By Mike Miles
September 10th, 2013 | Uncategorized
Q. I have not worked since fall 2011. I’m on leave without pay with the Postal Service. Currently on disability retirement approved by Social Security and the Postal Service. The Office of Personnel Management has until November to finalize the disability retirement. On Sept. 23, I default on my Thrift Savings Plan personal loan ($5,300).
I am entitled to agency retirement pay of $1,645 per month but cannot be paid until OPM acts. Social Security is roughly ¼ pay, and I cannot realistically pay the catch-up amount and the two monthly loan payments for at least two months. At that time, I should be in a position to repay the entire loan (due to the situation explained below).
If I default on the outstanding balance BUT in November, OPM approves my lump-sum payment due for the time not worked and entitled to pay (which depending on what they say will either be September 2011, when I last worked, or March 2012, when I exhausted my annual time and sick days) and I then repay the outstanding balance in its entirety prior to year end, thereby negating the loan default, would the default status then be changed to paid and the taxable distribution then be nullified?
In my mind, if I repay the loan after default but before year end, I should prevent any Internal Revenue Service action regarding the early withdrawal penalty. I have no issues with extra interest or costs associated with my problem but don’t wish to throw away $500 if I can avoid it.
I have an appointment with a tax attorney to try to sort this out, but if you have had any experience in this, I would appreciate a response so I know what to prepare for.
A. I can’t advise you on your specific situation, and what an attorney may or may not be able to accomplish for you. But in general, once the loan is declared a taxable distribution, it cannot be repaid. You may be able to roll the declared distribution amount over to an IRA to defer the tax and avoid any early withdrawal penalty, however.
September 10th, 2013 | Uncategorized
Q. I plan to retire in 22 months when I will be 62.1 years of age. I will retire in Virginia and immediately move to Texas. I estimate that I will be earning approximately $133,000 from CSRS, $6,900 from Social Security and $18,000 from Army retirement.
I already have two properties in Texas and plan to buy my live-in home in San Antonio shortly after I arrive in Texas.
I plan to cash in my Thrift Savings Plan at age 62 in Texas and use 100 percent of it as a down payment for the purchase of my home in San Antonio.
Based on my earned retirement income, what is the percentage of tax that I will have to pay when I cash out my TSP? Do I have to pay federal taxes on the TSP withdrawal if I am using the TSP withdrawal as a down payment on the purchase a home for my use?
A. I can’t tell you what tax you’ll owe on the TSP withdrawal. That will depend upon the details of your tax return. The withdrawal will be added to your federal tax return as ordinary income. I suggest that you engage a CPA to provide you with a pro-forma tax calculation.
September 9th, 2013 | Uncategorized
Q. I am retired military, drawing Social Security. I am planning on retiring from the federal government soon. If I take all of my Thrift Savings Plan, how much will be taken out? I owe $10,000 on a TSP loan and know I should pay it off. If I pay the loan before taking money and I roll into an IRA, will my money then be tied in the IRA and I can’t use it? Also, I heard you can combine military pay with federal retirement. How does that work?
A. Mike: If you withdraw your entire TSP balance after you retire, 20 percent will be withheld as a deposit against your federal income tax liability. If you request a direct rollover into an IRA, there will be no withholding. If you are retiring from TSP covered service between the ages of 54 and 59, inclusive, rolling your TSP money into an IRA may affect your ability to withdraw the money without penalty before you reach age 59½, so be careful if this is the case.
Reg: You can make a deposit to get credit for your active-duty service. That tie will be used to determining your total years of civilian service and in the computation of your annuity when you retire. However, because you are retired military, you’ll have to waive your military retired pay when you retire from your civilian job. If you don’t, your deposit will be returned to you and you won’t get any credit for that time.
September 9th, 2013 | Uncategorized
Q. I am a civilian federal employee with 24+ years in FERS. Is there information as to whether or not there will be a reduction in force for the Defense Department in the next six to 12 months? I am considering retirement but would like to qualify for a buyout if it becomes available.
What options are there for my Thrift Savings Plan at retirement? I’d like to roll over into more than one IRA, at separate financial institutions, if possible.
How long does it take to process retirement paperwork? I also need to apply for Social Security benefits.
A. Mike: You may continue your TSP for life, or you may roll your balance over to one or more IRAs.
Reg: No, there isn’t any information about whether DoD will announce a RIF in the next six to 12 months nor, if it does, which activities would be affected, and if buyouts would be offered.
The processing of paperwork for retirement occurs in two places, your agency and the Office of Personnel Management. While I have no idea how efficient your agency is, everyone knows that OPM has fallen behind in meeting its targets. How far behind is anyone’s guess.
August 8th, 2013 | Uncategorized
Q. I will retire at the end of this month. Already set the Social Security deal and retirement paperwork. If I retire now (tax year 2013) and ask for a big chunk of my Thrift Saving Plan in February (tax year 2014), will it affect my Social Security payment (as a windfall or any other way)?
A. Not directly, but it can affect the cost of Medicare Part B. You should consult a tax adviser (who will prepare your return) before you proceed, if you’re not sure.
August 7th, 2013 | Uncategorized
Q. I am retiring Aug. 30 and would like to pay my home off at this time. I have $107,000 in my account and the payoff for my home would be roughly $49,000. I plan to let the remaining balance stay there until 62 and receive monthly payments. My retirement is listed under FERS and, at 62, I will get Social Security (I have worked in the private sector for more than 30 years and expect my retirement pay to be nothing less than $1,000 a month, for a total income of at least $2,600 a month. Does this seem like a bad move if I pull out $49,000?
A. The question is how this move will fit into an overall planning and management scheme, and whether there are other options that are likely to produce better results, within the context of that scheme, than the withdrawal and payoff. The terms of your current mortgage are critical to framing the decision for analysis.
August 6th, 2013 | Uncategorized
Q. Thank you for your answer on my question of investing my 100 percent G Fund into an L Fund. You recommended choosing an L that corresponds to my life expectancy. I expect to retire in about a year, will have about $500,000 outside of the fund after I transfer my 401(k) into the fund.
My FERS will be about $1,000 a month, and I will defer drawing Social Security until after 67, maybe wait until 70 (I am 64).
The issue is life expectancy. Our family tends to live into its 90s. I am thinking that the L2020 may be too conservative in view of this. Would L2030 be more appropriate with the above scenario, or maybe hedge and do half L2020 and half L2030?
My non-TSP funds, I think I will put primarily in a Vanguard-type Lifecycle Fund or 50/50 total stock index/total bond. I’d appreciate your thoughts on this. Also, any recommendations on fee-based financial advisers familiar with planning for people with TSP and outside funds as in the example above?
A. My suggestion was a lowest-common-denominator, do-it-yourself kind of solution if you didn’t know what you should do to best support your goals. Kind of like telling you to fly straight and level if you found yourself at the controls of an airliner at 30,000 feet. This might lead to failure, but without knowing any more about your circumstances, it’s the safest thing to do. Now, it sounds like you want to fine-tune this very general advice like it’s something more. Don’t bother.
If you want to do this right, I can help you. Start by visiting my website at www.variplan.com.
July 24th, 2013 | Uncategorized
Q. My husband was forced to retire early when the Army depot closed here in Sacramento, Calif. Several years later, he was forced to stop working due to a stroke and applied for Social Security disability.
He was told that his Social Security allotment was greatly reduced because of his Thrift Savings Plan retirement account.
He never thought this was fair because he has worked and paid Social Security all his life, but instead of receiving about $1,500 a month on Social Security, he receives a reduced $450. By comparison, I retired on a state pension and am fully qualified for all of my Social Security benefits. But they are also slightly reduced because of his TSP.
Is this correct?
A. This doesn’t sound right. I know of no offset to Social Security benefits based on a TSP account balance. There are offsets for other sources of income, however, and you should visit www.ssa.gov to review the rules and see if you have a basis for appeal.
July 24th, 2013 | Uncategorized
Q. I have been in FERS for 16 years. I have been in the Army Reserve for 21 and plan to stay in until after my FERS minimum retirement age (58). I have enough combat time to be eligible for early reserve retirement pay at 58.
I have deployed to combat several times and receive a combat-related injury compensation from the Veterans Affairs Department. I have a FERS Thrift Savings Plan and a military member TSP. I am thinking of buying back four years of active-duty time toward my FERS retirement. I believe former President Bush signed a special combat-related compensation offset to allow for full VA compensation and military retirement. I meet the criteria as I was injured in Iraq.
When I turn 58, would I receive:
My full FERS annuity (34 percent), my full VA compensation check, and my full Army Reserve military pay?
When I turn 59.5, would I receive:
My full FERS annuity (34 percent), my full VA compensation check, and my full Army Reserve military pay + now my TSP annuity + my military member TSP annuity?
When I turn 62, would I receive:
My full FERS annuity (34 percent), my full VA compensation check, and my full Army Reserve military pay + my FERS TSP annuity + my military member TSP annuity and now reduced Social Security?
A. You may purchase an annuity with your TSP money at any time following separation from federal service and that annuity income will continue for as long as you live, regardless of your other income.
July 22nd, 2013 | Uncategorized
Q. I am retiring under FERS in a few months, and am looking for recommendations on how to best invest my Thrift Savings Plan dollars. I believe my options are to buy a MetLife annuity, leave the funds in my TSP account until I turn 71 years old (I am now 60), or roll the TSP dollars into an IRA or other type of investment account. I have approximately $350,000 and will receive my FERS retirement and eventually Social Security. Do you have any recommendations to roll the dollars into an investment account that I could occasionally draw from and that could draw interest, and could you identify pitfalls relative to rolling TSP to an investment account? I know that I will be required to pay taxes on my withdrawals.
A. I recommend that you leave your money in the TSP for as long as possible. It’s the best investment environment there is. Rolling your balance into an outside investment account will burden you with higher fees, greater risk, lower expected rates of return and the loss of access to the G Fund.