Ask The Experts: Retirement

By Reg Jones

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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Early retirement, penalty, SRS and TSP

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Q. I have 27½ years in the Postal Service and I am 52½ years of age. If an early-out comes in the next few months, will I get a penalty for leaving? Do I get my special retirement supplement, or do I have to wait for that? Also, do I get to take my Thrift Savings Plan now, or do I wait for that?

A. Reg: If you were offered an opportunity to retire early, you have the age and service needed to accept it. If you did, you wouldn’t be subject to the age penalty and you’d be entitled to the special retirement supplement when you reach your minimum retirement age, which is 56.

Mike: The early-out has no effect on the Internal Revenue Service early withdrawal penalty. You will be subject to the penalty until you reach age 59½ unless you qualify for one of the exceptions listed on Page 7 of this notice:

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Treasury’s contribution to annuity

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Q. What is the percentage paid by the U.S. Treasury toward our monthly annuity account when we retire under CSRS?

A. It’s not surprising that no one could answer the question, because there isn’t any one answer. It all depends. If an employee retired before June 2, 1986, all of his annuity payments were considered to be a return of his retirement contributions and weren’t taxable, since they had already been taxed as income while he was working. When the amount in his account ran out, all of the annuity payments he received were from the government and, as such, 100 percent taxable. If he retired after that date, the amount he received in each annuity payment depended on two things: first, if he was filing under the general rule or the simplified rule; second, his age at retirement. A third factor was added shortly thereafter: whether he re-elected a survivor annuity and in what amount. To learn more about this mare’s nest of rules, go to and download a copy of IRS Publication 721, Tax Guide to U.S. Civil Service Retirement benefits.

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FERS disability and taxes

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Q. My wife has a disability retirement from the Postal Service. She is deemed permanently and totally disabled by the Social Security Administration and receives the SSA disability benefit. She also receives a FERS disability annuity benefit. Is the FERS disability annuity federally taxable? If not, can you direct me to the IRS document that outlines how to file?

A. It is taxable unless the Internal Revenue Service determines that she is totally disabled. You can call them at 1-800-829-4933.

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Retirement contributions and taxes

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Q. I am a recently retired CSRS employee. I note a huge inequity concerning my CSRS retirement contributions from the federal retirement benefits booklet the Office of Personnel Management sent me. I am told that I have a retirement contribution credit of $164,836 after-tax dollars. From this amount, I will get 310 equal monthly payments of $531.73 that will be a tax-exempt portion of my total monthly annuity.

However, I am told once I receive gross monthly retirement benefits that exceed my contributions (tax exempt and taxed portion), there are no more contribution credits in my account, and no lump-sum payment will be made.  What regulation under Title 5 U.S. Code (or others) allows the government to screw me by extending the time period to use up my tax-free portion of my annuity while minimizing the time to exhaust my contribution amount? According to the retirements benefits booklet OPM sends, recovering an amount equal to my retirement contributions for tax purposes is treated differently from exhausting my lump-sum contribution credit. Has there been a class-action suit addressing this issue?

A. The amount of your retirement contributions that are considered a tax-free part of your annuity during any calendar year are determined by actuarial (life expectancy) tables contained in the federal tax code. To learn about the whys, wherefores and how to file, download a copy of IRS Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits. You’ll find it at

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CSRS survivor annuity withholding and taxes

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Q. I will be retiring in June and am trying to compute the number of federal tax exemptions, etc., that I take.  I looked through my notes from my last federal retirement planning class and saw that I jotted down that the amount withheld for survivor annuity from one’s monthly pension is a pretax item.  I thought it would be smart to obtain verification or validation rather than assume I heard and recorded this correctly.

If the survivor annuity withheld is subject to federal income tax at the time of withholding, then the portion withheld should be nontaxable when the survivor annuity gets paid out (sort of like the tax-free portion of one’s CSRS 7 percent contribution). Surely, CSRS pensioners and their survivors aren’t taxed twice on this income.

A. You’ll find out how your annuity and that of a survivor are treated in Internal Revenue Service Publication 721, Tax Guide for U.S. Civil Service Retiree Benefits, available at

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FEHB enrollment date

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Q. I am 64 years old and have nine years in CSRS. Four years were 1972 to 1976. At that time, I took my retirement out, then another seven months in 1985-86. I was reinstated in the federal government in February 2008, working for the IRS under seasonal but worked full time. I transferred in September with no break in service, accepting a position for the Defense Department. My service computation date gives me Feb. 4, 2004, under FERS. I signed up for Federal Employees Health Benefits at that point. I want to retire, but I need to take my FEHB with me when I do. What date would I be eligible to use as my retirement date and take with me my FEHB?

A. The law requires that you be enrolled in the FEHB program for the five consecutive years before you retire. Breaks in service won’t have a negative impact if you were enrolled when you left and immediately re-enrolled when you returned to government service. You’ll need to check with your personnel office to see if that was the case for you. If it wasn’t, the five-year period will start over from the date that you re-enrolled.

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Lump-sum death benefit

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Q. My father was a federal employee for more than 40 years. When he died, he had the highest civil servant rank possible. My mom died 15 months ago, and my dad died in September at the age of 86 after being retired for 24 years. He was receiving monthly annuity payments of over $6,000 a month until he died. We just received paperwork about a possible lump sum that would be whatever was left in his annuity that was not paid out in monthly payments. What is the likelihood that there is a lump sum left? Typically, do federal employees have a residual lump sum after 24 years of being retired?

A. It’s not only possible, it’s likely. That’s because each of his annuity payments contained a small portion of the contributions he made to the retirement system, which were tax-free because he had already paid taxes on that money. That portion was determined by life expectancy tables published by the Internal Revenue Service. Therefore, his estate can expect to receive something, however small.

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Q. My agency committed an error by moving me from CSRS to FERS. After 18 months and senatorial support, it was finally resolved; the agency satisfied the debt; and I retired Dec. 29. I have since received W2-Cs for past three years. I am looking at a decrease of approximately $17,000 in Social Security taxes withheld for those three years. Those monies were pulled back and put into my CSRS account. If the Internal Revenue Service determines that there is now a tax liability after filing my amended returns, can I make an appeal to the Office of Personnel Management (under the provisions of Federal Erroneous Retirement Coverage Correction Act) to reimburse me for that liability?

A. No.

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Reporting retiree pay on taxes

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Q. This year’s tax (2012) is the first I will file as a FERS retiree. I understand a portion of my retiree pay is a return of contributions and is tax-free. How do I report this? Will it be identified on my 1099?

A. The 1099 form that the Office of Personnel Management sends you will show the amount of your retirement contributions. Plug that number into the worksheet you’ll find in Internal Revenue Service Publication 721, which you can access at

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Withdrawn retirement contributions

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Q. I worked for the Defense Department from 1976 to 1985 under CSRS. I withdrew my contributions at that time but find in talking with an Internal Revenue Service agent about another subject that she could see a deferred annuity. Could this be from sick leave that had accrued that I would not get paid out for, or could it be from the employer match of my contributions?

A. Because you withdrew your retirement contributions when you left government, you wouldn’t be eligible for any retirement benefit.

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Wait before re-employment

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Q. I plan to retire this year under CSRS. I am interested in obtaining a seasonal position with the Internal Revenue Service. I will not receive a buyout. How long do I need to wait to be re-employed by the federal government?

A. You would have to be off the rolls for three days. FYI: If you take a federal job after retiring, the salary of your new position may be offset by the amount of your annuity. Before taking a seasonal job with the IRS, you’ll need to check with their personnel office to see if that rule will apply to you.

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5-year rule vs. service computation date

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Q. I am a 63-year-old Air Force civilian employee and have been employed since Sept. 2, 2008. With no break in service, I was employed by the Internal Revenue Service as a seasonal employee for approximately eight months since Feb. 20, 2008.

Being a seasonal employee, I was not able to have Federal Employees Health Benefits. But I took out the coverage once I transferred over to full time with the Air Force.

If I retire in February, would I be able to take my health benefits with me, or would I have to wait until September?

A. The rule is that you must be enrolled for five years or from your first opportunity to enroll. If you enrolled at your first opportunity, you would be able to carry that coverage into retirement. Check with your personnel office to be sure that they understand that.

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Directed reassignment

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Q. I am 46 with 22 years of service, and have been told that I will soon receive a letter of directed reassignment to a job in my same grade far outside my commuting area. When the letter arrives, if I should decline to move to the new position, what are my options for drawing retirement? How about insurance? Severance pay? What about my 401(k) in the Thrift Savings Plan? My performance ratings are not an issue.

A. Reg: Because you wouldn’t meet the age and service requirements to retire, you’d only have one option. If you didn’t take a refund of your retirement contributions, you could apply for a deferred annuity at age 60.

You would be entitled to severance pay only if you lost your job through no fault of your own. However, if you were to resign or decline a reasonable offer, you wouldn’t. A reasonable offer is defined as one that is in the same agency, in the same commuting area, of the same tenure and work schedule, and not more than two grades or pay levels below your current position. Note: If you are covered by a mobility agreement, the reasonable offer exception wouldn’t apply.

You would be given a month of free Federal Employees Group Life Insurance and Federal Employees Health Benefits insurance coverage. At the end of that period, you could elect private life insurance coverage at your own expense. You could also elect to continue your health insurance coverage for up to 18 months under the temporary continuation of coverage provision. For that coverage you would pay 100 percent of the premiums, plus 2 percent for administrative expenses.

Mike: Your circumstances will not affect the usual rules that apply to your TSP account. As long as you remain employed, you will be subject to the in-service withdrawal rules described at If you separate from service, the rules described at will apply. If you separate from service before the calendar year in which you reach age 55, you will be subject to the Internal Revenue Service’s early withdrawal penalty unless you meet one of the exceptions specified on Page 7 of the notice at

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Five-year rule

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Q. I am 64 years old and will have five years of federal service in February. But for the first seven months (until September 2008), I was a seasonal employee for the Internal Revenue Service, until I became reinstated and was permanent full time. I could then sign up for my Federal Employees Health Benefit plan under FERS. One catch: I don’t have the five straight years of coverage under FEHB (I’m still nine months short). Can I retire in February and carry my health benefits into retirement, even though I don’t have five years of coverage? Or do I have to wait until September 2013?

A. Here’s the rule. You must be continuously enrolled for the five consecutive years before you retire (or from your first opportunity to enroll) to carry that coverage into retirement. If you weren’t eligible to enroll while a seasonal employee, you would only have to establish that you enrolled at your first opportunity. Check with your personnel office.

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Military buyback

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Q. I am 47 years old and worked for the post office for three years. During that time, I bought back my military service time of eight years. Am I eligible to someday get that retirement for the 11 years? If not, will I be reimbursed what it cost to buy back my time? Is the Thrift Savings Plan a separate entity, and when can I start receiving that? I’m currently working away from the federal realm.

A. Reg: No, you wouldn’t be eligible for an annuity because you didn’t have at least five years of actual civilian service. If you are planning to return to government service, you could pick up where you left off. Then the earliest you could retire would be when you reach your minimum retirement age. In your case, that would be 56 and two months. If you don’t plan on returning, you can ask for a refund of your retirement contributions, including the deposit you made to get credit for your active-duty service.

To do that, go to, click on Find Form(s), and download a copy of Standard Form 3106, Application for Refund of Retirement Deductions.

Mike: The TSP is yours to maintain and manage for as long as you like. You may withdraw money from it whenever you are ready, but there are limits to how frequently you can withdraw your money. You are always free to withdraw all of your money in a lump sum, whenever you like. Your withdrawals will be taxed as ordinary income and may be subject to the Internal Revenue Service early withdrawal penalty until you reach age 59½.

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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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Health insurance costs after retirement

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Q. If I take the $15,000 retirement incentive being offered now, (I have 25 years under FERS, am a Postal Service employee, and am 64 years old), will my Blue Cross premiums go up? If so, by how much? I now pay $81.68 a month.

Also, if I decide to get married, my family option now would be $203.61 a month. How much would these premiums be if I take the retirement incentive? I must make the decision by Dec. 3.

Is the FERS pension amount taxed? If so, is it taxed by income and Federal Insurance Contributions Act? My gross pension amount is $1,288 a month. How much, approximately, would be left over after taxes and health care subtractions?

A. The easiest way to compare the cost of your Blue Cross/Blue Shield Standard premiums is to show you the difference between what Postal Service and non-Postal Service employees will be paying in 2013.

A Postal Service employee would pay $64.71 every two weeks for self-only coverage and $152.92 for self and family. A non-Postal Service employee would pay $85.71 for self-only and $200.14 for self and family.

When a Postal Service employee retires, his health benefits premiums are the same as those for all other non-Postal Service employees and retirees. And they are paid on a monthly, rather than a biweekly basis. In 2013, the BC/BS monthly rate for retirees will be $186.14 (self-only) and $438.63 (self and family). To find out how your annuity would be taxed, go to, and read the Internal Revenue Service’s Tax Guide to U.S. Civil Service Retirement Benefits.

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Early retirement effects on annuity

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Q. My service date is June 22, 1987, giving me 25 years of government service. I am under FERS; however, I am 43. If I take the early out my agency is offering, will my pension be penalized because I am under the age of retirement? Would my TSP lose value if I leave early? Would my monthly annuity be reduced under FERS? Would the IRS apply the 10 percent penalty tax because I have not reached the appropriate age to begin my withdrawals? Or does this not apply under the early out?

A. The age penalty on a FERS annuity doesn’t apply to someone retiring under the Voluntary Early Retirement Authority. You’d get the annuity you were entitled to based on your high-3 and years of service. However, you wouldn’t be able to receive the special retirement supplement until you reach your minimum retirement age, which in your case would be 56 years and 10 months.

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Retirement plans

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Q. I am a former federal employee and would like to roll over my FERS contributions to my new employer-sponsored plan. The plan, however, requires advanced approval before the rollover can be accepted. To initiate the preapproval process, I must provide a letter from the custodian or a recent account statement that provides the member’s name, plan type, account number, balance and contact number and the fund custodian’s mailing address. Where can I get this letter or account statement?

A. Most applicants just request a refund of their retirement contributions and have them sent to them. Then they give the money to their plan. However, as long as the IRA certification is completed within the refund application, OPM can do a rollover to your plan directly. To do that, call OPM’s customer service at 1-888-767-6738 or email them at

Check the following link for additional info and access to the forms: and scroll to “Procedures for having your retirement contributions refunded to you.”

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