By Mike Miles
59 1/2 rule and Roth IRA
March 6th, 2012 | Uncategorized
Q. I am civil service, with more than 17 years of federal service, in FERS, and approaching 59½ and would like to withdraw 50-75 percent of my TSP and roll the full amount over into my Roth IRA account. I would leave 25 percent in my TSP and let it continue to grow for my remaining time in federal service. How do I go about doing this, if I can? Does this make financial sense to do this? I plan on retiring at age 62; Dec. 31, 2014.
A. You may take an age-based in service withdrawal once you reach age 59½ and convert it to a Roth IRA. I can’t think of a good reason to do this, but you may have some unusual circumstances that I don’t know about.
Closing a TSP account
March 5th, 2012 | Uncategorized
Q. I am a federal civilian under the FERS system with less than 10 years of civil service. I am also a military reservist with 25 years of military service. I am not yet 50 years old and I do not intend to retire or separate from federal service in the next few years. I want to cease contribution to and close my TSP account, withdraw the entire amount immediately by rolling it over into a tradional IRA not associated with the government. I am unconcerned about any penalty I may have to pay. I could not find in any of the TSP literature or website how I could do this. Could you assist me?
A. This is not permitted under the circumstances you describe.
Am I being taxed twice?
March 1st, 2012 | Uncategorized
Q. I am a FERS retiree from the federal government in March 2011. I received the VERA/VSIP in a lump sum of $25,000 ($18,000 after taxes). In July, I withdrew a lump sum from my TSP to pay off my mortgage, that amount was also taxed. Since the lump sums I received were taxed already, how is it that I have to claim them as income? I am preparing my 2011 taxes and those lump-sum payments make it appear that I earned more than $100,000 in 2011. It seems to me that I am paying taxes twice on the money. Am I right? Would it have been more to my advantage if I had received the lump sums this year (2012)?
A. You were not taxed on the money before you received it. Money was withheld against your tax liability. You must claim the gross amounts as part of your income, which they are, and you will also receive credit for the withholding against your tax bill.
Tags: lump-sum payment, taxes, thrift savings plan, TSP withdrawal
Reporting TSP contributions on tax forms
February 27th, 2012 | Uncategorized
Q: When I am filing my simple taxes, do I need to include my 5 percent Thrift Savings Plan contributions as an investment anywhere in my return? I did not receive any IRS Form 1099s from the TSP, but want to ensure I do the right thing.
A: Your TSP contributions do not need to be reported as an investment. The contributions are reported to you on your W-2.
Tags: IRS, taxes, thrift savings plan, TSP
Moving TSP funds into an IRA
February 27th, 2012 | Uncategorized
Q: I am a Federal Employees Retirement System employee retiring on April 30, under the Voluntary Early Retirement Authority/Voluntary Separation Incentive Pay at age 55. Can I take some or all of my Thrift Savings Plan balance and transfer it to a self-directed individual retirement account? What is the process for doing that? What are the estimated costs and penalties?
A: You may roll over your TSP assets to an IRA following separation at at 55 with no penalty. Use Form TSP-77 to request a partial withdrawal or Form TSP-70 to request a full withdrawal of your account assets.
Tags: early withdrawal, FERS, Individual Retirement Account, IRA, thrift savings plan, TSP, TSP forms, TSP transfer, VERA, VSIP
Alternatives to managing your own retirement funds
February 27th, 2012 | Uncategorized
Q: I’m tired of moving funds all over the place trying to maximize my money in the Thrift Savings Plan. I have done so-so — retired federal law enforcement, 30 years of service, now 51 years old. I am going to start withdrawing funds at 59 1/2. I want to maximize my value in eight or nine years. I know it is hard to have the best of both worlds (safety of funds vs. maximized rate of return) — what are your thoughts?
A: I can’t possibly give you reliable investment advice through this forum, without the appropriate understanding, research and analysis. Managing the money to support your desired standard of living has its advantages, if it’s done right. If not, it can be disastrous. If you’re not competent in pension fund management (which is what’s required), then you should consider hiring someone who is. One way to do this is to use your money to buy an immediate, fixed annuity to guarantee lifetime income.
Tags: early withdrawal, money management, thrift savings plan
TSP penalties for retiring at 62?
February 27th, 2012 | Uncategorized
Q: I plan on retiring at 62 from the Federal Employees Retirement System. Will I be penalized for withdrawing money from my Thrift Savings Plan account at that age?
A: No.
Tags: early retirement, Federal Employees Retirement System, FERS, thrift savings plan, TSP, TSP withdrawal
Figuring out required minimum distributions
February 27th, 2012 | Uncategorized
Q: I have a question concerning the following paragraph from your Feb. 20 column in Federal Times:
I find it disappointing that it appears that you will not be able to manage, or withdraw, money selectively between the two options. Your contribution allocation and any interfund transfers you direct will apply to both options. Any withdrawals will be taken, pro rata, from both options. You may, however, split a rollover distribution between traditional and Roth IRA accounts.
Specifically, I am puzzled by the statement in the second sentence. As I understand the general concept with “tax deferred” individual retirement accounts and 401(k) plans, mandatory minimum withdrawals begin not later than April 1 of the year following the depositor reaching age 70 1/2. As I understand the general concept with “tax paid” — i.e., Roth IRAs and 401(k) plans — no mandatory minimum withdrawal is required earlier than the death of the contributor/owner of the tax-paid account.
If I understand the meaning of the language in the paragraph in your column, and assuming a Thrift Savings Plan participant has made both “tax deferred” TSP contributions and “tax paid” (Roth) contributions to the TSP, any mandatory minimum withdrawal from the tax-deferred segment of the TSP will result in a pro rata withdrawal from the tax-paid (Roth) option of the TSP.
Do I understand that the allocation mix in the non-Roth and the Roth segments of the plan must be identical? Given the option, I would elect to allocate greater risk to the Roth segment in order to avoid being forced to make mandatory minimum withdrawals after taking a “financial hit” similar to that which occurred during the period beginning in late 2007. Surely Congress could not have intended to impose a mandatory minimum withdrawal on “tax paid” (Roth) contributions to the TSP when it authorized the Thrift Savings Board to offer a Roth option to the TSP.
A: I based the comments in my column on the following excerpt from the TSP’s brochure: “A New TSP Element”
You will be able to take loans, in-service withdrawals, and partial withdrawals from your account as before. They will come out of your account on a pro rata basis — with a proportional amount from your traditional and Roth balances.
Details on how required minimum distributions will be handled have yet to emerge.
Tags: 401(k), minimum distribution, required minimum distributions, RMD, Roth, Roth IRA, tax deferred, tax paid, thrift savings plan, TSP
Ready to cash out my TSP: How do I do it?
February 27th, 2012 | Uncategorized
Q: I have looked all over the Thrift Savings Plan website and cannot find the button to push that says I am retiring and want to start collecting my money. I am almost 62 and intend to retire in 191 days. I have figured out that I want to begin receiving my money on a monthly basis and can only change that election once a year. The online calculator tells me that amount is good for 60 years and four months. It does not tell me how far off the minimum distribution I am. But where is the button?
A: Directly from the TSP website:
How to Request a Withdrawal: If you are ready to request a withdrawal from your TSP account, you need to do the following:
1. Read the booklet Withdrawing Your TSP Account After Leaving Federal Service.
2. Read the TSP tax notice “Important Tax Information About Payments From Your TSP Account.
3. Complete either Form TSP-70, Request for Full Withdrawal (TSP-U-70, uniformed services) or Form TSP-77, Request for Partial Withdrawal When Separated (TSP-U-77, uniformed services).
The calculator is useless, in my opinion, and you won’t know how much your minimum withdrawal amount will be each year until after Dec. 31 of the year in which you’ve reached age 70 1/2.
Tags: thrift savings plan, TSP, TSP forms, TSP withdrawal
Forms for minimum TSP distribution
February 20th, 2012 | Uncategorized
Q: I plan to take the required minimum distribution from my Thrift Savings Plan each year starting the year after I turn 70 1/2. What forms do I submit and to whom?
A: You submit Form TSP-70 according to the instructions on the form.
Tags: thrift savings plan, TSP, TSP distribution