By Mike Miles
December 10th, 2013 | Uncategorized
Q. I have an opportunity to retire under a Voluntary Early Retirement Authority. I have 30+ years of FERS service, non-law enforcement. My age will be 53 years and 11 months if I retire under this VERA offering.
At what age will I have full access to my Thrift Savings Plan without the 10 percent early withdrawal penalty by “taking substantially equal payments over my life expectancy.”
At what age will I have full access to my TSP without the 10 percent early withdrawal penalty by NOT “taking substantially equal payments over my life expectancy.”
If immediately upon retirement I begin collecting TSP funds “paid as substantially equal payments over my life expectancy”:
Do I avoid the 10 percent early withdrawal penalty?
Must I continue this withdrawal option for life, or only until I reach age 55?
Must I continue this withdrawal option for life, or only until I reach age 56, my minimum retirement age?
Must I continue this withdrawal option for life, or only until I reach age 59½?
A. If you retire prior to the calendar year in which you reach age 55, you will not have unrestricted access to your TSP account, without penalty, until you reach age 59½ unless you become totally disabled. This is true whether or not you initiate a Series of Substantially Equal Periodic Payments (SOSEPP) as defined in IRC section 72(t) if you retire prior to the calendar year in which you reach age 55.
If you properly initiate and maintain a SOSEPP, you will avoid the early withdrawal penalty on the SOSEPP withdrawals. The SOSEPP must continue for five years, or until you reach age 59½, whichever is longer. If you disrupt the SOSEPP or otherwise violate the rules for this, the early withdrawal penalty will be assessed on all withdrawals that were protected under the SOSEPP.
November 11th, 2013 | Uncategorized
Q. My wife and I are FERS employees. We are both considering retiring early if offered Voluntary Early Retirement Authority at ages 50+/- (both with more than 25 years of service). With children still in the picture for some time, access and flexibility with our Thrift Savings Plan accounts are crucial to any plan. I would like to accomplish two things:
1). 72(t) withdrawals until 59½ in one account.
2). Flexibility to roll over funds currently in TSP into a Roth IRA held at another institution (from an IRA as I see no method to do that while the funds are in TSP).
My plan would be to roll over just enough to “fill up” a certain tax bracket, say 15 percent, especially while we have many deductions related to children.
So, my thinking would be to have substantially equal payments out of one account soon after early retirement but not immediately. For the other TSP account, make a one-time partial withdrawal and transfer that to an IRA currently held at another institution. I’m assuming I can make that transfer/withdrawal at age 50 with no penalties, correct? This would allow me to each year assess our taxes and determine what amount of the IRA I would like to convert to my Roth IRA. I would only do a partial withdrawal as I appreciate the low expenses of the TSP, but the inflexibility to convert to a Roth is too limiting.
Does this make sense? And is everything I’ve laid out reasonable and doable?
A. What you’ve proposed is doable, but I’m not sure I see the value in the Roth IRA conversions.
October 28th, 2013 | Uncategorized
Q. I am 61 years old and have a Thrift Savings Plan loan of $24,000 and over $60,000 remaining in my TSP account. I applied for a Voluntary Early Retirement Authority/Voluntary Separation Incentive Pay at my human resources office awaiting approval. What happens to my TSP loan and to my remaining balance in my account if I request a full withdrawal when my retirement is approved? Does the remaining balance of my TSP loan gets paid up from my remaining balance and incur penalty for the full withdrawal?
A. If you don’t repay your loan within 90 days of the day your agency notifies the TSP of your separation from service, the outstanding balance due will be declared a taxable distribution. If you request a lump-sum withdrawal of your entire TSP balance at retirement, you’ll pay tax on the remaining balance and the un-repaid loan amount due.
October 7th, 2013 | Uncategorized
Q. I took the Voluntary Early Retirement Authority on Jan. 31 at my minimum retirement age. I had 26 years at the Postal Service under FERS. After 16 years of marriage, I became a widow. The only income I have is my annuity and the special retirement supplement from the Office of Personnel Management. Will I be eligible to receive Social Security benefits from husband at 60, and will they end at 62? When I turn 62, my supplement will end. I have $190,000 in the L2020 fund. Would it be beneficial to me to start receiving money from my Thrift Savings Plan at 62 and delay Social Security until full retirement at 66 years and four months. A financial adviser told me to roll over my money into an IRA when I turn 59½. Is that a good idea, or should I keep it in the TSP? Would you recommend the G Fund, since I don’t have money to lose?
A. Mike: It’s impossible to give you specific personal financial advice with this tiny amount of information. In general, however, you should invest your money in a way that gives you a high probability of achieving your financial goals with a minimum of risk. There is no one-size-fits-all investment strategy, even for someone your sex and your age. Investment management is an ongoing and complex process. The advice you’re being given about rolling over you TSP to an IRA sounds like a sales pitch to me. You should preserve your TSP assets as long as possible unless a trustworthy analysis indicates that it would be in your best interest to do otherwise. Your question about using TSP funds to delay claiming Social Security is worth considering, but, again, finding the right answer will require some analytic work.
Reg: To find out how your own Social Security benefit would interact with your Social Security survivor benefit, go to http://ssa.gov/pubs/EN-05-10084.pdf.
October 6th, 2013 | Uncategorized
Q. How will Voluntary Early Retirement Authority/Voluntary Separation Incentive Pay affect my retirement benefits (annuity supplement, Social Security, pension and Thrift Savings Plan withdrawals)? I am an Air Force civilian GS-13, age 52, with 26 years of service under FERS.
A. A VERA/VSIP will not affect the rules governing your TSP withdrawals. You will be subject to the early withdrawal penalty until you reach age 59½ unless you can qualify for one of the exceptions listed on the left side of Page 7 of this notice: https://www.tsp.gov/PDF/formspubs/tsp-536.pdf.
September 16th, 2013 | Uncategorized
Q. How will Voluntary Early Retirement Authority/Voluntary Separation Incentive Pay affect my retirement benefits in regard to the Thrift Savings Plan and what I do with the money in the TSP (when do I have to take withdrawals, etc.)? I am a Defense Department civilian, age 53, with 35+ years of service under CSRS.
A. Early retirement does not affect the rules governing access to your TSP account. The usual rules apply and they can be found at www.tsp.gov. In particular, you should understand the information contained in this notice: https://www.tsp.gov/PDF/formspubs/tsp-536.pdf. You’ll be subject to the early withdrawal penalty unless you qualify for one of the exceptions listed on the left side of Page 7.
September 9th, 2013 | Uncategorized
Q. How will Voluntary Early Retirement Authority/Voluntary Separation Incentive Pay affect my retirement benefits (annuity supplement, pension and Thrift Savings Plan withdrawals)? I am a Defense Department civilian, age 58, with 21 years of service under FERS.
A. Mike: You will have access to your TSP account, under the usual rules, without penalty following your separation.
Reg: Your annuity would be computed under the standard formula: .01 x your high-3 x your years and full months of service. There wouldn’t be any age penalty because you were retiring before age 62. And, since you have already reached your minimum retirement age, you’d immediately be entitled to the special retirement supplement.
August 6th, 2013 | Uncategorized
Q. If I retire early at 50 years of age with 30 years of service under FERS, I understand I’d have to wait until my minimum retirement age to receive the special retirement supplement. What reductions would I have in my retirement annuity? Would I be able to receive monthly Thrift Savings Plan annuity at age 50?
A. Mike: You may use your TSP money to buy an immediate annuity and receive monthly income payments at any age, once you are separated from service.
Reg: If your agency offers you a Voluntary Early Retirement Authority, there wouldn’t be any age-based reduction in your annuity. As noted, you wouldn’t receive the special retirement supplement until you reached your MRA.
June 3rd, 2013 | Uncategorized
Q. Overview: I began in the Air Force Non-Appropriated Fund in 1996, enrolled in NAF retirement plan in 2000, ported to GS in 2005 with deferral of my NAF retirement (calculated at 5.27 yrs) and entered FERS. My current GS position will be abolished in 2014 (at nine years FERS). I have the potential of porting into a NAF position. I wish I had just retained NAF retirement, but lack of research and misguided human resources recommendations led me to where I am with a split retirement outlook.
Given my FERS time will total only nine years at abolishment, if I move to NAF:
* Will I have the option of re-entering the NAF retirement system, or am I required to remain in FERS?
* If I can switch back to NAF retirement, will I have to wait until 62 to draw any FERS retirement since I only achieved nine years, versus reaching MRA+10?
* Will I be able to retain Thrift Savings Plan in nonactive status (until draws begin at 59½) and begin contributing into the NAF 401(k), or will I have to roll TSP into 401(k)?
* Are there any conflicts with drawing two annuities at retirement (both APF and NAF)?
* Does AF NAF retirement pay the full amount of the retirement calculation (less 4 percent for each year before age 62) until I reach age 62? And is the only reduction at 62 the annuity reduction calculated at 2.5 percent of Social Security (x) # of NAF years?
* At age 65, do the health benefits automatically roll to supplementary when Medicare starts?
* What is the current cost for full family coverage and also the current cost for just the supplementary insurance?
* If, at 65, full coverage reduces to supplementary and my spouse is not yet 65 years old, can I elect to continue full coverage?
* If the NAF position is abolished via business-based action (after 2016) is there the possibility of being offered a Voluntary Early Retirement Authority/Voluntary Separation Incentive Pay retirement based on my service computation date providing 20 years of combined continuous service without a break since 1996?
A. Mike: You may maintain your TSP account.
Reg: I wish I could be of help but I don’t know anything about the rules that cover someone transferring from FERS to a NAF position. You’ll have to check with the NAF personnel office.
March 19th, 2013 | Uncategorized
Q. My wife retired under a Voluntary Early Retirement Authority in August 2011. Her 1099-R displays a “1” as the distribution code in Block 7 of the form, “no known exceptions.” For years 2011 and 2012, we paid a 10 percent tax penalty for early withdrawal from her Thrift Savings Plan. I know the tax is usually levied unless the person is 59½ years of age, but at what age will the code on the 1099-R change for my wife so we won’t have to pay this tax? Will she benefit at some point because her retirement was a VERA, and at what age can we escape this tax? Her date of birth is Nov. 27, 1959. She retired with 24+ years of service from Natural Resources Conservation Service.
A. I can’t tell you when the code will change, but since she separated from service before the calendar year in which she reached age 55, she will subject to the early withdrawal penalty until she reaches age 59½ unless she can meet one of the exceptions listed on Page 7 of the notice at https://www.tsp.gov/PDF/formspubs/tsp-536.pdf. A VERA is not one of the exceptions.