By Mike Miles
Partial TSP withdrawal
April 29th, 2013 | Uncategorized
Q. I will be 63 years old in August. I have made a previous partial Thrift Savings Plan withdrawal but need another for a down payment on a home.
1. Can I make another partial withdrawal? If not, what regulation dictates that I cannot?
2. If I can’t make another partial withdrawal and decide to take monthly payments, can I set the monthly payment amount or does TSP have a required monthly distribution rule? And will the remaining balances continue to earn income?
A. You are limited to one partial withdrawal during your lifetime. I’m not a lawyer, so you’ll have to look up the regulation yourself. You may request automatic monthly withdrawals in any amount you like and change the amount once each year in January. Your remaining balance continues to be invested according to your direction.
Tags: distribution, monthly, partial withdrawal, TSP
Divorce and TSP
April 29th, 2013 | Uncategorized
Q. I am about to divorce my husband, who works for the Federal Aviation Administration.
1. Can I keep his health insurance as an individual? Does this cost anything to him? How much will it cost me?
2. How can I be eligible for his life insurance after divorce?
3. Which is more beneficial: Getting a survivor benefit or getting a higher pension?
4. When can he start taking money from his Thrift Savings Plan?
A. You can’t withdraw money from his TSP account. Your divorce settlement will govern how the TSP is divided and distributed and you’ll likely wind up with your share in an IRA in your name. The usual rules for distributions will then apply.
Tags: divorce, health insurance, IRA, life insurance, survivor benefits, TSP, withdrawal
TSP MetLife annuity protection
April 29th, 2013 | Uncategorized
Q. Is an annuity purchased with Thrift Savings Plan funds from MetLife federally insured/guaranteed the way bank accounts have FDIC? Or is a MetLife guaranteed annuity not really guaranteed at all, in case even a huge company like MetLife fails?
A. A TSP annuity is guaranteed by MetLife, not by the federal government.
TSP vs. Roth IRA
April 29th, 2013 | Uncategorized
Q. I am a fully vested CSRS employee with the Environmental Protection Agency for 33 years at age 55. I have received my numbers, but I missed my first date to retire. How long does it take to receive my first full check? Worst-case scenario? Best-case scenario? And is there any way to speed up processing?
When will I receive my annual leave payment? Will it be immediate in one lump sum without taxes since I already paid taxes on my leave?
Should I take all of my Thrift Savings Plan out at once or leave about 10,000 in and roll it over to a Roth IRA or leave it in TSP?
Is there a financial counselor at TSP to speak with about taxes and IRAs vs. TSP?
I was told the first three days of the month or the last day of the month are the best times to go out to receive the check earlier? Is this a good idea?
A. Mike: You should leave your money in the TSP for as long as possible, since it is the best retirement investment vehicle you’ll find. You’ll find information about taxes and the TSP at www.tsp.gov. You may contact the Thrift Line with your specific questions, although I doubt they’ll help you with questions about IRA taxation.
Reg: I don’t know how long it will take for you to get your first full annuity check; nor, I expect, does anyone else. However, once your retirement package arrives at the Office of Personnel Management, they will put you in interim pay within a week or two. A complete and accurate retirement package speedily sent to OPM by your agency is the best hedge against delayed processing.
You’ll have to ask your agency when it will send you your lump-sum payment for unused annual leave. That can’t happen until your agency closes out your account. Since you couldn’t have paid taxes on that money until it was received, it will be treated as ordinary income from which taxes will be deducted.
To pick the best date to retire, try to find one that is at the end of a pay period — to get credit for any annual and sick leave you earned during that pay period — and as close to the end of a month as possible — so the time between when you are employed and on the annuity roll is as short as you can make it. Note: As a CSRS employee, you can retire up to the third day of any month and be on the annuity roll in that month. While you will be paid for the additional days you are employed, your first month’s annuity will be reduced by 1/30 for every day you are still employed.
Tags: annual leave, annuity, CSRS, lump-sum, retirement, rollover, Roth IRA, taxes, TSP, vested
TSP withdrawal at 70 1/2, Part II
April 24th, 2013 | Uncategorized
Q. I am retired CSRS. I was born Nov. 15, 1942. Therefore, I’ll be 70½ on May 15.
1. When will I have to start taking payments from my Thrift Savings Plan account?
2. Can I wait until January to March 2014 before I get my first payment?
3. What is the minimum I will have to take?
4. I do not want a total lump-sum payment.
5. Do I have to take a monthly payment, or can I get my minimum payment once a year?
6. What form do I need to submit to get minimal payments each year?
7. Can you provide the form?
A. You are required to take your first withdrawal by April 1, 2014. This will be the required minimum distribution for 2013. You are then required to take the 2014 RMD by end of the day on Dec. 31, 2014. The RMD amount is calculated for each year and will likely be different each year. The amount is calculated using the method described in IRS Publication 590. The TSP will calculate the RMD amount for you and send you monthly payments to meet the requirement. Use Form TSP-70 to request the monthly payments based on your life expectancy. You may take one lump-sum distribution from your TSP account and may only take monthly payments after that.
Tags: 70 1/2, CSRS, IRS, life expectancy, lump-sum, Required Minimum Distribution, retirement, TSP, withdrawal
TSP withdrawal at 70 1/2
April 24th, 2013 | Uncategorized
Q. I have to withdraw my Thrift Savings Plan because of my age (70½).
I am indecisive as to:
1. Withdraw all to a saving account
2. Get a partial withdrawal for 120 months, or
3. Withdraw part of it and gradually withdraw the rest over a 10-year time span.
My considerations are:
1. No taxes, as I understand it, over a period greater than 10 years on a gradual withdrawal
2. Putting me into a higher tax bracket.
What advice or comments can you give me?
A. Unless you can come up with a good reason – that is, using actual estimates of costs, taxes, etc., rather than just qualitative statements – I don’t know why you would take any more than the required minimum distribution each year.
Tags: 70 1/2, partial, Required Minimum Distribution, taxes, TSP, withdrawal
Penalty on TSP withdrawal?
April 24th, 2013 | Uncategorized
Q. My age is 52. I worked 22 years in the Postal Service. I have a Thrift Savings Plan account and am now retired due to a disability. If I make a full withdrawal, will I be penalized?
A. Yes, 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.
Tags: age, Disability, penalty, Postal Service, retirement, TSP, withdrawal
Age 55 exemption
April 24th, 2013 | Uncategorized
Q. I have more than 20 years of service as a federal law enforcement officer and will turn 55 in 2014. I plan to retire under FERS from my agency this year, before my age 55, and immediately (with no break in service) become re-employed on a full-time basis with another federal agency. I understand that my salary during the period of re-employment will be offset by the amount of my FERS annuity, and that retirement deductions (including Thrift Savings Plan contributions) will be made from my re-employment salary. I understand further that I would earn a supplemental annuity upon termination of re-employment if I am re-employed for more than a year, and that I could alternatively elect a redetermined annuity if I am re-employed for at least five years.
However, if my re-employment terminates before I reach age 59½ (but well after 55), and I wish to make withdrawals from my TSP account at that time, how will the Internal Revenue Service calculate my “separation from service” date? That is, will the IRS consider that I “retired” in 2013, prior to age 55, and thus apply the 10 percent penalty for early TSP withdrawals? (That would effectively force me to lock myself into the life expectancy withdrawal option for a full five years after the termination of my re-employment period.) Or, would the IRS determine that I “retired” on the date of the termination of my period of re-employment – after age 55 – enabling me to withdraw from my TSP account penalty-free?
A. To the best of my knowledge, your TSP account, if it is kept going through the transition in federal employment, will be eligible, in its entirety, for penalty-free withdrawal under the “age 55 exemption.” But, you should consult a qualified tax accountant before you make any plans.
Tags: age, annuity, contributions, early withdrawal penalty, FERS, IRS, law enforcement, TSP
Penalty for transfer from former employer’s 401(k) to TSP
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.
TSP rollovers
April 22nd, 2013 | Uncategorized
Q. The guidance on partial withdrawals from the Thrift Savings Plan is somewhat confusing if you have both a traditional and Roth portion. It says that withdrawals will be prorated between the two. However, is it possible to solely roll over the Roth portion into another Roth and still leave the entire traditional portion in tact? Or, since these are two distinct types of investments, can the Roth be rolled over into a Roth and the traditional be rolled over into a traditional in amounts, say $5,000 of one and $10,000, even if the balances are not in this same 1:2 ratio?
A. Distributions are prorated between the two accounts, while direct transfers (rollovers) may be designated as applying to each type of money, independently. I suggest that you review Form TSP-77 to see what can and can’t be done.
Tags: distribution, investment, partial withdrawal, rollover, Roth IRA, TSP