By Mike Miles
November 13th, 2013 | Uncategorized
Q. I am 63 years old with 37 years in the Postal Service and still working. I plan to retire in two years. I have $250,000 in my Thrift Savings Plan.
I have read about contributing 10 percent of my career earnings to the Voluntary Contribution Program, and then moving the VCP money back to Roth IRA to save the taxes. For example, if my 10 percent is $150,000, can I withdraw it from TSP and move it to VCP and not pay any taxes on my TSP withdrawal?
October 30th, 2013 | Uncategorized
Q. I am a CSRS Postal Service employee and plan to retire at the end of 2014, when I will be 55 years old with 38 years of service (including sick leave). After reading other answers, I understand that I can immediately withdraw funds from my Thrift Savings Plan without penalty but would like advice regarding those withdrawals. Considering that TSP withdrawals are subject to regular income taxation, is it beneficial to move the funds to an IRA? Would I avoid any tax? Other than future growth potential and smaller tax rate, is there any benefit to delaying withdrawals until later in life?
A. You may roll over your TSP withdrawals that are not required to an IRA and continue to defer the tax to a later time. I can’t tell you whether this will be beneficial since I don’t know enough about you and your circumstances to make that determination. Better investment performance and tax management are the only reasons I can think of for delaying your TSP withdrawals. What more reason do you need?
October 21st, 2013 | Uncategorized
Q. I retired from the Postal Service on Jan. 31 with a Voluntary Separation Incentive Pay of $15,000. The VSIP was paid out as $10,000 this year and $5,000 in 2014. I know I can contribute to an IRA for 2013 since I had earned income during the month of January. Now that I’m retired, will I still be able to contribute to an IRA in 2014 because of the $5,000 in “income” that I’ll receive from the Postal Service?
A. A VSIP is not considered a basis for contribution to an IRA.
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. My husband is retiring from the Postal Service on Nov. 1. We have $850,000 in tax-free municipal funds (all AAA rated and paying over 5 percent), and another $200,000 in natural gas and oil limited partnerships and some preferred stocks in energy companies that I recently inherited. I would like to live on the interest from these investments, leaving the principal alone.
My husband is 62 and we want to wait until he is 66 to receive his Social Security payments. (Waiting until 70 is out of the question as both parents were stricken with Alzheimer’s disease at an early age. Mother at 70 and father at 75.)
My husband has a Thrift Savings Plan account with a balance of $91,000. I am concerned that the interest and dividends coming in from the inheritance have not had time to accrue enough interest for us to live on and would like your advice on how to distribute his TSP for the first few years.
I am disabled and am receiving a monthly check for $1,477. If my husband takes Social Security now, his monthly payments would be $1,588. Also, my husband will receive a monthly retirement check from the Postal Service for $850 — just enough to cover our health and life insurance and his long-term care insurance.
Can you give me some advice on the best way to get my TSP to pay out a larger sum in the first three years so I can protect the principal of my inheritance? Should we start now collecting his Social Security now?
A. It is not possible to determine the answers to your questions, which are complex and interdependent, without the proper understanding, analysis and consideration. There are no simple answers. Your questions are beyond the scope of a forum like this and will require comprehensive financial analysis to answer.
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 10th, 2013 | Uncategorized
Q. I have not worked since fall 2011. I’m on leave without pay with the Postal Service. Currently on disability retirement approved by Social Security and the Postal Service. The Office of Personnel Management has until November to finalize the disability retirement. On Sept. 23, I default on my Thrift Savings Plan personal loan ($5,300).
I am entitled to agency retirement pay of $1,645 per month but cannot be paid until OPM acts. Social Security is roughly ¼ pay, and I cannot realistically pay the catch-up amount and the two monthly loan payments for at least two months. At that time, I should be in a position to repay the entire loan (due to the situation explained below).
If I default on the outstanding balance BUT in November, OPM approves my lump-sum payment due for the time not worked and entitled to pay (which depending on what they say will either be September 2011, when I last worked, or March 2012, when I exhausted my annual time and sick days) and I then repay the outstanding balance in its entirety prior to year end, thereby negating the loan default, would the default status then be changed to paid and the taxable distribution then be nullified?
In my mind, if I repay the loan after default but before year end, I should prevent any Internal Revenue Service action regarding the early withdrawal penalty. I have no issues with extra interest or costs associated with my problem but don’t wish to throw away $500 if I can avoid it.
I have an appointment with a tax attorney to try to sort this out, but if you have had any experience in this, I would appreciate a response so I know what to prepare for.
A. I can’t advise you on your specific situation, and what an attorney may or may not be able to accomplish for you. But in general, once the loan is declared a taxable distribution, it cannot be repaid. You may be able to roll the declared distribution amount over to an IRA to defer the tax and avoid any early withdrawal penalty, however.
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.
June 26th, 2013 | Uncategorized
Q. I am a Postal Service employee under FERS. I am going to retire soon with 26½ years at age 60. Do I have to take the special retirement supplement, or can I waive it? If I take it, do I have to start taking Social Security at 62, or do I have an option to wait until I am older? If I decide to purchase an annuity with my Thrift Savings Plan balance from MetLife, is that annuity protected if MetLife folds?
A. Mike: A MetLife annuity is backed by MetLife. Your state may also offer some backstop in the case of MetLife’s failure. It’s not guaranteed by the federal government, if that’s what you’re asking.
Reg: There is no conceivable reason for turning down the special retirement supplement. You don’t have to apply for a Social Security benefit when you turn 62, you can delay that decision as long as you want.
June 10th, 2013 | Uncategorized
Q. I am a Postal Service employee who has civil service retirement and has been on workers’ compensation for several years now and probably will not go back to work. Can I get my Thrift Savings Plan money now as payments or do I have to retire first? Also, how can I add money into my TSP if I can’t take it out?
A. As I understand it, unless you have separated from covered service, you will be subject to the TSP’s restrictions for in-service withdrawals. You should call the Thrift Line to be sure, however.