Q: Monthly payments are considered a full withdrawal, but are they still in TSP and eligible to be invested in any of the accounts that are offered where interest can be accrued from them? A: Monthly payments are taken, pro-rata, from your invested TSP funds each month. Money in your TSP account remains invested, according to your direction, until it is distributed.
Monthly Archives: February, 2012
Q: I’m curious as to why you are unconvinced that paying tax on Roth TSP contributions now and then withdrawing your balance tax-free is not necessarily a better option than deferring tax payments on traditional TSP contributions and then withdrawing the balance at a lower tax rate. I used the following assumptions: Annual contributions – $17,000 Tax rate – working 18 percent Tax rate – retirement 14 percent Interest rate (all years) 6 percent Compounding periods 26 Years of service 25 I show identical balances after 25 years. I then assume 35 years of equal monthly withdrawals (6 percent annual…
Q: I will retire at 48 with 25 years in law enforcement. I will also want to start receiving monthly checks from my TSP. I know I will have to pay the 10-percent penalty because of my age. Is this a one-time penalty or do I have to pay this every year until I reach age 56? A: You’ll be subject to the early withdrawal penalty until you reach age 59 1/2 unless you qualify for one of the exceptions listed on Page 4 of the notice at https://www.tsp.gov/PDF/formspubs/octax92-32.pdf.
Q: I plan to take the required minimum distribution from my Thrift Savings Plan each year starting the year after I turn 70 1/2. What forms do I submit and to whom? A: You submit Form TSP-70 according to the instructions on the form.
Q: I’m currently contributing to the 2050L fund of the Thrift Savings Plan. Is it possible to transfer my TSP funds to a Roth individual retirement account without getting penalized? I don’t want to touch the money, I just want to invest in precious metals instead of Fortune 500 companies and small businesses. A: If you are age 59 1/2 or older, you may take one age-based in-service withdrawal from your TSP account. Check with a CPA (ideally, the one who will be preparing your tax return for the year) for advice on converting it to a Roth IRA.
Q: Both my wife and I contributed to a Thrift Savings Plan and an individual retirement account for the 2011 tax year. We filed jointly. My wife maxed out her TSP contributions, but I did not because I was hired midyear. We both maxed out our IRA contributions at $6,000: her to a Roth, me to a traditional. When using an electronic filing program, the software would not include our IRA, but it did so when I ran a fictitious sample filed as a single. Why did the program not deduct the IRA? Is a simultaneous deduction for TSP and…
Q: As I understand the Voluntary Contribution Plan, eligible employees can start making deposits at any time prior to retirement. At retirement, they can choose to withdraw the funds or purchase a VCP annuity. Am I correct that after age 59 1/2, I can make a taxable withdrawal from my Thrift Savings Plan and deposit that money into the VCP to be used to purchase a VCP annuity upon retirement? A: Yes. The VCP doesn’t care where you get the money to make the deposit, as long as it is after-tax money.
Q: I’m a Federal Employees Retirement System employee and will retire at age 64. I will opt for monthly payments from my Thrift Savings Plan. I know I can change the amount yearly, but can I also change the plan in which the funds are invested? A: You may change your investment allocation in the TSP as you see fit, within the usual limits, for as long as you maintain the account.
Q: When I retire at age 56, can I take monthly payments until age 60 and then convert part of my Thrift Savings Plan balance to an annuity? Interest rates are at all-time lows, but in four years, with a potential rate increase and me reaching age 60, my monthly annuity payment would be higher than what I could get now. A: Once you begin monthly payments, your only options are to change the payment amount once each year or request the distribution of your remaining account balance. Purchasing a TSP annuity is not an option at that point. You…
Q: I understand that when an federal employee, through a rollover, transfers funds from an individual retirement account to the Thrift Savings Plan that the money transferred can only be pre-tax. My wife has both pre-tax and post-tax contributions in the same IRA. The IRA has grown for 20-plus years, so a lot of its value has had no tax has paid on it. Most of what I have read on the issue seems to indicate that because the IRA has some after-tax money in it, none of the money can be transferred into the TSP even though the amount…