Ask The Experts: Retirement

By Reg Jones

Resignation and pension

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Q. I am 45 years old with 13 years of service under FERS and will be resigning this month to pursue other activities. I understand that I would eligible for a full pension (computed on my high-3) at age 62. That is 17 years away and, in the meantime, my defined benefit pension would remain static and thus be seriously eroded by inflation. Is there a way to protect myself against this within the pension system, or can I take a lump sum on separation and roll that into an IRA? If I take the lump sum, must I do it as of my separation, how is it computed, and does it represent only my contributions to the basic pension, or also those of the government? I have a separate Thrift Savings Plan, which I plan to roll into an IRA.

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12 questions on VERA

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Q. I am a letter carrier, age 52, started in 1985 and have 28 years of creditable service.

If I understand what I’ve gleaned from the posts here and the Postal Service were to offer me a Voluntary Early Retirement Authority this year,

1.  Would I begin my annuity immediately?

2.  Would I have no reductions in calculations of my annuity? (average high-3 x 1 percent x 28)

3.  Would I receive credit for half of my sick leave and all of my annual leave? (How are these applied?)

4.  Would I receive the special retirement supplement beginning at age 56 (my minimum retirement age), and receive it until I reach age 62?

5. Would I be able to continue carrying my current health and life insurance at non-USPS rates? (I couldn’t find how long these could be carried. Until death?)

6.  Could I begin receiving Social Security as early as age 62?

7. Any withdrawal from my Thrift Savings Plan prior to age 59½ would be penalized 10 percent as per Internal Revenue Service regulations? (Can I continue to contribute to TSP after retirement?)

8. As a FERS annuitant, is there no limit to what I can earn after separation from the Postal Service as it pertains to my annuity payment?

9. At age 56 (my MRA), the special retirement supplement from Social Security would begin and would be subject to yearly income limits. Would supplement payments be reduced by approximately $1 for every $2 I earned above that year’s Social Security income limit?

10. At age 65, I’d be eligible for Medicare parts A and B? (Would this affect my health insurance coverage through Federal Employees Health Benefits?)

11.  Would there be cost-of-living increases at any point for my annuity?

12.  Is there a date during the year that maximizes the benefits of retirement?

Did I get this right, and are there any other things I should know before considering a VERA if it is offered?

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401(k) rollover and military buyback

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Q. My husband has 10 years of Air Force service and is in the process of negotiating to take a federal position. To buy back his service, is it possible to use a 401(k) rollover? I am thinking not, since a rollover is only allowable to an IRA or other “qualified plan.” We certainly can take a direct taxable distribution of a portion of that 401(k) plan and use that money to buy back, but he wondered if it can be done with the rollover.

A. No, it can’t.

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Calculating interest on redeposits

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Q. I left federal service in 1988 after 13 years of service and took out my CSRS money, which was about $20,000 at that time. I have decided to return to federal service and want to be in CSRS Offset. I was told that repayment would include yearly interest and would be about $80,000. How is interest calculated? May I roll over either an IRA, Roth or my personal 401(k) into the CSRS Offset account to repay my debt and avoid paying taxes? What about the taxes on the $20,000 that I paid in 1988? Would they eliminate at least taxes on $20,000 of my IRA, etc., repayment if I cannot roll it over?

A. To find out how interest on redeposits is calculated, go to www.opm.gov/retire/pubs/handbook/C021.pdf.

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TSP, Social Security and annuity

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Q. When I retire under FERS, can I get all of my Thrift Savings Plan monies, Social Security and my annuity? Can I roll over my TSP monies without paying 30 percent of the total to the Internal Revenue Service? If so, what amount of tax-deferred monies, once rolled over, can I take out monthly without a penalty or have to pay taxes?

A. Reg: Yes, you can receive an annuity and, unless you retire under the MRA+10 provision, the special retirement supplement, when you reach your minimum retirement age. Unless you exceed the Social Security earnings limit from wages or self-employment, the SRS will continue until age 62 when you will be eligible for a Social Security benefit.

Mike: Once you retire, you may withdraw your TSP money. If you retire during or after the calendar year in which you reach age 55, your TSP withdrawals will be exempt from the early withdrawal penalty. There is no withholding or tax due for TSP money rolled over to an IRA. If you are under age 59½, you will be subject to the early withdrawal penalty for withdrawals from an IRA. There are exemptions from the penalty, however, and they are spelled out in IRS Publication 590.

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NDAA

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Q. I am trying to take advantage of the redeposit and can’t seem to find information to get this done. The current form 3108A does not address this particular subject. Human Resources was not familiar with it.

It is on the Postal Service blue page, but that is as much information that I can get.

I left USPS for eight months, and I took my Thrift Savings Plan and roll into an IRA. I want to find out how to get this redeposit, to receive credit for my annuity computation, and also my eligibility to retire.

I am currently employed with USPS, with 27 years of service.

A. If you withdrew your retirement contributions when you left government, you could use the Standard Form 3108A to redeposit the money and get credit for that period of service in determining your years of service and in your annuity computation. If, on the other hand, you only withdrew the money in your TSP account, that won’t have any effect on your eligibility to retire or in your annuity computation. If you still want to transfer money from your IRA to the TSP, you’ll need to go to their site (www.tsp.gov) and find out how to do that.

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Excess payments

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Q. I am CSRS and made 41 years, 11 months in August 2011. I continue to have deductions for retirement taken out of my pay. As I understand it, the Office of Personnel Management will send me a lump sum for my excess payment after I retire. My options are to accept the refund or return the money to buy additional annuity.

1. Will the excess retirement dollars from September 2011 to Dec. 29, 2012 (date of retirement) equate to another 2 percent annuity?

2. Do I have the option of putting that money in a Voluntary Contributions Program account?

3. Can I take that refund and put it in my Individual Retirement Account, without taxes being withheld at the time of IRA deposit?

A. OPM will refund your excess retirement contributions, plus interest, and offer you the opportunity to buy additional annuity. The method used to determine the amount is the same one used in the Voluntary Contributions Program. As such, how much you can buy depends on your age and the amount of the refund. At age 55, each $100 would buy you $7 of additional annuity. The amount increases by 20 cents for each full year you are older than 55. So, for example, if you retired at age 62, every $100 would buy you $8.40 of additional annuity. Although it wouldn’t be increased by any cost-of-living adjustments applied to your regular annuity, you’d receive that increase for the rest of your life.

While you can’t roll the excess contributions into a VCP account, which would be pointless anyway because interest payments stop when an employee retires, you can roll over the non-interest portion of your refund into an IRA.

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FERS annuity

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Q. I have 25 years in civil service. I have a Thrift Savings Plan account and, once I retire, do I get an annuity automatically or do I have to use the money in the TSP account to get that? Should I buy an annuity or just take a monthly payment from the TSP account? Not sure if I will have enough to retire. I heard that in FERS, the government gives an annuity and then you get TSP. But when I go to the website to estimate how much I have in the TSP, I do not see the FERS annuity they talk about and see only one amount.

A. Reg Jones says: Assuming that you are eligible to retire, your FERS annuity would be calculated as follows: 0.01 x your highest three consecutive years of average salary (your high-3) x your years and full months of service. FERS employees can retire at their minimum retirement age with 30 years of service, 60 with 20 or 62 with five. They can also retire at their MRA with at least 10 but fewer than 30 years of service; however, if they do, their annuities will be reduced by 5 percent for every year they are under age 62.

Mike Miles says: You may use all or part of your TSP account funds to purchase an annuity from any source you choose. The TSP offers an annuity underwritten by MetLife, but you may also roll over TSP funds to an Individual Retirement Account and use those funds to buy an annuity from any insurer you choose.

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Credit for first stint

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Q. I worked for DoDDS schools from 1987 to 1990. At that time, vesting was five years with FERS. When I resigned, I believe I had to forfeit my retirement and was made to withdraw my Thrift Savings Plan. Would this have been correct for that time period with FERS? And DoDDS?

I came back to work for DoDEA in January 2001. I called to make certain that I was going to get credit for those three years. I wanted to redeposit my TSP money but was not allowed to, and was told there was no provision for repayment. It seems that I was also told that my forfeited retirement would now be reinstated and that the three years would be added to whatever time I worked. I am now ready to retire and this is causing some confusion.

A. Mike: If you withdrew your TSP money and did not roll it over to an Individual Retirement Account, you will not be allowed to redeposit this withdrawn money to your new TSP account. You may, however, roll untaxed IRA money into your TSP account at any time.

Reg: If you left your contributions in the retirement fund when you left, that period of service would be reinstated. If you didn’t, you’d have to redeposit that amount plus accrued interest to get credit for it.

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State service

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Q: I am currently a federal employee, having joined an agency in January 2010, late in my career. I am 64 years old. Between 1980 and 1987 I worked for the state and I paid into the state retirement system. Later, I transferred those funds into a private IRA. I was not vested in that system after only seven years. Can I make a deposit into the federal system for those years to add resources to what will likely be five years of employment with the federal government?

A: No, you cannot make a deposit and get credit for that time.

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