Q. With regard to a Thrift Savings Plan loan, it’s my understanding that the funds borrowed are from my account (money I previously paid into my TSP account). Since I’m CSRS and the government doesn’t match any of my deposits, does the interest that I’d pay actually get paid back into my account? If not, why would I ever want to borrow my money, and then pay the interest back to some other entity? However, if the interest was paid back to my account, then I’d see no reason to not take out a loan. Furthermore, I’d see no reason to…
Monthly Archives: May, 2012
Q. My spouse (a federal employee) and I contribute the maximum allowed to the Thrift Savings Plan each year, regular and catch-up. Can we still contribute to a Roth TSP over and above the limit? A. Your Individual Retirement Account contributions do not affect the limits for TSP contributions. Your TSP eligibility, along with your income and other factors, may affect your IRA contribution limits, however.
Q. Are there any competent financial advisers in the Washington, D.C., metro area who are experts on rolling Thrift Savings Plan money into an Individual Retirement Account and withdrawing it under Internal Revenue Service Rule 72(t) before age 59½? A. If all you want is 72(t) support, the best option is to engage a CPA to do your taxes and have them provide you with the support. That way, they’re responsible for defending the return if it is questioned. The 72(t) rules are strict, so you shouldn’t cut corners in this area. Any good adviser who isn’t preparing your tax…
Q. I am planning on retiring Dec. 31 at age 68 with 10 years of FERS service. I will be 69 on Jan. 18, 2013. What are my options regarding my Thrift Savings Plan account? Should I roll over to my Individual Retirement Account? A. Following retirement, you may withdraw your funds from the TSP, roll them over to an IRA, or leave them in the TSP and continue to manage them. You can learn about the details at www.tsp.gov. In general, I recommend leaving your funds in the TSP as long as possible to take advantage of the unique…
Q. If I take $40,000 for 15 years from TSP, using the calculator it shows that at the end of the 15 years, I would be paying $45,000. What happens if I pay it off in a year (for example, I come into some money, sell an investment property). Do I still pay that $5,000 in unpaid interest, or is the interest re-amortized to the current date of payoff? Basically, I need some extra money for a down payment on a new primary residence. If I take the loan over the 15 years, it is a very low payment ($112…
Q. Do you happen to have any articles about the pros and cons of paying off the mortgage in retirement? We had paid off ours. But we moved to downsize before selling the bigger house. So we took on a VA mortgage at a relatively low interest rate last November. When we sell the big house, we have two options: Keep the mortgage and invest all the money, or pay off the mortgage and invest the balance. I retire in January 2013, and our pension income will be half our current income. Is there a “calculator” to evaluate the choices? A.…
Q. I am in the process of moving my traditional IRAs into the TSP, but would like to keep some money in asset classes not available under TSP. Specifically, I have in mind current investments in emerging markets and real estate investment trust index mutual funds. Assuming that I would not need to liquidate these two classes of assets for at least five years, do you have any advice on the percentage of the total amount of post-retirement assets I should hold in each class? A. I recommend that you forgo this unnecessary concentration (it’s not diversification) and move the money into…
Q. I am retiring under FERS with 23 years of service at age 66. Can I set up with TSP to draw an amount from my account on a yearly basis? Do I have to pay taxes on the amount that I withdraw? Is there an age limit where I do not have to pay taxes on the withdrawal amount? A. You may only set up automatic distributions from your TSP on a monthly basis. Every dollar you withdraw during the year will be counted as taxable income for the year, regardless of your age.
In my May 7 column, I pointed out five investing mistakes you should avoid to optimize your retirement income. In this column, I’ll discuss five more. Excessive costs. Index funds offer a return at a low cost. This is particularly true through the Thrift Savings Plan, where the cost of participating in the market’s return has been about 1/20th of 1 percent in recent years. It is not uncommon to find investors in retail brokerage accounts paying 2 percent, or more, for the privilege of investing their money. In vehicles like variable annuities and life insurance, the costs can reach…
Q. In March 2013, at age 56, I am eligible to retire under FERS as a federal law enforcement officer with 23 plus years of service (20 as an LEO). I turn 57 on Oct. 11, so I will be forced to retire Oct. 31. Assuming I do not need the money immediately, what are my options with regard to my Thrift Savings Plan? I do not want to pay any penalty and want to pay as little in taxes as possible. It was suggested that I roll it over to an IRA so that in event that I need…