Ask The Experts: Money Matters

By Mike Miles

TSP transfer

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Q. I retired over a year ago and just started working again. Can I transfer my TSP account to my new company’s retirement savings plan without a penalty? I’m 54 and plan to work until age 65.

A. Yes, but it might be a bad idea. You’ll probably be better off keeping your TSP account and transferring your private-sector plan balance into it after you retire.

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FERS account taxes

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Q. I will retire in two years. If I leave my money in the TSP, what happens when I reach 70-1/2 and I  am forced to pay a certain percentage of my savings out every year due to my age. Does that mean I would have to pull all my TSP money out (pay taxes on it) to transfer it to another account in anticipation of the yearly deduction?

A. If you begin monthly distributions using form TSP-70 during or before the year you reach age 70-1/2, the TSP will automatically distribute the required amount each year. There is no need to leave the TSP while you are still alive.

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Late start to TSP

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Q. I am 65 years old.  I have been employed in the federal government for nine years. At this late stage and age, should I join TSP.

A. If you’d like to save money for your use later in retirement, yes.

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TSP access

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Q. I will be 57 in June 2022, meeting the criteria of MRA +30 years creditable service. If I postpone retirement to age 62 for 1.1 percent multiplier, will I be able to access my TSP funds in the meantime; i.e. at age 57 until retirement at age 62?

A. Once you’ve retired; yes.

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TSP early withdrawal penalties

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Q. I just turned 57 in January and am planning on retiring on June 1, 2014. I am CSRS and currently working with the U.S. Postal Service. I was hired by the Postal Service in March 1982 and have met my minimum retirement age and time in service. I also have 4 years prior military service in the Navy from 1976 to 1980 on active duty. Will I be penalized if I make a TSP withdrawal prior to turning age 59 1/2 years of age?

A. No. You will have retired after the calendar year in which you reached age 55 and, therefore, qualify for one of the exceptions to the early withdrawal penalty.

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Time restrictions for voluntary contributions to private Roth

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Q. I understand that it is possible to transfer Voluntary Contribution account deposits to a private Roth IRA (with any pre-tax interest earned going to TSP), but I’ve also been told there’s a five year ‘holding’ requirement for the Roth. I currently have a private Roth account that is more than five years old. Does the five year requirement mentioned in conjunction with the VC mean that the money should be placed into a new and distinct Roth account, so that an additional five years holding can be tracked, or can the VC contributions (without interest) be added to the existing account?

I was hoping to consolidate several small taxable IRAs into my non-Roth TSP, and all my non-taxable Roth accounts into one private account to consolidate and simplify matters when I retire — but I’m still confused as to whether the newest funds (VC transfer to Roth) would have to be put into yet a third account to isolate them and leave them untouched for five additional years — or if that five year time requirement is referring to the establishment of Roth accounts in general, not the specific date various funds are deposited in it. The account is over five years old. The money is ‘new’. Is there still an additional five year holding requirement for the new funds? Is there a requirement to isolate funds in a Roth based on the date of deposit?

A. There is no requirement to isolate Roth IRA funds based on the date of retirement, but the five year rule can be tricky to navigate, and it might be a good idea to keep the converted money separate. I suggest that you review the rules in IRS Publication 590 and consult a CPA for specific advice for your situation. Someone needs to come up with a workable plan. If you’re not up to it, find someone who is and who will take responsibility for the outcomes.

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Partial TSP withdrawal

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Q. I am 60 and had to retire early due to disability. I am receiving Social Security disability and a small annuity. Can I take a small amount — say, $10,000 — from my account but then start monthly draws when/if it becomes necessary? Should I leave all of my money in this account or do a rollover into a regular or Roth IRA?

A. Yes, as long as you have not previously used your single partial withdrawal. I think you should retain your Thrift Savings Plan account for as long as possible.

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Survivor benefits

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Q. My husband and I both work for the Postal Service. He is retiring March 1 under CSRS. I have 25 years in working for the Postal Service and have at least eight years left to retire (FERS). We elected not to take the survivor benefits because I’m still working at the Postal Service and I will have him on my medical plan. We have two insurance policies on both of us in case of death. But I’m not sure if I understand the point of survivor benefits. Do you have any numbers on the pros and cons of survivor benefits, and are we wise for not taking it? We are both healthy and we have no dependents.

A. The survivor benefit will provide a survivor with a guaranteed income that is guaranteed to increase with inflation each year and guaranteed to last for life. These are guarantees that life insurance and retail annuities can’t match. Electing the CSRS or FERS survivor benefit is the safest bet for a survivor and should be considered the default choice until and unless you determine something else to be a better alternative. It is definitely not wise to make such an important decision without the proper analysis and understanding. It is also definitely not wise to trust an insurance agent to conduct this analysis.

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Calculating tax withholding

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Q. I recently retired from federal service. I began receiving my FERS annuity Jan. 1. My annuity is $3,190 gross, plus $1,195 special retirement supplement, minus $190.28 health insurance and $36.34 for dental/vision. I am single with no dependents. I am withholding $641 for federal tax purposes. My state has no income tax.

I want to begin monthly distributions from the Thrift Savings Plan at $4,200 per month. How much should I elect to withhold to ensure that I am not hit with a substantial tax bill for tax year 2014? Assume no itemized deductions.

A. I’m not in a position to calculate your estimated tax liability for the coming year. You can consult a qualified tax preparer for help with this, or review Internal Revenue Service Publication 505 to figure it out for yourself.

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Tax implications for TSP withdrawal

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Q. Whether I retire sooner or later than the year I turn 55, what kind of tax implications will I have in taking a partial lump sum or the whole balance lump sum for something like a vacation home?

A. If you retire from Thrift Savings Plan-covered employment during or after the calendar year in which you reach age 55, you will be exempt from the Internal Revenue Service 10 percent early withdrawal penalty for any withdrawals you take.

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