By Mike Miles
December 10th, 2013 | Uncategorized
Q. I have an opportunity to retire under a Voluntary Early Retirement Authority. I have 30+ years of FERS service, non-law enforcement. My age will be 53 years and 11 months if I retire under this VERA offering.
At what age will I have full access to my Thrift Savings Plan without the 10 percent early withdrawal penalty by “taking substantially equal payments over my life expectancy.”
At what age will I have full access to my TSP without the 10 percent early withdrawal penalty by NOT “taking substantially equal payments over my life expectancy.”
If immediately upon retirement I begin collecting TSP funds “paid as substantially equal payments over my life expectancy”:
Do I avoid the 10 percent early withdrawal penalty?
Must I continue this withdrawal option for life, or only until I reach age 55?
Must I continue this withdrawal option for life, or only until I reach age 56, my minimum retirement age?
Must I continue this withdrawal option for life, or only until I reach age 59½?
A. If you retire prior to the calendar year in which you reach age 55, you will not have unrestricted access to your TSP account, without penalty, until you reach age 59½ unless you become totally disabled. This is true whether or not you initiate a Series of Substantially Equal Periodic Payments (SOSEPP) as defined in IRC section 72(t) if you retire prior to the calendar year in which you reach age 55.
If you properly initiate and maintain a SOSEPP, you will avoid the early withdrawal penalty on the SOSEPP withdrawals. The SOSEPP must continue for five years, or until you reach age 59½, whichever is longer. If you disrupt the SOSEPP or otherwise violate the rules for this, the early withdrawal penalty will be assessed on all withdrawals that were protected under the SOSEPP.
November 18th, 2013 | Uncategorized
Q. I am a FERS employee and will have 30 years of service at age 56, my minimum retirement age. Thus, when I retire at 56, can I start withdrawing from my Thrift Savings Plan without any tax penalty? Or do I have to wait until 59½ to start withdrawing from my TSP to avoid any tax penalty?
A. In the circumstance you describe, your TSP withdrawals will not be subject to the early withdrawal penalty.
October 7th, 2013 | Uncategorized
Q. I took the Voluntary Early Retirement Authority on Jan. 31 at my minimum retirement age. I had 26 years at the Postal Service under FERS. After 16 years of marriage, I became a widow. The only income I have is my annuity and the special retirement supplement from the Office of Personnel Management. Will I be eligible to receive Social Security benefits from husband at 60, and will they end at 62? When I turn 62, my supplement will end. I have $190,000 in the L2020 fund. Would it be beneficial to me to start receiving money from my Thrift Savings Plan at 62 and delay Social Security until full retirement at 66 years and four months. A financial adviser told me to roll over my money into an IRA when I turn 59½. Is that a good idea, or should I keep it in the TSP? Would you recommend the G Fund, since I don’t have money to lose?
A. Mike: It’s impossible to give you specific personal financial advice with this tiny amount of information. In general, however, you should invest your money in a way that gives you a high probability of achieving your financial goals with a minimum of risk. There is no one-size-fits-all investment strategy, even for someone your sex and your age. Investment management is an ongoing and complex process. The advice you’re being given about rolling over you TSP to an IRA sounds like a sales pitch to me. You should preserve your TSP assets as long as possible unless a trustworthy analysis indicates that it would be in your best interest to do otherwise. Your question about using TSP funds to delay claiming Social Security is worth considering, but, again, finding the right answer will require some analytic work.
Reg: To find out how your own Social Security benefit would interact with your Social Security survivor benefit, go to http://ssa.gov/pubs/EN-05-10084.pdf.
September 30th, 2013 | Uncategorized
Q. I work for the Postal Service. I have 30 years of service. I will have to take a discontinued retirement today. I will turn 55 in December. My minimum retirement age is 56. I understand from a previous question that I qualify to receive my Thrift Savings Plan without penalty because I am retiring in the year that I will turn 55. Will I be able to start withdrawing this money from TSP without penalty when I retire? Or in December, when I turn 55? Or at my MRA of 56?
A. Your MRA has nothing to do with it.
September 30th, 2013 | Uncategorized
Q. I am a federal law enforcement officer. I recently read an article that discussed the downside of the Roth TSP for federal law enforcement officers and firefighters. Is this true?
Many of you are probably unaware of the serious pitfalls you will encounter if you opt to contribute to the Roth TSP. For a federal law enforcement officer or firefighter, the Roth TSP is a poor choice. It wasn’t until this week that a reader posed a question to me that caused me to realize what a bad idea the Roth TSP is for many of us.
The idea behind the Roth TSP is that you contribute after-tax monies and when you withdraw funds from the account in retirement, the earnings are tax-free. The trick here is that the withdrawal must be a “qualified withdrawal” for the earnings to be tax-free. In order for the withdrawal to be considered a “qualified withdrawal” by the IRS, “five years must have passed since January 1 of the calendar year when you made your first Roth TSP contribution AND you are at least 59½, permanently disabled (or deceased).”
Here’s the problem: As a law enforcement officer or firefighter, you can retire as early as 50 years of age and are mandatorily retired at age 57. If you decide to take post-retirement withdrawals from the TSP (under the life expectancy option or the age 55 exemption), you will not meet the age test for the Roth TSP withdrawal to be considered “qualified.” (You may also not meet the five-year rule as the Roth TSP has only been an option since May 2012.) Since your withdrawal is not “qualified,” you will be taxed on the portion of your withdrawal that represents the attributable earnings. This eliminates the tax-advantaged nature of the Roth TSP. You’d be just as well off having a regular post-tax investment account outside of the TSP. You’re contributing after-tax dollars and paying taxes on the earnings generated by the post-tax investment.
The TSP will not allow you to specify that your post-retirement withdrawals come only from your traditional TSP balance, nor will the TSP allow you to roll over/transfer out only the Roth TSP portion of your account. When you make any withdrawal from the TSP, the withdrawn amount will be taken ratably from both your traditional and Roth balances under TSP rules.
If you roll over/transfer both your traditional TSP and Roth TSP to another custodian, then you lose your eligibility under the age 55 exemption, as that requires the funds to be left in your employer-sponsored account. If you retire between age 50 and 59½, at retirement, you could roll over/transfer your traditional TSP and Roth TSP to another custodian and withdraw only the funds that came from the Traditional TSP account using an IRS Section 72(t) withdrawal plan and wait until age 59½ to start to withdraw the portion that came from the Roth TSP funds.
Please consider these facts when deciding if the Roth TSP is right for you. If you already jumped into the Roth TSP, you can always stop and change your contributions to be 100 percent traditional TSP and limit the tax damage.
Even folks who aren’t covered under the special provisions get affected by these rules if they retire at their MRA.
A. The issue you raise is valid. You can get around it by transferring the Roth portion of a distribution to a Roth IRA. I realize this isn’t ideal, but it is an option to avoid the penalty.
September 23rd, 2013 | Uncategorized
Q. I will have 30 years of service and be 54 years old when I take early retirement in January. Since I will turn 55 in August 2014, will I be able to withdraw without penalty from my TSP even though my minimum retirement age is 56?
A. As long as you separate from covered service during or after the calendar year in which you reach age 55, you will avoid the early withdrawal penalty on withdrawals taken after you separate. Your MRA has nothing to do with it.
September 9th, 2013 | Uncategorized
Q. How will Voluntary Early Retirement Authority/Voluntary Separation Incentive Pay affect my retirement benefits (annuity supplement, pension and Thrift Savings Plan withdrawals)? I am a Defense Department civilian, age 58, with 21 years of service under FERS.
A. Mike: You will have access to your TSP account, under the usual rules, without penalty following your separation.
Reg: Your annuity would be computed under the standard formula: .01 x your high-3 x your years and full months of service. There wouldn’t be any age penalty because you were retiring before age 62. And, since you have already reached your minimum retirement age, you’d immediately be entitled to the special retirement supplement.
August 13th, 2013 | Uncategorized
Q. After entering my Thrift Savings Plan earnings in the Employee Benefits Information System profile, it shows my TSP annuity is $2,000 per month if I retire at age 56 (my minimum retirement age). What is the $2,000 based on? Is it $2,000 until I die, or only until I reach a certain age?
A. It could be your life, your joint life with a partner, or a minimum of 10 years, depending upon which annuity option you choose.
August 6th, 2013 | Uncategorized
Q. If I retire early at 50 years of age with 30 years of service under FERS, I understand I’d have to wait until my minimum retirement age to receive the special retirement supplement. What reductions would I have in my retirement annuity? Would I be able to receive monthly Thrift Savings Plan annuity at age 50?
A. Mike: You may use your TSP money to buy an immediate annuity and receive monthly income payments at any age, once you are separated from service.
Reg: If your agency offers you a Voluntary Early Retirement Authority, there wouldn’t be any age-based reduction in your annuity. As noted, you wouldn’t receive the special retirement supplement until you reached your MRA.
July 24th, 2013 | Uncategorized
Q. I have been in FERS for 16 years. I have been in the Army Reserve for 21 and plan to stay in until after my FERS minimum retirement age (58). I have enough combat time to be eligible for early reserve retirement pay at 58.
I have deployed to combat several times and receive a combat-related injury compensation from the Veterans Affairs Department. I have a FERS Thrift Savings Plan and a military member TSP. I am thinking of buying back four years of active-duty time toward my FERS retirement. I believe former President Bush signed a special combat-related compensation offset to allow for full VA compensation and military retirement. I meet the criteria as I was injured in Iraq.
When I turn 58, would I receive:
My full FERS annuity (34 percent), my full VA compensation check, and my full Army Reserve military pay?
When I turn 59.5, would I receive:
My full FERS annuity (34 percent), my full VA compensation check, and my full Army Reserve military pay + now my TSP annuity + my military member TSP annuity?
When I turn 62, would I receive:
My full FERS annuity (34 percent), my full VA compensation check, and my full Army Reserve military pay + my FERS TSP annuity + my military member TSP annuity and now reduced Social Security?
A. You may purchase an annuity with your TSP money at any time following separation from federal service and that annuity income will continue for as long as you live, regardless of your other income.