By Mike Miles
September 23rd, 2013 | Uncategorized
Q. Can I withdraw money from my IRA in December and have it applied to my 2014 required minimum distribution?
September 18th, 2013 | Uncategorized
Q. If I have Thrift Savings Plan funds in both G and C funds when I am required to begin taking required minimum distributions at age 70½, can I specify which funds the RMD are taken from? (My concern is that the C Fund may be at a low due to market conditions, and withdrawals may be better to defer till the market improves.)
A. TSP distributions are always taken proportionately from your various holdings at the time. I don’t see the rationale for your concern, though. Your account will be allocated exactly as it was before the withdrawal. If you don’t like the allocation, you can rebalance it. Alternately, you could invest the proceeds from the withdrawal in the equivalent of the C Fund in a discount brokerage account and be right back where you started.
August 19th, 2013 | Uncategorized
Q. I turned 70 years old in July and have been a CSRS retiree since 1997. I started the required minimum distributions in September 2012 from the Thrift Savings Plan and an IRA with DWS Scudder. Monies were invested in the G Fund with TSP and the DWS GNMA S Fund, which are very low risk. Before retirement, I felt more comfortable taking risk. I started withdrawing RMD only because I had to avoid penalty. My main concern at this stage in my life is to face as little risk as possible and to at least maintain my balance with minimum losses. My IRA over the past year has taken a heavy hit. Although both funds are invested in the GNMA, the fund with DWS Scudder with the highest balance has suffered the most and the shares are valued a little higher in cents.
I was thinking of transferring my DWS Scudder account to my TSP. Since I am not in desperate need of the money, how do I allocate my allotments to minimize my losses? What is a very safe investment with the RMD money received? My TSP is paid in monthly installments and DWS Scudder once a year. The TSP account doesn’t seem to change it value other than the amount of money that is being deducted for the RMD. The account doesn’t appear to show gain or loss. Am I noticing more loss with DWS Scudder because of maintenance fees and higher balance? What is your advice on this matter?
A. Mistakes can be costly, and you’ve made several of them. First: Your initial RMD is not due until April 1, 2015, so you have not been taking required withdrawals — you have been taking needless withdrawals! Second: You’ve subjected yourself to risk for no apparent reason. Third: You’ve invested in things and taken risks you clearly don’t understand. Fourth: You’ve incorrectly concluded that the G Fund has produced no gain in your investment’s value.
Based on the information you’ve provided here, I suggest that you transfer your IRA to the TSP account, if possible, and maintain your entire account in the G Fund. The G Fund bears no risk of loss and always produces a positive return on your investment. In fact, it’s the best risk-adjusted rate of return you’ll find anywhere. You’ll have to continue your monthly withdrawals from the TSP, but you may be able to reduce them until your RMD becomes due.
Unfortunately, there’s no way to recover the damage that’s been done. The time to get things right is when the decisions are being made, not after the fact. We’re all operating in a world where there are lots of very smart people doing everything they can to profit from our decisions. To get the most of what you want out of what you have, you must:
1. Clearly know and understand the rules of the game, and
2. Figure out how to use those rules to your best advantage.
August 13th, 2013 | Uncategorized
Q. I had the same concerns as the person who you answered Aug. 8. He is trying to follow a bucket strategy and not sell off equities in a down market. I think there is a way to do this in the Thrift Savings Plan, but it is more complicated than I like. Suppose you have $400,000 invested equally in G, C, S and I. Assume your required minimum distribution is $12,000 or $1,000/month and it is paid on the first of each month. On the last day of the month, before 1200 Eastern time, transfer $300,000 to the G Fund. Money transfers on the last day of the month. RMD of $1,000 pays on the first. After 1200 Eastern time, transfer $100,000 each to the C, S and I funds. Do this 12 times and you will have taken $12,000 from the G Fund and maintained your position in the equity funds. If the equity funds are up, move $12,000 to the G Fund, calculate your new RMD and repeat. If they are down, sell nothing, recalculate RMD and continue as before. This meets the rules of the TSP that allow two interfund transfers per month and minimizes the time that you are not fully invested in equities.
A. This is a lot of effort for nothing, and a “bucket strategy” is nothing but a repackaged asset allocation model. You could accomplish the same ends by simply rebalancing to the appropriate asset allocation model periodically during the year as your withdrawals accumulate. Doing it every month should not be necessary to keep things on track. This is a case of the “tail wagging the dog.”
August 8th, 2013 | Uncategorized
Q. I am a FERS retiree who is below the age of RMD. I’ve often heard that a good way to invest TSP dollars is to choose the L Fund that corresponds with one’s life expectancy. My health and life outlook and family health history are pretty excellent. My personal assessment of my life expectancy is about 99 years. This would have me using the L 2050 fund. Is this foolishness? Should the L fund selected be strictly the actuarial or TSP-calculated life expectancy, rather than one’s own assessment of same?
A. I think that, as long as your own assessment is reasonable — that is, based on reason — your estimate is at least as good, if not better, than an actuarial table.
August 8th, 2013 | Uncategorized
Q. I have a Thrift Savings Plan account as a CSRS retiree. I also turned 70½ this year and have non-Roth IRAs. Can I take a distribution from one of the IRAs that will satisfy the required minimum distribution calculation for my TSP account and all non-Roth IRAs? If so, would I still have to take a distribution from my TSP account just because I turned 70½?
A. According to the Internal Revenue Service rules, you should be able to satisfy your entire RMD requirement using one or more withdrawals from any covered account or accounts. The TSP will automatically distribute its share of your RMD each year, however.
July 24th, 2013 | Uncategorized
Q. I turn 70½ this year and want to start Required Minimum Distribution withdrawals from the Thrift Savings Plan based on life expectancy.
1. Starting withdrawals now will not equal the total RMD amount required for the year (since withdrawals are paid monthly). Will TSP issue a “catch-up” payment before Dec. 31 to fulfill the total RMD?
2. My TSP account is allocated among all five TSP funds (based on percentages advised by financial adviser). Will TSP apportion the RMD from all of those funds and keep my designated allocation percentages?
3. TSP told me it will not withhold taxes on my RMD distributions because they are not high enough (about $300 a month). I thought all RMD withdrawals would have taxes withheld.
A. You’ll find the answer to your questions at https://www.tsp.gov/PDF/formspubs/tsp-775.pdf. TSP will issue a “catch-up” check, but it might not be issued until the following year. The distributions will come proportionately from the funds in your account at the time of the distribution. The TSP will withhold taxes unless your annual distribution is expected to be less than $200.
June 24th, 2013 | Uncategorized
Q. I will turn 70 in July 2014. Is 2015 the first year I will be required to receive the required minimum distribution? Who decides the date and month of annual distributions?
A. You must complete your first RMD by April 1 of the year following the calendar year in which you reach age 70½. You may take the distribution however and whenever you like, as long as the required minimum amount has been withdrawn by the deadline for each year.
June 18th, 2013 | Uncategorized
Q. Upon turning 70½ years of age, one must begin taking required minimum distributions. The only exception is that the first distribution can be delayed until the following year. This serves to reduce taxable income in the 70.5 year, but increases taxable income since there would be two years’ worth of distributions in the next year.
Can a part of the RMD be taken in the 70.5 year, with the remainder being carried over to the next year?
June 10th, 2013 | Uncategorized
Q. I want to take the remaining required minimum distribution for 2013 in one lump sum (I have received monthly payments through May). Can this be done online at the TSP.gov website? If so, where exactly? If not, how do I do this?
A. You can do it via the website by clicking the My Account link or using form TSP-77, which is available at https://www.tsp.gov/PDF/formspubs/tsp-77.pdf.