By Mike Miles
Figuring out required minimum distributions
February 27th, 2012 | Uncategorized
Q: I have a question concerning the following paragraph from your Feb. 20 column in Federal Times:
I find it disappointing that it appears that you will not be able to manage, or withdraw, money selectively between the two options. Your contribution allocation and any interfund transfers you direct will apply to both options. Any withdrawals will be taken, pro rata, from both options. You may, however, split a rollover distribution between traditional and Roth IRA accounts.
Specifically, I am puzzled by the statement in the second sentence. As I understand the general concept with “tax deferred” individual retirement accounts and 401(k) plans, mandatory minimum withdrawals begin not later than April 1 of the year following the depositor reaching age 70 1/2. As I understand the general concept with “tax paid” — i.e., Roth IRAs and 401(k) plans — no mandatory minimum withdrawal is required earlier than the death of the contributor/owner of the tax-paid account.
If I understand the meaning of the language in the paragraph in your column, and assuming a Thrift Savings Plan participant has made both “tax deferred” TSP contributions and “tax paid” (Roth) contributions to the TSP, any mandatory minimum withdrawal from the tax-deferred segment of the TSP will result in a pro rata withdrawal from the tax-paid (Roth) option of the TSP.
Do I understand that the allocation mix in the non-Roth and the Roth segments of the plan must be identical? Given the option, I would elect to allocate greater risk to the Roth segment in order to avoid being forced to make mandatory minimum withdrawals after taking a “financial hit” similar to that which occurred during the period beginning in late 2007. Surely Congress could not have intended to impose a mandatory minimum withdrawal on “tax paid” (Roth) contributions to the TSP when it authorized the Thrift Savings Board to offer a Roth option to the TSP.
A: I based the comments in my column on the following excerpt from the TSP’s brochure: “A New TSP Element”
You will be able to take loans, in-service withdrawals, and partial withdrawals from your account as before. They will come out of your account on a pro rata basis — with a proportional amount from your traditional and Roth balances.
Details on how required minimum distributions will be handled have yet to emerge.
Tags: 401(k), minimum distribution, required minimum distributions, RMD, Roth, Roth IRA, tax deferred, tax paid, thrift savings plan, TSP
TSP and RMD rules
July 7th, 2011 | Uncategorized
Q: I’m a Federal Employees Retirement System retiree, 70 1/2 years old, and have been receiving fixed monthly payments from my Thrift Savings Plan account to cover my living expenses since my retirement in 2006. I will begin required minimum distributions this year and would like to know if the IRS will allow the amount of my annual TSP withdrawals that exceed my TSP yearly RMD to be credited against the RMD requirements due to start this year for the standard individual retirement accounts I hold from credit unions, banks, etc.
A: Your RMD must be calculated separately for each of your retirement accounts, but the RMD amount may be taken from any one, or more, of your accounts. Any withdrawals you take from your TSP during the calendar year will count, in their entirety, against your total RMD requirement for that year.
Tags: Individual Retirement Account, IRA, Required Minimum Distribution, RMD, thrift savings plan, TSP
TSP, RMD and private accounts
December 16th, 2010 | Uncategorized
Q: I am 75 and still working under the Federal Employees Retirement System. I have two tax shelter plans. One of them is with my Thrift Savings Plan account, and I learned from the TSP website that I do not have to take a required minimum distribution from them until I retire. My other plan started when I worked for Georgia Tech, but is now managed by a brokerage firm. My question is: Must I take an RMD from the plan managed by the brokerage firm if I am still working? I don’t understand why I should have to take such a distribution because I could transfer the funds in this plan into my TSP account, except for some tough penalties imposed by the firm if I do so within the next few years.
A: The fact that you are still working for the federal government will only allow you to delay the RMD from your TSP account (your active employer-sponsored retirement plan). Your other retirement accounts are subject to the usual RMD requirements.
Tags: minimum distribution, RMD, tax, tax shelter, thrift savings plan, TSP
Forced into choosing TSP withdrawal options
January 26th, 2010 | Uncategorized
Q: I am no longer employed and have reached age 70½. I received notice from the Thrift Savings Plan that I have to remove my money or start taking monthly payments, buy an annuity, or some combination of removing my money and buying an annuity. I know about the Required Minimum Distribution and was fully prepared to take that amount out. Am I not able to leave the remainder of my account intact after I take the Required Minimum Distribution? This is really a shock to me if I have to remove the money and pay taxes on it, or have to buy an annuity or take monthly payments out.
A: The problem is that the TSP’s rules only allow one partial withdrawal, so if you haven’t already used up that withdrawal, you’ll only be able to take your first RMD and then will have to take a full withdrawal for the second. Monthly payments are considered a full withdrawal. You could, if it’s still available, take your first RMD as a partial withdrawal, and then either start monthly withdrawals based on your life expectancy to minimize the RMD withdrawals each year. The fact that you’re taking the money monthly, rather in one lump sum each year should be no big deal. An alternative would be to roll over your TSP to a low-cost IRA and then withdraw money as you please.
Tags: RMD, TSP, withdrawal