Ask The Experts: Money Matters

By Mike Miles

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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Transferring spouse’s 401K funds

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Q. I am a federal employee with TSP and I am still working. My wife is retired and on disability. Can she transfer/rollover her employer-sponsored 401K funds to my TSP? If so, what are the restrictions/conditions?

A. No.

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F fund fluctuations

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Q. I have approx. $270,000 in my TSP account, all in the F fund. When the AGG is up .01, I lose about $100. Why?

A. I suspect you are either seeing the effect of lag between the reporting of results between the index and the F Fund, or it is the result of investment expenses.

 

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USAA Roth and TSP contributions

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Q. I took my tax info to a professional to have them done this year. I’ve maxed out my Roth IRA with USAA. I’ve also contributed about $2500 to a traditional TSP as a uniformed service member. I’m being told I’ll be penalized for my contributions to my Roth account since I have an employer-based retirement plan. Is this accurate? Can I only contribute a total of $5500 for both accounts? I’ve always been told to contribute to both.

A. The TSP contribution limit is fixed and not contingent on any other factor. Your eligibility to contribute to a Roth IRA might be limited if your income is sufficient. In the future, I suggest that you max out your TSP contributions before you save to a Roth IRA, and then check with your tax accountant before you attempt to make any IRA contributions since your eligibility depends upon your tax return for the year. See IRA Publication 590 for the limits on IRA contributions.

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IRS penalty on partial TSP withdrawal

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Q. I am a FERS employee (6c law enforcement coverage) planning to retire in January 2015 after 31 years in federal law enforcement. I plan to build my retirement home soon after and have need of a partial withdrawal from my Thrift Savings Plan at retirement. Is this partial withdrawal subject to the 10 percent IRS tax under the one time withdrawal provision, and if so, do I have any option to avoid that penalty while still accessing about a third of my account?

A: If you retire during or after the year in which you reach age 55, you will be exempt from the early withdrawal penalty on any kind of withdrawal. If you retire before that point, you’ll be subject to the penalty until you reach age 59 1/2 unless you qualify for 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 early withdrawal penalties

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Q. I just turned 57 in January and am planning on retiring on June 1, 2014. I am CSRS and currently working with the U.S. Postal Service. I was hired by the Postal Service in March 1982 and have met my minimum retirement age and time in service. I also have 4 years prior military service in the Navy from 1976 to 1980 on active duty. Will I be penalized if I make a TSP withdrawal prior to turning age 59 1/2 years of age?

A. No. You will have retired after the calendar year in which you reached age 55 and, therefore, qualify for one of the exceptions to the early withdrawal penalty.

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TSP stock shares

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Q. I am a Postal employee contributing to the 2030 Life Cycle Fund. I would like to know when my stock market shares are purchased. Is it before the market opens on payday Friday, during that day or after the market closes that Friday?

A. The purchased is made using the end of day valuation on the day the contribution is received by the TSP. Ask your payroll office when their TSP contributions are processed.

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Annuity with qualified funds

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Q. So I’m retiring early, age 55, on the early out offer effective on July 31, 2014. I will begin monthly withdrawals from the Thrift plan at the rate of 20K per year as soon as I can, hopefully beginning in September 2014. I will receive my pension payment of 25K, and beginning in November 2014, I qualify to begin receiving the supplemental payment of slightly over 10K because I turn 56 on October 30, 2014.

I like the idea of eventually converting to an immediate fixed annuity at some point after I’ve managed my own distributions for a lengthy period of more than 10 years, maybe 15 years. I’m giving my background to ask a specific technical age requirement question about converting all my remaining funds to an annuity from qualified Thrift Account funds.

I’m being told by the guys at Vanguard that I can’t buy an immediate annuity or even a deferred longevity type annuity unless it starts at age 70 1/2, because these are “qualified funds.” That does not sound right to me. If I’m distributing my Thrift plan and meeting the required minimum distribution after age 70 1/2, why does it matter when I use qualified funds to buy an annuity? It shouldn’t matter if I’ve complied with RMD on the qualified funds prior to purchasing an immediate annuity even if I were 75 years old. Is the advice I’m getting from Vanguard correct? Do I have to convert thrift funds on or before age 70 1/2 or can I do it as late as 75 or 80?

A. I can’t speak for Vanguard, but generally you may use qualified plan money to buy an immediate annuity any time you like.

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Time restrictions for voluntary contributions to private Roth

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Q. I understand that it is possible to transfer Voluntary Contribution account deposits to a private Roth IRA (with any pre-tax interest earned going to TSP), but I’ve also been told there’s a five year ‘holding’ requirement for the Roth. I currently have a private Roth account that is more than five years old. Does the five year requirement mentioned in conjunction with the VC mean that the money should be placed into a new and distinct Roth account, so that an additional five years holding can be tracked, or can the VC contributions (without interest) be added to the existing account?

I was hoping to consolidate several small taxable IRAs into my non-Roth TSP, and all my non-taxable Roth accounts into one private account to consolidate and simplify matters when I retire — but I’m still confused as to whether the newest funds (VC transfer to Roth) would have to be put into yet a third account to isolate them and leave them untouched for five additional years — or if that five year time requirement is referring to the establishment of Roth accounts in general, not the specific date various funds are deposited in it. The account is over five years old. The money is ‘new’. Is there still an additional five year holding requirement for the new funds? Is there a requirement to isolate funds in a Roth based on the date of deposit?

A. There is no requirement to isolate Roth IRA funds based on the date of retirement, but the five year rule can be tricky to navigate, and it might be a good idea to keep the converted money separate. I suggest that you review the rules in IRS Publication 590 and consult a CPA for specific advice for your situation. Someone needs to come up with a workable plan. If you’re not up to it, find someone who is and who will take responsibility for the outcomes.

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