By Mike Miles
May 9th, 2013 | Uncategorized
Q. Upon retirement, I’m considering transferring a portion of my Thrift Savings Plan balance in monthly payments directly into a Roth IRA. Since my TSP is pretax, I understand that taxes will need to be paid on these funds upon conversion to a Roth. I am in a state with no income tax on federal pensions and distributions from the TSP (North Carolina) and want to be sure that this transfer from my TSP to the Roth will be considered a TSP distribution for tax purposes, and therefore, subject to federal and not North Carolina taxes. Does the Office of Personnel Management issue a 1099R for such a transaction to generate the tax liability?
April 24th, 2013 | Uncategorized
Q. Your April 1 Money Matters article identifies the exception to the 10 percent penalty for early distributions for separation from federal service during or after the calendar year one reaches age 55. My question relates to funds transferred to my Thrift Savings Plan account from a former employer’s 401(k) plan. Does the exception apply to all funds contained in my TSP account, or just those funds contributed to the TSP in the normal course of my federal service employment — i.e., not counting funds transferred from a prior 401(k) account?
A. It applies to the contents of your TSP account, including transfers from other plans or accounts.
April 22nd, 2013 | Uncategorized
Q. I am making payments to buy back my military deposit, and I will also be making a redeposit of FERS funds. Can I transfer funds from the Thrift Savings Plan to military buyback and FERS? After all, these are both accounts for retirement and not money I’d be using now.
A. This is not allowed since your TSP money is pretax and your deposits must be made with post-tax money.
April 22nd, 2013 | Uncategorized
Q. I have money going into G, F and C funds. I recently changed my distribution to 65 percent and 35 percent for G and F funds, respectively. With C Fund losing money, how can I transfer my existing C Fund balance into the F Fund so I’ll stop losing money from my existing C Fund?
I see the procedure to change distribution between the funds. I don’t see a procedure to transfer all of my existing balance from one particular fund into another fund.
A. I’m a financial planner. This is a question for the Thrift Savings Plan’s website tech support staff.
April 3rd, 2013 | Uncategorized
Q. I am making payments to buy back my military deposit and I will also be making a redeposit of FERS funds. Can I transfer funds from the Thrift Savings Plan to military buyback and FERS? After all, these are both accounts for retirement and not money I’d be using now.
April 1st, 2013 | Uncategorized
Q. Does section 902 in HR 8 (American Taxpayer Relief Act of 2012), which states that “Amounts in applicable retirement plans may be transferred to designated Roth accounts without distribution,” apply to the Thrift Savings Plan?
A. You may transfer amounts from other employer-sponsored Roth retirement plans into the TSP. This does not apply to Roth IRAs, however.
March 26th, 2013 | Uncategorized
Q. Can traditional Thrift Savings Plan funds be transferred/rolled to Roth TSP funds after retirement, while paying taxes on the amount transferred? I’m trying to at least save the taxes on the five-year growth.
A. You may not convert your traditional TSP funds to Roth TSP funds. I’d like to see the math that convinces you that this is a good idea in the first place.
March 21st, 2013 | Uncategorized
Q. I am 66 years old and plan to retire in 2014, at which time I would transfer (convert) my Voluntary Contributions Program monies directly into a newly created Roth IRA. However, I have an existing (non-TSP) Traditional (substantial) IRA (never taxed), and know the Internal Revenue Service will aggregate my Traditional IRA balance for purposes of determining the taxability of this VCP-to-Roth conversion.
If, prior to retirement, I (in 2013) transfer (direct rollover) my Traditional IRA into my existing Thrift Savings Plan account, will those monies now be considered 401(a), and therefore, making my subsequent VCP-to-Roth conversion occur with few tax implications?
A. As I understand the rules, your TSP balance will not be subject to aggregation for the purpose of determining the taxability of your VCP-to-Roth IRA conversion, but you should consult a CPA before going down that path. You may also want to fill in a pro-forma IRS Form 8606 to see how it will look. This is the form used to calculate your tax liability on conversions. Notice that it does not mention an employer-sponsored plan like the TSP anywhere.
March 19th, 2013 | Uncategorized
Q. I have both a civilian and military Thrift Savings Plan account because I was mobilized for part of 2011-12. Because I was in a combat zone, much of my income was tax exempt (CZTE). The military allowed me to contribute that tax-exempt income into my TSP. It is not a tax deduction because the income wasn’t taxable in the first place.
However, they also made contributions from my taxable income. I thought it was all from my CZTE. When I returned to my civilian job, I began to contribute and maxed out my contributions, not knowing about the earlier tax-deductible contributions.
Obviously, I over-contributed and just paid the income tax on the “overage.” But that overage is still in the TSP account.
Catch-up: $5,474 (Roth)
1. How is that taxable (and taxed) overpayment treated within TSP?
2. Can I combine my military and civilian accounts?
3. If combined, can I move the CZTE money into my Roth TSP?
4. Can I move the “overage” that I have now paid taxes on into the Roth, as well?
Both of the amounts I want to move into the Roth have been taxed or were tax-exempt when earned.
A. The usual limits do not apply to TSP contributions from CZTE pay; they only apply to contributions from taxable basic pay, incentive pay, special pay and bonus pay. The Annual Additions Limit under IRC 415c does apply, however, and it limits the total contributions from all sources to $51,000 for 2013. My guess is that the money was just rearranged in the TSP to fall under the applicable limits for the various types and that you do not, in fact, have excess contributions in your accounts. You may combine your military and civilian accounts as long as you are separated from service covering at least one of the accounts and there are no CTZE contributions left in the military account. Those must be withdrawn first, or they money will be distributed to you when your request to combine the accounts is processed. The CTZE money in the traditional TSP account cannot be transferred to the Roth TSP.
March 14th, 2013 | Uncategorized
Q. In 2008, when the market crashed, I put a lot of my G and C funds into the S and I. The balance was around $107,000 at the time. It’s now 2013 and my balance today is $270,000 as the share prices for the S and I have more than doubled. The S Fund went from $11 a share to $26 a share. The I Fund went from $12 a share to $25 a share. When is a good time to move all of the S and I back into the G or C funds so that I do not lose what I have gained over the past five years? My thoughts are to bail out now, place it in either the G or C, but to continue to make biweekly contributions into the C/S/I funds as the years continue. I have 14 years in FERS and have another 15 to go before I retire.
A. First, the C, S and I funds are highly correlated. That is, they move in the same direction at the same time and have similar short-term volatility, so I’m not sure that I see the logic of jumping from S and I to C. Second, if you abandon stocks, when will you buy them back? What if there’s no big market crash in the next few years to give you an obvious opportunity. Don’t make the classic gambler’s mistake of thinking that luck is anything more than that. You can’t expect lightning to keep striking in the same place.
I do agree, however, that as stocks have run up, you should have, and continue to take stock risk out of your portfolio. A smarter way to do this is to pick a moderate to aggressive asset allocation, using all five of the Thrift Savings Plan’s basic funds, and regularly rebalance to that allocation. This will hedge the risk you’re worried about, and the ones you’re not.