By Mike Miles
Roth vs. TSP for early retirement
February 11th, 2013 | Uncategorized
Q. I am 55 with 13 years of service. My wife is three years younger than me and will work three additional years — until I am 65.
My Thrift Savings Plan balance is approximately $200,000, and I hope to retire at 62. My wife and I have other investments of approximately $300,000, totaling $500,000 (mostly 401(k), but approximately 20 percent Roth).
I understand that when I am retired and after we reach the “threshold,” I will pay one of every two dollars made. Is this true for dollars dispersed from Roth accounts? I understood them to be “tax-free.”
A. Distributions from a TSP account, Roth or traditional, whether or not they are taxable, do not count as earned income for purposes of offsetting Social Security benefits.
Tags: 401(k), early retirement, income, investment, Roth IRA, Social Security, taxes, TSP
Overseas deposit
February 11th, 2013 | Uncategorized
Q. I am looking to establish residency abroad after retirement, either in France or Germany. Is there any guidance on direct deposit of FERS and Social Security annuities, and Thrift Savings Plan distribution, to foreign banks?
A. Direct deposits from your TSP account can only be made only to financial institutions in the United States.
Tags: annuity, FERS, retirement, Social Security, TSP
Rehired annuitant covered only by Social Security
February 4th, 2013 | Uncategorized
Q. My wife was RIFed in 2008 at age 48 with 28 years of service with a $7,000 Thrift Savings Plan balance and was placed on CSRS discontinued service retirement. She was re-employed by the government five months later with a different agency. Because she is a re-employed annuitant, she can no longer contribute to TSP and is covered by Social Security’s Old Age, Survivors and Disability Insurance only. Emails and telephone calls to TSP have proved less than helpful; TSP has advised her that the only action possible is to leave the fund as is. We both wanted to verify TSP’s advice.
A. From the bulletin available at https://www.tsp.gov/PDF/bulletins/09-9.pdf: “Employees appointed to positions that are not covered by FERS or CSRS (e.g., a position covered by Social Security (FICA) only) are not eligible to participate in the TSP.” I encourage you to read the relevant parts of the bulletin for more details that may apply to you.
Tags: annuity, CSRS, rehire, Social Security, TSP
Early retirement and IRA
January 21st, 2013 | Uncategorized
Q. I will be retiring Jan. 31 from the Postal Service. In May, I will receive $10,000 and in May 2014, I will receive $5,000. Can this compensation be used to fund an IRA in years 2013 and 2014 even though I will be retired and not working another job? Is this considered earned income? I know federal and state tax will be deducted. I don’t know yet if Social Security will be deducted, too. What are your thoughts on this?
A. I believe that these payments are considered retirement income, and, therefore are not considered the basis for IRA contributions, but you should consult a qualified tax preparer to be sure.
Tags: deduction, early retirement, income, IRA, Postal Service, Social Security, taxes
Military redeposit
January 9th, 2013 | Uncategorized
Q. I have 21 years of federal service including four years of military time. The redeposit is about $6,500. I will be eligible for Social Security at 62, and the reduction to my annuity will be about $250 a month. In your opinion, would it be advisable to take this money from my Thrift Savings Plan account to pay the redeposit? The break-even point is about 2½ years. What factors should I take into account?
A. The answer depends upon what retirement system you’re under, whether or not you have dependents who will be relying on a survivor annuity, your tax situation and how you’ll manage the money if you leave it in the TSP. If you’re covered by FERS, single, not subject to the highest tax bracket, have no dependents, and I will be providing you with investment decision support for the rest of your life, then you’re probably better off leaving the money in the TSP.
Tags: annuity, FERS, investment, military, Social Security, taxes, TSP
TSP withdrawal
January 9th, 2013 | Uncategorized
Q. My wife has contributed to her Thrift Savings Plan all her career and we will draw on it soon. We both have federal pensions and Social Security pensions that do not count toward income for purposes of the Social Security cap.
If she receives her TSP in a lump sum, I know we have to pay taxes, but will that money be considered income for that year and offset our Social Security pensions, or is her TSP considered part of her retirement income?
A. TSP withdrawals are not considered earned income.
Tags: contributions, lump-sum, pension benefit, retirement, Social Security, TSP, withdrawal
Annuity vs. life insurance
December 3rd, 2012 | Uncategorized
Q. My husband and I are both retiring soon, he under FERS and me under CSRS. His income will be made up mostly of Social Security, while mine will be mostly CSRS. A full annuity for him would cost $425 a month. Does it make sense to elect this annuity given the cost? Would a term life insurance policy be a better alternative? I need to put the paperwork in this week.
A. There is no universal answer to this question, but if in doubt, the safe bet is to elect the full survivor benefit for your spouse. To answer this question properly would take a full-blown financial analysis, but you’ve waited too long for that to happen before your deadline, so you’ll have to “spin the wheel.”
Tags: annuity, CSRS, FERS, income, life insurance, retirement, Social Security, survivor benefit
Paying insurance premiums
December 3rd, 2012 | Uncategorized
Q. What factors determine whether it is better to pay insurance premiums with pretax dollars or waive that and pay with after-tax money? My thought is that by paying with after-tax money, taxable income is increased, thereby increasing the Social Security entitlement. How do you determine if that is more beneficial than the reduced tax liability now?
A. The answer depends on your circumstances and a number of assumptions about the future. The issue is discussed on the Office of Personnel Management website at www.opm.gov/insure/archive/health/pretaxfehb/qanda/23.asp.
Tags: income, insurance, OPM, pre-tax, Social Security
Earnings limit and special retirement supplement
December 3rd, 2012 | Uncategorized
Q. I will be eligible to retire Dec. 4 with both minimum retirement age and years of service under FERS. I would like to wait until Jan. 31 to retire to complete a project. I will have 240 hours of annual leave going into 2013. The combination of my lump-sum payment for my annual leave and my January wage earnings would exceed the Social Security earnings limit for 2013. Since the Social Security earning limit is the same as the FERS annuity supplement earnings limit, would this make me ineligible for the special retirement supplement for 2013?
If I put all of my January wage earnings for 2013 into the Thrift Savings Plan and just receive the lump-sum payment, which by itself is less than the earnings limit, would I be able to collect the special retirement supplement for the rest of 2013 when I retire at the end of January?
A. In general, the earnings limit is based on gross earned income, before deductions for things like TSP contributions, so you can’t reduce the income counted for the limit by deferring it into the TSP. Amounts you are paid after retirement, but that were earned before retirement, are usually considered special payments, which do not count against the Social Security earnings limit. The rules can be complicated, though, and you should consult a qualified tax preparer — preferably the one who will actually complete and stand behind your tax return for the year — before proceeding.
Tags: annual leave, contributions, FERS, income, lump-sum, Minimum Retirement Age, Social Security, Special Retirement Supplement, taxes, TSP
Buyback, Social Security, high-3 and TSP
November 28th, 2012 | Uncategorized
Q. I have 33 years in and am under CSRS. I will be 60 years old in May. I served less than two years in the Army in my 20s. I am a WG-8 making almost $25 an hour. I receive correspondence statements from Social Security that if I retire at age 62, I would be eligible for approximately $300 based on a second job 12 years ago and jobs before joining the government in the 1980s.
1. Should I buy back the time I have in the Army?
2. Will the buyback help increase my Social Security? Or will the money from Social Security lower my pension?
3. Should I get a part-time job to increase my Social Security benefit? I know I am not eligible for disability based on not having 40 quarters, but will the small amount of time I have paid into Social Security help or hurt me when I want to retire at 62?
4. Is there anything current on whether the top three years will be changed to top five? And, if it gets changed, should I retire before it is implemented?
5. Are there any ways to increase my pension other than saving with the Thrift Savings Plan or getting a second job (see above question)? I have reservations with TSP because of the taxes. I have money in it but am not saving. My understanding is I can’t touch it without penalty until age 62. Is this correct?
A. Mike: You’ll have access to your TSP money, without any early withdrawal penalty, as soon as you retire from federal service.
Reg: Because you were first employed before Oct. 1, 1982, you’ll get credit for your active-duty service in determining your eligibility to retire and in your annuity computation. If you aren’t eligible for a Social Security benefit at age 62, your annuity won’t be affected. The Office of Personnel Management only checks once, at age 62, if you are already retired, or when you retire if it’s at age 62 or later.
If you take a job after retirement and earn enough credits to be eligible for a Social Security benefit, it will be affected by the windfall elimination provision. The WEP reduces the Social Security benefit of anyone who receives an annuity from a retirement system where he didn’t pay Social Security taxes, such as CSRS, and has fewer than 30 years of substantial earnings under Social Security.
Tags: annuity calculation, CSRS, Disability, early withdrawal penalty, military buyback, OPM, retirement, Social Security, taxes, TSP, windfall elimination provision