Ask The Experts: Money Matters

By Mike Miles

TSP annuity

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Q. My question has to do with choosing to withdraw my TSP account upon retirement. I understand I can leave my balance with the government and either choose equal payments for my expected lifespan or have the government purchase an annuity on my behalf. What I do not understand is the difference between choosing equal payments for the rest of my life and purchasing an annuity solely for myself? What are the pros and cons for each? I also don’t understand why I am also given a choice to choose a survivor benefit with my wife as the beneficiary should I decide on the annuity available through the government. If I die before my wife, isn’t she entitled to my TSP balance regardless if I choose the equal monthly payout or the annuity? Since she is the beneficiary of my TSP remaining balance, why should I even consider purchasing an annuity with a survivor benefit when this will have the effect of reducing my monthly pay? She will get the remaining TSP balance should I die anyway, won’t she? I also would like to know  if I choose either option for withdrawing my TSP retirement funds, do I retain control of the balance? Can I still move the money around from the C, S, and I funds in order to sustain the longevity of my retirement account? Read the rest of this entry »

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Rollover limit

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Q. I know partial withdrawals are limited to one in retirement under TSP. Does this apply to rollovers as well? I want to top off my marginal federal tax bracket each year until I hit 70-½ by doing a TSP rollover of a varying amount to my existing external Roth account. If I have to use the monthly payment option to do it, it’s just too much trouble.

A. Only one lump-sum TSP withdrawal or rollover is allowed per lifetime.

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Retirement options

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Q. I am 62 and a FERS employee. Can I retire with my FERS annuity and TSP and wait until my full retirement age of 66? I do not plan to work  after I leave.

A. Yes.

 

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Investment allocation

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Q. I am 25 and I am almost at the four-year service mark. I have been contributing since I started working for the federal government as a GS-07 at 5 percent. I am a GS-12 and started contributing 15 percent about five months ago (10 percent ROTH). My current allocation is 50 percent in C and 50 percent in S. I am trying to diversify my allocations a little better. Please help me with some feedback as to which other categories I should looking. Read the rest of this entry »

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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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