By Mike Miles
TSP vs. Roth IRA
April 29th, 2013 | Uncategorized
Q. I am a fully vested CSRS employee with the Environmental Protection Agency for 33 years at age 55. I have received my numbers, but I missed my first date to retire. How long does it take to receive my first full check? Worst-case scenario? Best-case scenario? And is there any way to speed up processing?
When will I receive my annual leave payment? Will it be immediate in one lump sum without taxes since I already paid taxes on my leave?
Should I take all of my Thrift Savings Plan out at once or leave about 10,000 in and roll it over to a Roth IRA or leave it in TSP?
Is there a financial counselor at TSP to speak with about taxes and IRAs vs. TSP?
I was told the first three days of the month or the last day of the month are the best times to go out to receive the check earlier? Is this a good idea?
A. Mike: You should leave your money in the TSP for as long as possible, since it is the best retirement investment vehicle you’ll find. You’ll find information about taxes and the TSP at www.tsp.gov. You may contact the Thrift Line with your specific questions, although I doubt they’ll help you with questions about IRA taxation.
Reg: I don’t know how long it will take for you to get your first full annuity check; nor, I expect, does anyone else. However, once your retirement package arrives at the Office of Personnel Management, they will put you in interim pay within a week or two. A complete and accurate retirement package speedily sent to OPM by your agency is the best hedge against delayed processing.
You’ll have to ask your agency when it will send you your lump-sum payment for unused annual leave. That can’t happen until your agency closes out your account. Since you couldn’t have paid taxes on that money until it was received, it will be treated as ordinary income from which taxes will be deducted.
To pick the best date to retire, try to find one that is at the end of a pay period — to get credit for any annual and sick leave you earned during that pay period — and as close to the end of a month as possible — so the time between when you are employed and on the annuity roll is as short as you can make it. Note: As a CSRS employee, you can retire up to the third day of any month and be on the annuity roll in that month. While you will be paid for the additional days you are employed, your first month’s annuity will be reduced by 1/30 for every day you are still employed.
Tags: annual leave, annuity, CSRS, lump-sum, retirement, rollover, Roth IRA, taxes, TSP, vested
TSP rollovers
April 22nd, 2013 | Uncategorized
Q. The guidance on partial withdrawals from the Thrift Savings Plan is somewhat confusing if you have both a traditional and Roth portion. It says that withdrawals will be prorated between the two. However, is it possible to solely roll over the Roth portion into another Roth and still leave the entire traditional portion in tact? Or, since these are two distinct types of investments, can the Roth be rolled over into a Roth and the traditional be rolled over into a traditional in amounts, say $5,000 of one and $10,000, even if the balances are not in this same 1:2 ratio?
A. Distributions are prorated between the two accounts, while direct transfers (rollovers) may be designated as applying to each type of money, independently. I suggest that you review Form TSP-77 to see what can and can’t be done.
Tags: distribution, investment, partial withdrawal, rollover, Roth IRA, TSP
Combat pay, TSP and 401(k)
April 2nd, 2013 | Uncategorized
Q. I am retiring from active duty in about six months. Almost one-third of my Thrift Savings Plan balance is from combat-zone tax-exempt contributions. I am looking to possibly roll my TSP into my next employer’s 401(k). What happens to the CZTE amount? How do I keep this amount tax exempt, and what are my options for this amount at retirement?
A. Given that the TSP is the best retirement investment environment you will find, I urge you to consider maintaining your TSP account and maximizing its use for as long as possible. Unless there are some extraordinary circumstances, you will probably be better off maintaining your TSP account and then transferring your 401(k) balance into it later, after you’ve left your private-sector job.
Tags: 401(k), retirement, rollover, tax-exempt status, TSP
Roth TSP rollover
April 2nd, 2013 | Uncategorized
Q. If I contribute $40,000 to my Roth TSP account, it grows to $60,000 and I subsequently leave government service and roll that Roth TSP into a Roth IRA, wouldn’t I be able to immediately withdraw up to $40,000 without tax or penalty, even though I’m less than 59½ and have not had either account for more than five years?
A. Yes, it is possible to withdraw your contributions at any time without tax or penalty.
Tags: penalty, rollover, Roth IRA, Roth TSP, taxes, withdrawal
Roth TSP withdrawal
March 26th, 2013 | Uncategorized
Q. I am 47 and hope to retire at my minimum retirement age in nine years. I contribute to both my traditional Thrift Savings Plan and Roth TSP. A publication I read, “Important Tax Information about Payments from Your TSP Account,” says you will not have to pay taxes for Roth contributions if you follow a two-step rule: Hold for five years + age 59½. But I think it also says that if I transfer my Roth TSP out of the TSP when I retire, the monies will not be subject to taxes. Is this correct?
Can I only roll over my Roth TSP and keep my traditional TSP with the TSP or must I roll over both the Roth and traditional? I ask because I would like to keep my traditional TSP where it is and only roll over the Roth to avoid taxes on distributions that occur before age 59½.
A. The five-year + 59½ rule applies only to earnings, but it applies to both your Roth TSP and a Roth IRA account. You may always withdraw your contributions from either account without tax or penalty. You may transfer all or part of your Roth TSP balance to a Roth IRA, if you are eligible for a partial withdrawal, and leave the remainder in your TSP account, using Form TSP-77.
Tags: contributions, Minimum Retirement Age, partial withdrawal, penalty, rollover, Roth IRA, Roth TSP, taxes, TSP, withdrawal
VCP conversion to Roth
March 21st, 2013 | Uncategorized
Q. I am 66 years old and plan to retire in 2014, at which time I would transfer (convert) my Voluntary Contributions Program monies directly into a newly created Roth IRA. However, I have an existing (non-TSP) Traditional (substantial) IRA (never taxed), and know the Internal Revenue Service will aggregate my Traditional IRA balance for purposes of determining the taxability of this VCP-to-Roth conversion.
If, prior to retirement, I (in 2013) transfer (direct rollover) my Traditional IRA into my existing Thrift Savings Plan account, will those monies now be considered 401(a), and therefore, making my subsequent VCP-to-Roth conversion occur with few tax implications?
A. As I understand the rules, your TSP balance will not be subject to aggregation for the purpose of determining the taxability of your VCP-to-Roth IRA conversion, but you should consult a CPA before going down that path. You may also want to fill in a pro-forma IRS Form 8606 to see how it will look. This is the form used to calculate your tax liability on conversions. Notice that it does not mention an employer-sponsored plan like the TSP anywhere.
Tags: age, IRA, IRS, retirement, rollover, Roth IRA, taxes, transfer, voluntary contributions program
Rolling over a Roth IRA
March 21st, 2013 | Uncategorized
Q. I have a non-401(k) Roth IRA. Why can’t I roll it over to a TSP Roth IRA? Both are after taxes.
A. The rules are the rules.
Rolling TSP into IRA
March 20th, 2013 | Uncategorized
Q. Can you elaborate more on the “Ask the Experts” answer at http://blogs.federaltimes.com/federal-money/2011/02/16/rolling-a-portion-of-tsp-balance-into-self-directed-ira/. The answer seems to imply that under some circumstances, Thrift Savings Plan funds can be rolled over into self-directed IRAs. Can you explain the circumstances under which it’s legal, and can you provide references? I’d like to create a self-directed IRA for my husband, who is 45 years old and no longer in federal service, and then use the funds to purchase a rental property, with the monthly rents going directly into the IRA.
A. Rollovers are allowed for TSP participants who are no longer federal employees or who are over age 59½. He’ll need to fill out the appropriate TSP withdrawal request form (TSP-70 for a full withdrawal or TSP-77 for a partial withdrawal) and direct the distribution to the IRA custodian of his choice.
Tags: age, distribution, IRA, rollover, TSP, withdrawal
Rolling Roth into TSP?
March 19th, 2013 | Uncategorized
Q. On March 11, you wrote a response to a gentleman who was retiring from the Postal Service and had a question about moving his Thrift Savings Program to a civilian account. In your response you wrote, “You are not required to roll over your TSP account and may continue it for life. You should do everything you can to keep your money in the TSP for as long as possible, since it is superior to any other investment account you will find. Your TSP should be the last account you tap for retirement income.”
That response raised a few questions for me: If someone intends to purchase a life annuity with their TSP upon retirement but also has a non-TSP Roth IRA, do you recommend that they use up all of the Roth prior to purchasing an annuity? Or would you instead suggest that they roll their private Roth into a Roth TSP? And if they do roll it into a Roth TSP, how does the purchase of an annuity work, since some of the contributions were pretax and some were post-tax?
A. You can’t transfer or roll a Roth IRA into the TSP. Which account you use to buy a life annuity will depend entirely on your circumstances and expectations for the future.
Tags: annuity, contributions, rollover, Roth IRA, Roth TSP, taxes, TSP
Rolling TSP into spouse’s TSP
March 19th, 2013 | Uncategorized
Q. My husband is a Defense Department term employee. If his term does not get renewed in May, he wants to roll his Thrift Savings Program into my TSP. Would this be allowed?
A. This is not allowed, but he may continue and manage his TSP account for life.
Tags: rollover, spouse benefits, TSP