Ask The Experts: Money Matters

By Mike Miles

59 1/2

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Q. I plan on retiring just after I turn 59 with 30 years as a federal employee. Do I have to wait until 59½ to take anything out from my Thrift Savings Plan account either via partial lump sum or monthly amounts to avoid the 10 percent tax penalty?

A. Not if you wait until you’ve retired to request the withdrawal. You will be exempt from the early withdrawal penalty.

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RMD

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Q. I am a FERS employee who turned 71 in September. I plan to retire in January 2015. When do I need to start taking my required minimum distribution?

A. Under the current rules, and these circumstances, your first RMD, for tax year 2015, will be due by April 1, 2016.

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RMD and still working at 70 1/2

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Q. I am 70 years old and still employed by the federal government. When I am 70½, I understand I must take a required minimum distribution from my traditional IRA/401s, but not clear if this applies to my Thrift Savings Plan account. Can you please tell me what the rules are for those who are 70 and over but still working for the government insofar as taking a required distribution from my TSP account? Can I wait until I retire from government?

A. You may wait until you retire. You may also be able to transfer your IRA/401k balances into the TSP to avoid or delay future RMD. Consult your tax preparer and www.tsp.gov for information and advice.

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TSP distribution

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Q. My husband is retiring from the Postal Service on Nov. 1. We have $850,000 in tax-free municipal funds (all AAA rated and paying over 5 percent), and another $200,000 in natural gas and oil limited partnerships and some preferred stocks in energy companies that I recently inherited. I would like to live on the interest from these investments, leaving the principal alone.

My husband is 62 and we want to wait until he is 66 to receive his Social Security payments. (Waiting until 70 is out of the question as both parents were stricken with Alzheimer’s disease at an early age. Mother at 70 and father at 75.)

My husband has a Thrift Savings Plan account with a balance of $91,000. I am concerned that the interest and dividends coming in from the inheritance have not had time to accrue enough interest for us to live on and would like your advice on how to distribute his TSP for the first few years.

I am disabled and am receiving a monthly check for $1,477. If my husband takes Social Security now, his monthly payments would be $1,588. Also, my husband will receive a monthly retirement check from the Postal Service for $850 — just enough to cover our health and life insurance and his long-term care insurance.

Can you give me some advice on the best way to get my TSP to pay out a larger sum in the first three years so I can protect the principal of my inheritance? Should we start now collecting his Social Security now?

A. It is not possible to determine the answers to your questions, which are complex and interdependent, without the proper understanding, analysis and consideration. There are no simple answers. Your questions are beyond the scope of a forum like this and will require comprehensive financial analysis to answer.

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TSP withdrawal penalty?

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Q. I will be a 56-year-old CSRS employee with 33 years in service and 2,842 hours of sick leave. Since I contributed to the Thrift Savings Plan and plan on doing a one-time complete withdrawal, will I incur a large tax penalty?

A. If you retire at age 56, you will not be subject to penalty for withdrawing money from your TSP account.

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TSP partial withdrawal after tax distribution declared

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Q. I have a general purpose loan and am planning to retire soon. If I choose not to repay the loan and take a tax distribution, will I still be entitled to make one partial withdrawal after retirement? Or will the unpaid balance of the loan be considered my one-time partial withdrawal?

A. The unpaid loan does not count as your partial withdrawal.

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Dividend tax

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Q. I have a considerable amount in my Thrift Savings Plan account. I was reading Fedsmith, and it says there is a real possibility of taxes on dividends (when I retire and draw TSP) raise from 15 percent to 43.4 percent. I cannot roll over my basic TSP to my Roth portion of TSP. Do you think it advantageous for me to pull out my TSP and put it in a Roth IRA on the outside?

A. Your TSP withdrawals will be taxed as ordinary income and not capital gains, so this is not an issue to be concerned about when it comes to your TSP account.

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Tax basis in IRA

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Q. I am a retired government worker who has contributed the maximum amount to the Thrift Savings Plan. After being retired for several years, I transferred the TSP to a traditional IRA. If I convert the traditional IRA to a Roth IRA, how do I figure my “basis” in the IRA to determine the amount that is taxable?

A. If the only thing you ever put into the IRA was your traditional TSP assets, then the account has no tax basis and is all taxable upon distribution (or conversion). If you have contributed nondeductible or other after-tax money to the IRA, you’ll need to figure out how much. That’s your tax basis. You should consult a CPA for help if this is the case.

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Rolling over IRA into TSP

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Q. I just retired at 55 from the Postal Service. Can I roll over a traditional IRA into my Thrift Savings Plan?

A. Yes, as long as the IRA contains no after-tax money.

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Paying CSRS redeposit from TSP

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Q. I am in FERS and I am planning to pay in full my CSRS redeposit service balance for my 17 years of prior CSRS service. I want to pay via direct transfer of a check sent on my behalf from the Thrift Savings Plan to the Office of Personnel Management. TSP tells me it is permissible, and all I need OPM to do is to fill out TSP Form 75 and have OPM check that it is an eligible retirement plan and include the address where to mail the check. This would be a trustee-to-trustee direct transfer. Three different people at TSP told me this was permissible.

When I finally reached OPM’s deposit branch, they told me no; that OPM is not set up to receive transfers or rollovers even though TSP and CSRS are both considered by the Internal Revenue Service to be eligible retirement plans. OPM told me that they can do direct transfers to another eligible plan but not the other way around and that their computer system has no way of distinguishing pretax or post-tax monies.

They tell me this provision falls under 5 USC (but I do not see any specific reference prohibiting a check coming from a third party like TSP on my behalf. 5 USC just states a person can write a check or make payments through their federal agency; and OPM staff said you can now also pay online and via a bank transfer (but, of course, these would be after tax funds).

Is OPM correct? Or is TSP correct? Do you know of any specific prohibitions from TSP sending a check for me as a transfer to pay redeposit services? How should I proceed?

A. You cannot transfer or roll over funds from the TSP to CSRS. You may be able to withdraw funds under TSP’s age-based or hardship in-service withdrawal provisions to make the redeposit, if you are eligible. You may also consider taking a TSP loan to obtain the funds. Of course, you should consider the costs and benefits of your options before proceeding.

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