Ask The Experts: Money Matters

By Mike Miles

Early withdrawal penalty

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Q. I am a retired law enforcement officer with 25 years of service. I retired from the Bureau of Prisons in December 2009 at age 48. I am receiving my pension and the supplemental annuity. I have $300,000 in my TSP account and want to start withdrawing it. What are my options to begin receiving money from the TSP without buying an annuity and not having to pay the 10 percent early withdrawal penalty? Can I take a one-time distribution of say $100,000 without penalty? Can I withdraw the whole amount without penalty? Can I take $2,400 per month out which will last for at least 10 years or do I have to use the IRS life expectancy formula? Am I exempt from this penalty as a qualified public safety employee or special category employee? Read the rest of this entry »

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Investment diversity

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Q. I am 67, and I plan to work two more years. I am collecting my Social Security. My TSP is invested in the G fund, and I panic every time I invest elsewhere and the market goes bust and I lose $6,000 in one day. Should I diversify or stay in the G fund so close to retirement? I have diversified in the past and lost $52,000 in 2008.

A. It sounds like you’re not qualified to manage a retirement investment account. You should either stick to the G Fund, buy a TSP annuity or find a trustworthy investment adviser to help you.

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FERS account taxes

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Q. I will retire in two years. If I leave my money in the TSP, what happens when I reach 70-1/2 and I  am forced to pay a certain percentage of my savings out every year due to my age. Does that mean I would have to pull all my TSP money out (pay taxes on it) to transfer it to another account in anticipation of the yearly deduction?

A. If you begin monthly distributions using form TSP-70 during or before the year you reach age 70-1/2, the TSP will automatically distribute the required amount each year. There is no need to leave the TSP while you are still alive.

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Loan balance

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Q. I work for the BOP and I am 10 months away from being forced to retire with 20 years of service. A few years ago there was talk around work that the age restriction was going to be raised, and it seems that was wishful thinking.  I just accepted it as a probability because it was raised in the past and that gave me the opportunity to get hired. I took out a loan against my TSP account anticipating the age requirement would go up and as a result, unless something does change, I will most likely have a balance on this loan when I’m forced out. If I’m unable to pay this balance off prior to being forced out, what consequence can I expect as a result?

A. The unpaid balance will be declared a taxable distribution. The early withdrawal penalty may also apply if you don’t meet one of the exceptions listed on Page 7 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.

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TSP withdrawal

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Q. I retired a few years ago under the VSIP/VERA program under the MRA +13 years of government service.
Can I take a withdrawal of my TSP funds out before I turn 59½? If so, what are the tax penalties and is there a 20 percent federal income tax I have to pay ? Also, is this income that will be reported on my federal and state taxes for that year?

A. Your questions are too complicated for a simple answer, since they depend upon circumstances not explained in your message. You’ll find the information you need in the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.

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Taxes and TSP

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Q. I understand TSP withdrawals will be taxed as regular income come tax time.
However, when one takes/chooses monthly TSP payments upon retirement, are
taxes taken out of these payments? In other words, when I run the TSP
calculator, understanding it is only an estimate, can I expect these
payments to be lower due to taxes being taken out? Read the rest of this entry »

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TSP and SEPP

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Q. I Have $400,000 in the TSP at age 53. I am out of the government and I want to start SEPP. I have run 72t computations with single life expectancy option at 31.4 years, and the fed mid-rate interest, no more than 120 percent (using 1.5 percent in the computation, to be conservative and stay out of trouble). No problem on the five year or 59-1/2 requirement. After consulting with a CPA for the SEPP, we’re almost good to go, except for one question. Does the TSP calculate my monthly SEPP payment? Can they be relied on to do it correctly, or do we calculate it, have the annual amount divided by 12 to get monthly rate, then ask for that amount each month, which would be deposited, less the tax withholding? I am not sure the TSP has experience/supports SEPP and expect to have to file the 5329 to correct their 1099-R once I start SEPP. Read the rest of this entry »

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Maximizing investment

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Q. I’m 53 with 30 years of government service. I’m invested at 15 percent to TSP. Looking at my account, I feel I am not going to have enough money in my TSP to retire comfortably. I have 6-1/2 years until I can retire without penalty to TSP. What can I do to maximize my investment?

A. I suggest that you contribute as much as you can and direct all of your current and future investments to the L Fund that most closely corresponds to your life expectancy. If you’d like more certainty in predicting and producing the outcome of your retirement plan, you can review the information provided at www.variplan.com. My ongoing help is trustworthy and cost effective for most feds with $100,000 or more in savings and investments.

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Age-based withdrawal

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Q. I am 57 with 20 years of service and don’t plan on retiring for at least 5 years. I would like to take out a TSP loan, then when I turn 59½ take an age-based disbursement for enough to pay back the balance of the loan and have some money left over. Can I do it that way? Or would I be required to pay off the loan before getting an age-based disbursement? I would think they would just deduct the amount of money I still owe from the disbursement. For example, say I took out a $50,000 loan now. In 2½ years I’d still owe about $25,000 to $30,000. Could I take my one-time, age-based disbursement of say $100,000 with the loan balance deducted from that amount? Read the rest of this entry »

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More control over savings

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Q. I’ve been retired for several years and have been taking the good advice you’ve been suggesting in your “Ask the Experts” articles. Since I know very little about how to invest, I’ve put all my TSP savings in the L-2030 fund. Since I don’t need to withdraw any money at the present time, I plan on leaving the money there until it’s time for the RMD in about four years and I’ve named several beneficiaries for my account. You stated in one of your articles that if I didn’t need the money from the RMD, I can just move it to a similar investment in a taxable discount brokerage account. Does your company “Variplan” handle such accounts?

A. Yes, I provide comprehensive financial decision support for feds, including analysis and advice covering investments and other assets outside the TSP. Visit www.variplan.com for more information.

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