian TSP, will I pay taxes?
A. Not on the rollover.
November 11th, 2013 | Uncategorized
Q. I am active-duty military and am about to open a TSP account in January. From everything that I’ve read, I understand that I cannot transfer funds from my Roth IRA to my TSP account, but I do not understand why. I Can someone explain to me why this is the case and who made this rule?
A. I can’t tell you why it’s the law, but it is the law.
October 22nd, 2013 | Uncategorized
Q. I am almost 58 years old and retired from military/federal service after my 55th birthday. I would like to withdraw my Thrift Savings Plan now, in a lump sum. How much will I have to pay in penalties and taxes?
A. You’ll be subject to 20 percent backup federal withholding, no early withdrawal penalty, and your tax liability will be determined when you file your tax return for the year of the withdrawal. The money you withdraw will be taxed as ordinary income, and the rate will depend upon your particulars.
October 16th, 2013 | Uncategorized
Q. I have seen quite a few questions (and answers) about how to request that Thrift Savings Plan loan payments be suspended during the government shutdown, but no detailed information about exactly how to continue to make payments should one want to do that. When during the regular pay cycle should one send in a payment check with the appropriate form? When we go back to work, and if back pay is given, will the loan payments for the entire period of furlough, or perhaps the last pay period only, be taken out? How long of a period of nonpayment may there be before the tax penalties kick in?
A. If you are in nonpay status for reasons other than active military service:
The maximum period that the TSP can suspend loan payments is one year.
If your nonpay period exceeds one year, your loan will be automatically reamortized and you must make payments from your personal funds to avoid being in default.
Interest on your loan accrues while your payments are suspended.
If you want to continue making loan payments while in nonpay status, you can do so by sending a personal check or money order to the TSP. Use Form TSP-26, Loan Payment Coupon, when sending in your payments. Your payments will be taken into account when the loan is reamortized upon your return to pay status.
When you begin your period of nonpay status, you or your agency must submit one of the following forms of documentation to the TSP:
Form TSP-41, Notification to TSP of Nonpay Status; or
Form SF-50, Notification of Personnel Action; or
A letter on agency or service letterhead, signed by an appropriate agency official or your commander or adjutant, that contains your name, date of birth and Social Security number; the beginning date of the nonpay status; and the signature and title of the agency or service representative providing the information; or
A copy of your military orders.
When you return from nonpay status, you must notify the TSP of your date of return. You can use any type of documentation described in the above section. Once your agency notifies the TSP of your return, your loan will be reamortized to place it in good standing.
Note: If your agency reports you as separated from civilian service to perform military service, you will be required to repay your loan in full within 90 days. If you don’t, the outstanding loan balance and any unpaid interest will be reported to the Internal Revenue Service as a taxable distribution.
October 7th, 2013 | Uncategorized
Q. I have two Thrift Savings Plan accounts — one with the military and one civilian. Because of my financial situation, I would like to take some money out for debt consolidation. I was weighing the option of borrowing from my civilian vs. closing my military account (which I am no longer contributing to) and using those funds.
If I close my military account, can I roll a portion of it over to my civilian account, and use the rest?
What/how much of a tax penalty am I looking at if I do either?
Would it make sense to close my military account and just borrow from my civilian account? I may possibly get called back on active duty.
I need to make a decision within the next two weeks as I have a number of financial obligations hitting the first of November.
A. You may use form TSP-77 to request a one-time partial withdrawal from your civilian and/or your uniformed services account(s) if you are at least age 59½ or separated from service. You may combine the accounts if you are separated from service using form TSP-65. If you are subject to the early withdrawal penalty, the penalty is 10 percent of the withdrawn amount. There is no penalty for taking a loan at any age. Unfortunately, there is insufficient information here for any specific advice.
September 10th, 2013 | Uncategorized
Q. I plan to retire in 22 months when I will be 62.1 years of age. I will retire in Virginia and immediately move to Texas. I estimate that I will be earning approximately $133,000 from CSRS, $6,900 from Social Security and $18,000 from Army retirement.
I already have two properties in Texas and plan to buy my live-in home in San Antonio shortly after I arrive in Texas.
I plan to cash in my Thrift Savings Plan at age 62 in Texas and use 100 percent of it as a down payment for the purchase of my home in San Antonio.
Based on my earned retirement income, what is the percentage of tax that I will have to pay when I cash out my TSP? Do I have to pay federal taxes on the TSP withdrawal if I am using the TSP withdrawal as a down payment on the purchase a home for my use?
A. I can’t tell you what tax you’ll owe on the TSP withdrawal. That will depend upon the details of your tax return. The withdrawal will be added to your federal tax return as ordinary income. I suggest that you engage a CPA to provide you with a pro-forma tax calculation.
August 19th, 2013 | Uncategorized
Q. I have power of attorney for my military retired son who is not employed and only receiving retirement benefits, as well as undergoing a divorce. There is just not enough money to go around. I am paying what I can with his funds, but there is one large debt that there is no way to make payments on (they’ve refused what little is available) since he is only getting half of his retirement income due to the pending divorce. He has an IRA and a Thrift Savings Plan account. Would the creditor be able to take the TSP monies?
A. TSP assets are protected from creditor claims in cases of bankruptcy and civil suit.
July 1st, 2013 | Uncategorized
Q. My former spouse retired from the military after 23 years and immediately started his FERS job. I was married when he started his new federal position, then 12 days later, he asked for a separation. Two years have passed and we just became legally divorced. Am I entitled to former spouse defined retirement plans and Thrift Savings Plan 401(k). If so, where can I locate this under CFR?
A. Your share of his TSP account was determined as part of your divorce settlement or decree.
June 26th, 2013 | Uncategorized
Q. I am 41 and a “gray area retiree from the Maryland Army National Guard. I am employed with the Postal Service (FERS) and have about 19 years of service (including five years active duty, which I already paid back). I also collect 30 percent disability from the Veterans Affairs Department. In planning my final retirement living, it seems if I retire at my minimum retirement age of 57, I should be immediately eligible for full annuities of the following, with no penalties or offsets:
FERS basic annuity
Social Security offset (until 62)
TSP annuity (no IRS penalty)
Army retired pay (age 60)
Reduced Social Security (age 62)
Are my assumptions correct?
A. Mike: If you retire during or after the calendar year in which you reach age 55, you will have access to your Thrift Savings Plan account without penalty. If you use the balance to purchase a life annuity, there will be no penalty for this regardless of when you retire.
Reg: Assuming that you retire at age 57 with more than 30 years of combined service, you would be entitled to an unreduced FERS annuity and the special retirement supplement. (There is no such thing as a Social Security offset.) You would also be entitled to your reserve retired pay, VA disability compensation, and a reduced Social Security benefit.
May 30th, 2013 | Uncategorized
Q. I will be retiring with 20 years active-duty military in two years and am thinking about tapping into my Thrift Savings Plan for a 20 percent down payment on a home. I realize withdrawing early includes penalties I don’t want to pay. Would taking out a TSP loan be my best option? I’d like to use about $30,000 toward my retirement home, and the interest rates seem low enough I wouldn’t take that much of a hit.
A. If you can repay it, a loan would be a reasonable way to avoid the early withdrawal penalty.