Ask The Experts: Money Matters

By Mike Miles

TSP catch up contributions after IRA rollover

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Q. Yesterday, I read your article dated May 20, 2013, “How to be a good pension fund manager.” I wish I had read it before I moved money from my TSP to an outside IRA last year. I wish I had taken some other steps as well. I now want to add back cash to my Thrift Savings Plan before I retire. I could retire at the end of November 2014. Can I do that with catch up contributions?

My major disappointment is with the TSP staff and the absence of an onsite adviser in human resources. Does it benefit the TSP not to go an extra step to inform investors? For those of us who, as you say, are “unsuspecting” and naïve and succumb to IRA sales people, we need a little more hand-holding. I did get a phone call from the TSP, but they never mentioned anything about the impacts of reducing my TSP through an in-service, age-based withdrawal. How can this be changed?

A. If you’re age 55 or over, you may make catch up contributions to the TSP. You may also move the IRA money back into the your TSP account. The TSP, like most employer sponsored retirement plans, does not give investment advice to its participants because it doesn’t want the liability associated with this activity. One of the reasons employers shifted from defined benefit pension to plans to defined contribution plans was to reduce their liability.

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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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TSP withdrawal strategy

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Q. I have heard that some people are taking a monthly Thrift Savings Plan withdrawal that will have all funds sent to them over a period of 119 months (less than 10 years). Looking through TSP manuals, I haven’t figured out why yet. What are the advantages/disadvantages for this strategy?

A. Check Page 3 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf. Payments expected to last less than 10 years are eligible for rollover but subject to 20 percent mandatory withholding. I’m not sure that the advantage is.

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TSP administrative fees

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Q. I am a federal employee under FERS. My financial adviser claims that the famously low Thrift Savings Plan administrative fees increase substantially after a federal employee separates from service. He is using this as justification to roll over my TSP into one of his firm’s IRAs. Is it true?

A. Not true. The TSP’s expenses are the same for all participants, employed or retired. In the future, you should avoid confusing a salesperson with an adviser.

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TSP-to-IRA rollover

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Q. During the retirement process, how do you move the Postal Service Thrift Savings Plan account to a private, individual IRA so that there are no taxes?

A. After you’ve retired, you use Form TSP-70 to request a direct rollover to an IRA.

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Early withdrawal penalty?

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Q. I retired under a Voluntary Early Retirement Authority from the Department of Agriculture in July at age 56. I chose to receive monthly payments from my Thrift Savings Plan account. I would like to pay off my mortgage and a student loan. The only thing I can come up with is to transfer my TSP funds into an IRA and withdraw from the IRA. If I roll my TSP funds into a traditional IRA and make withdrawals before 59½, will I be subject to the 10 percent early withdrawal penalty?

A. Yes, I believe you will, but you should check with your tax preparer to be sure.

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Canceling a TSP age-based withdrawal

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Q. We have applied for an age-based withdrawal from our Thrift Savings Plan account (husband works for the Postal Service) in the amount of $16,000. However, we found out that the tax was simply too high. We have already received the check, but we are now considering canceling it. Is this allowed?

A. You can ask the TSP to be sure, but I don’t think it can be canceled. You have constructively received the payment. You may be able to roll the money over to an IRA to further defer the tax, however. There is a window of 60 days for this. Consult your tax preparer for further guidance.

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In-plan Roth rollovers

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Q. Will the Thrift Savings Plan allow for in-plan Roth rollovers? If so, how will they work and who will benefit from these rollovers?

A. No.

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Variable annuities

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Q. I just retired from government service under CSRS and have left my Thrift Savings Plan alone. My financial adviser, whom I consider a friend, is telling me I need to roll my TSP over into a tax-deferred variable annuity that guarantees a 5 percent return on investment each year even when the market does poorly. He says because of this “guarantee,” I can choose a very aggressive growth portfolio, while not having to worry about the results.

He claims my TSP is not protected against losses. I knew that already, of course. It’s with a highly rated company. Fees are around 2 percent annually. I noticed you have a real problem with these kinds of investments. The market is due for a major correction. Why are you so against these annuities?

A. They are expensive insurance policies. Two percent is huge! You’re more likely to lose than to gain from investing in one of these things compared to a comparable investment strategy invested in the TSP. Ask your “friend” how much money he will make from your purchase, including commissions, bonuses, fringe benefits, etc. You are paying that compensation from your account, in addition to the insurance and other costs which are designed to make sure that the insurance company profits at your expense. You shouldn’t even think about investing in a variable annuity until you’ve read the prospectus and clearly understand exactly what you’re getting into.

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Rollover and TSP matching

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Q. I am a 56-year-old federal employee with six years of service. I have traditional and Roth Thrift Savings Plans. I also have a traditional IRA with TIAA-CREF. Since my budget is too tight to take advantage of the full federal matching amount, can I use my TIAA-CREF IRA funds to maximize my federal match? If I roll over TIAA-CREF funds into my traditional TSP, will these funds receive federal matching?

Also, I understand early withdrawal of traditional TSP funds is subject to income tax, but if I roll over TIAA-CREF funds into my traditional TSP, are withdrawals at age 56 penalized?

A. Your transfers into the TSP will not be matched. If you transfer the IRA into the TSP, it will, from that point forward, be treated just like your other TSP money. Any exemption to the early withdrawal penalty for which you may qualify will apply to all of your TSP money, regardless of its original source.

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