By Mike Miles
March 11th, 2013 | Uncategorized
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.
December 14th, 2012 | Uncategorized
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.
December 10th, 2012 | Uncategorized
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.
October 4th, 2012 | Uncategorized
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.
August 20th, 2012 | Uncategorized
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.
August 20th, 2012 | Uncategorized
Q. Effective Feb. 29, 2012, I am a CSRS retiree from federal service; I participated in both the Thrift Savings Program ($201,000), and the Voluntary Contributions Program. I must make an election soon of the funds now in the VCP: $87,637 (nontaxable); $34,682 (taxable).
I am married, and I will be 66 years old in October. I (we) do not foresee needing the money from these two sources in the near term. I will likely convert everything to a traditional IRA then Roth IRA in April of the year after I turn 70½, to be left to my son after I die. He is now 23.
Inasmuch as I have all TSP funds in the G Fund, I would like to know if it is prudent/savvy/advisable to place the taxable VCP portion in the TSP G Fund and then deposit the nontaxable portion into a traditional IRA at my federal credit union.
A. I can’t responsibly tell you how to invest the money without knowing a lot more about you, your goals and your circumstances. I can recommend, however, that you roll the pretax money into your TSP account and the post-tax money into a Roth IRA at a discount broker. You may then take advantage of the unique opportunities in the TSP and emulate some of those opportunities in the Roth IRA by using exchange-traded index funds that are similar to those offered in the TSP. For example, the following iShares funds are comparable to four of the TSP’s basic funds: IVV for the C Fund, IWM for the S Fund, EFA for the I Fund and AGG for the F Fund. Unfortunately, there is no equivalent for the G Fund and money market or bank savings will be about the best you can do.
August 15th, 2012 | Uncategorized
Q. I am really confused about the purchase of private annuities and when that is a good idea.
I am a FERS employee who just turned 59½. I plan on working for another eight to 10 years, as I only have 12 years of service. My Thrift Savings Plan fund is around $92,000.
Last year, my financial adviser, whom I met when his firm conducted a retirement seminar at the Atlanta Federal Center, suggested that I sell most of the securities in my private brokerage account and buy a fixed index deferred annuity from Midland National to avoid losses in the stock market and reduce tax liability. I agreed to do this and moved $47,000 of my private account into a fixed index annuity with a 5 percent premium bonus. I have to admit that I really did not understand exactly what I was purchasing. I am wondering if I made a mistake by moving money out of the market and into this kind of annuity? My reason was that I lost a lot of money from 2000 to 2002 and did not want to see that happen again.
Now that I am 59½, he wants me to take the one-time disbursement from my TSP and purchase a different fixed index deferred annuity with a 3 percent premium bonus. He says this would limit any losses from the TSP funds, and I would then start to rebuild my TSP from scratch for the next 10 years. From the answers I had read, I gather that you do not think taking money out of the TSP is a good choice.
I am really confused about annuities and now wonder if I am getting the best advice. I like the fact that they know federal benefits and can advise how everything works, which I find very confusing. The firm describes itself as a “registered investment adviser firm.” Is this who I should be working with? I am concerned about a conflict of interest?
A. You’re not getting advice, you’re getting a sales pitch from someone who is being paid big commissions for the sale of annuities. Unfortunately, the investment advice business is poorly regulated. Anyone can call themselves an “adviser.” A Registered Investment Adviser (RIA) is someone who is licensed to take a fee for advice directly from a client. This license does not permit them to accept payments, like commissions, from a third party. Unfortunately, an RIA may also be licensed as in insurance agent and/or a representative of a securities broker/dealer, and they frequently are. I can’t say whether the move you made was good or bad without knowing a lot more about you, your goals and your circumstances. You should not have trusted a commissioned agent or broker to advise you, however, and the move was more likely harmful than beneficial. If you engaged the individual or firm in their capacity as an RIA and paid them fees for this service, you probably have a claim against them for compromising your interests to further their own. An RIA has a fiduciary obligation to you, which this kind of self-serving “advice” may have breached. An agent or registered rep is not held to this same standard of care, however, and is actually expected take advantage of you to earn a commission!
The most important advice I can give any investor is that they NEVER TAKE ADVICE FROM SOMEONE WITH WHOM THEY HAVE A MATERIAL CONFLICT OF INTEREST!
Find an adviser without conflict and who knows the federal benefits system. You’ll have to pay for the advice, but in the long run, it should be a lot cheaper.
June 7th, 2012 | Uncategorized
Q. I will be 59½ in August. I would like to make an in-service withdrawal from my Thrift Savings Plan. At this time, I have a loan out on my account. Do I need to repay this loan before I take an in-service withdrawal for the total amount in my account, and how much tax will I be charged for this withdrawal?
A. You do not need to repay the loan before taking an age-based in-service withdrawal. The automatic tax withholding rate on these withdrawals is 20 percent unless you transfer your payment to another retirement plan or account.
June 5th, 2012 | Uncategorized
Q. My mom, who doesn’t know English, turned 70½ on Aug. 4, 2011. She has IRAs at two different places: Vanguard and Bank of America. My mom has already satisfied her 2011 Vanguard required minimum distribution before April 1, 2012, because it was her first RMD. The Vanguard 2011 RMD was calculated by Vanguard and mailed to my mom, by the way. Was she also required to take a Bank of America RMD? If so, oh no! What’s the best way to proceed?
A. In general, an RMD must be calculated for each IRA, and the total RMD for all accounts must be satisfied. You’ll want to withdraw the required amount as soon as possible, but forms need to be filed and penalties may need to be paid. You can review IRS Publication 590, search the Internet for “missed RMD” or contact a qualified tax preparer for guidance on how to proceed.
May 29th, 2012 | Uncategorized
Q. If I retire at the end of August, and had not previously taken advantage of TSP catch-up, can I max out the tax benefit by having the balance of my annual allowable TSP contribution limit, plus the full retirement catch-up amount all taken out of the last close-out check for unused annual leave and sick leave? I’m in senior-level service, so I get 50 percent of unused sick leave.)
A. You may set your Thrift Savings Plan deferral amount as high as you like, within the limits of your paycheck amount. Once the annual deferral limit, including catch-up, is reached, your deferrals will be suspended.