Ask The Experts: Money Matters

By Mike Miles

VCP

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Q. I am a CSRS employee. I have decided to take the Voluntary Separation Incentive Payment and should be off the rolls by March 31. I am told that I can put in 10 percent of my basic total federal wages (could be in excess of $200,000) into the Voluntary Contribution Program and I should withdraw all of it when I retire. I am also told that I can deposit this withdrawn VCP money into a Roth IRA, which is the main reason I want to do this. Are my assumptions true? If it is, how can I open a VCP account, since I am told that it will take at least a couple of months before the Office of Personnel Management acts on my request?

A. I can’t tell you what you should do with what little I know about you and your circumstances. For the timing, you’ll have to work with your agency and OPM to figure out how to make it work. I can tell you that what you’re considering is allowed and worth considering.

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TSP loan

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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.

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VSIP and IRA contribution

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Q. I retired from the Postal Service on Jan. 31 with a Voluntary Separation Incentive Pay of $15,000. The VSIP was paid out as $10,000 this year and $5,000 in 2014. I know I can contribute to an IRA for 2013 since I had earned income during the month of January. Now that I’m retired, will I still be able to contribute to an IRA in 2014 because of the $5,000 in “income” that I’ll receive from the Postal Service?

A. A VSIP is not considered a basis for contribution to an IRA.

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VERA/VSIP and retirement benefits

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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.

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VERA/VSIP and TSP

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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.

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VERA/VSIP, annuity, TSP withdrawals and SRS

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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.

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FERS and NAF

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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.

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VSIP and re-employment

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Q. I worked for the federal government for over 28 years. I retired last year under Voluntary Separation Incentive Pay provisions June 30, 2012.

I am considering re-employing/reinstating. Am I eligible to return to work on July 1, one year after retiring? Can I repay the VSIP in cash or in payments?

I read once that you can make payments for up to 36 months upon re-employment but am not sure whether this is correct. I understand the VSIP must be paid back before I return to work.

Upon re-employing with the government, will I be able to contribute to FERS and the Thrift Savings Plan?

I noticed on the USAJobs website that some Navy notices state you can’t contribute to the retirement or TSP if your a re-employing annuitant. Yet others I read from other government agencies remain silent on this issue.

A. Mike: From published Office of Personnel Management materials: “If a re-employed annuitant is performing service covered by FERS or CSRS (i.e., the appointment is made pursuant to 5 U.S.C. § 8468 or § 8344(a), respectively), the re-employed annuitant is eligible to participate in the TSP.

Agency contributions for a FERS re-employed annuitant must begin with the effective date of the reappointment to the FERS position as discussed in Section VI (A) of this bulletin. The re-employed annuitant may make contribution elections as discussed in Section III of this bulletin.

If a re-employed annuitant is not performing covered service (e.g., a FERS annuitant who is re-employed on an intermittent basis or an annuitant authorized to receive full salary and full annuity under P.L. 101-509 or the National Defense Authorization Act of 2004), the re-employed annuitant is not eligible to participate in the TSP.

Generally, re-employed annuitants are performing covered service. In most cases, if the annuitant indicator on the Standard Form (SF)-50, Nature of Action, is coded “1,” “4,” or “5,” the re-employed annuitant is eligible to participate in the TSP. In the case of a FERS re-employed annuitant, this will be reflected in the retirement code (which indicates FERS) because the annuitant is required to have FERS deductions taken from pay.

In the case of a CSRS re-employed annuitant, however, this may not be reflected in the retirement code because the annuitant may not be required to have CSRS retirement deductions taken from pay. Consequently, the retirement code of a CSRS re-employed annuitant may be “4” (i.e., none), though the annuitant is performing service covered by CSRS and is therefore eligible to participate in the TSP.”

Reg: You can return to work for the government at any time after you accept a VSIP. However, if you accept employment for compensation with the government of the U.S. within five years of the date of the separation on which the VSIP is based, including work under a personal services contract or other direct contract, you must repay the entire amount of the VSIP to the agency that paid it before your first day of re-employment.

Both things you read about re-employment are true. As a rule, your salary would be offset by the amount of your annuity and you would be able to contribute to the retirement fund. If you worked for a full year, you’d receive a supplemental annuity; if you worked for five years, you’d receive a redetermined annuity. On the other hand, there are certain limited authorities that would allow you to return to work and receive both your full annuity and the full salary of your new position. However, you would not be permitted to contribute to the retirement fund and, when you retired again, you wouldn’t be eligible for any additional retirement benefits.

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Pretax payment of separation incentive

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Q. For Army employees: Have you heard anything regarding the Voluntary Separation Incentive Program and pretax payment? Or is there anything before Congress? What are the pros and cons to employees having their money from a VSIP benefit going to TSP? What would they need to do to ensure that money goes to TSP?

A. A VSIP is not eligible for deferral to the TSP.

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Moving TSP funds into an IRA

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Q: I am a Federal Employees Retirement System employee retiring on April 30, under the Voluntary Early Retirement Authority/Voluntary Separation Incentive Pay at age 55. Can I take some or all of my Thrift Savings Plan balance and transfer it to a self-directed individual retirement account? What is the process for doing that? What are the estimated costs and penalties?

A: You may roll over your TSP assets to an IRA following separation at at 55 with no penalty. Use Form TSP-77 to request a partial withdrawal or Form TSP-70 to request a full withdrawal of your account assets.

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