Ask The Experts: Money Matters

By Mike Miles

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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MetLife

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Q. My mother’s plan was purchased by MetLife. She wants to make a withdrawal but is told she can’t, or she needs a higher monthly payment. It’s only $300 due to a paperwork mistake, but she was told she could only submit this one time this year. Is there anything to do?

A. If she bought an annuity, her monthly payments from that annuity are fixed for life. If she has a balance left in her Thrift Savings Plan account, she has the option of terminating her monthly payments with a final, lump-sum distribution of the remaining balance in her account, which she can roll over to an IRA, which will allow her to withdraw money as she likes.

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Military TSP vs. civil service TSP

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Q. I retired from active duty two years ago and have worked in civil service for one year.  I am contributing 10 percent of my civil service base pay and have a fairly good amount in my active-duty military Thrift Savings Plan. I am entertaining the idea of consolidating my TSP plans for a couple of reasons. First, simplicity of managing one account.  Secondly I believe, from what I have read on numerous sites, I will have greater control of current and future funds using the civil service side of TSP versus the active-duty military side. By this, I mean in-service withdrawals, loans, rolling over to another employer’s 401(k) plan (certainty of employment with civil service is at an all-time low), etc. Has my research misled me, or am I partially correct?

A. Convenience is an advantage. The basic rules for the accounts are the same, although you’re separated from military service and an active employee for the civilian account. This means that you may not take a loan from the military account but can take one from the civilian account. You could roll over the military account to an IRA or 401(k) now, but can’t roll over the civilian account. Whether the differences matter to you, or not, will depend upon your circumstances, but everything you need to know is available at www.tsp.gov.

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TSP rollover and FEHB

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Q. I am age 59½, retired from the Postal Service through a Voluntary Early Retirement Authority. I am looking at rolling over my Thrift Savings Plan to a certified financial planner. Could this affect my health benefits or my spouse’s health benefits?

A. It will not affect your Federal Employees Health Benefits eligibility, but I question the wisdom of this move. Why would anyone with your best interests in mind recommend this move? For your benefit or his/hers? The certified financial planner label does guarantee that this person is trustworthy.

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Tax-free TSP rollover

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Q. I understand there is a way to roll over a Thrift Savings Plan account to a Roth IRA so the funds transferred are not taxed. Can you point me to guidelines on how to do that?  I am preparing to retire as a CSRS annuitant.

A. This is only possible with a Roth TSP balance.

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Annual leave

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Q. I have 38 years with the federal government. I have 240 hours of stored leave and, if I save my annual leave this year, I will have 208 hours of annual leave. This equates to 448 hours times my base pay, which is $33.92 for $15,196.

When I retire at the end of this year, can I roll my lump-sum payment over to my Thrift Savings Plan account before taxes?

A. No.

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Roth TSP rollover

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Q. A recent question read in part: “I have more than four years until military retirement (April 2018). At that time, will I be able to transfer all Roth TSP contributions to my Roth IRA? I have no plans of transferring the traditional TSP balance. The goal is to combine Roth TSP/Roth IRA contributions and pay cash for retirement home.”

 I agree that if you take a monthly withdrawal from the Thrift Savings Plan, they take from both traditional and Roth accounts. But I thought the TSP 90 form allowed transfer of Roth TSP contributions to a Roth IRA fund or Traditional TSP contributions to a traditional IRA (essentially a type to type rollover at retirement)? So if they did the transfer of only Roth TSP funds to the Roth IRA, couldn’t they use this strategy (independent of merit)? Is it different with military retirement?

A. You are correct. I misunderstood the constraint imposed as part of the question. You may request a withdrawal, which must include both traditional and Roth money, and then roll over only the Roth part of the distribution.

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