Monthly Archives: June, 2012

Q. I’m considering the Postal Service incentive currently being offered. I would like to withdraw my money when I turn 59½ in November, then pay the fed tax. Where could I invest the remaining balance and draw a small annuity? A. After you withdraw it and pay the tax, you can invest the money anywhere you like and use some or all of it to purchase an annuity from an insurance company. But why wouldn’t you leave it in the Thrift Savings Plan? You won’t find a better place to invest for retirement income anywhere.

Q. I recently left federal service after three years to pursue grad school in the fall. I am 23, with a little over $15,000 in a Thrift Savings Plan account. I am wondering if I should make an out-of-service withdrawal and transfer the funds to an IRA? Then, once the funds were in an IRA, I could withdraw the funds for education costs without the penalty or 10 percent tax and only face federal income tax, since my state doesn’t have an income tax. I am not receiving financial aid for grad school because of my federal government salary, and…

Q. I am a 55-year-old Veterans Affairs Department firefighter covered under CSRS with 35 years of service. I am planning on retirement next year. What are my options with my Thrift Savings Plan account when I retire? Can I withdraw funds for college without a penalty? Can I withdraw funds and transfer into a new IRA without penalty? Do I only have one time to decide what to do with these funds once I retire — withdraw all and reinvest or take a monthly annuity? A. Since you are retiring during or after the calendar year in which you reached…

Q. I am concerned about the stolen data from a TSP-contracted computer that’s been in the news recently. I know TSP is assuring everyone the information has not been used, and they are offering those affected a credit monitoring service for one year free. That does little to comfort me that the money in my Thrift Savings Plan (or IRAs in mutual fund companies elsewhere) is secure. Banks have FDIC. Savings and loans and credit unions also have insurance to protect depositors from theft. Is there anything out there we can rely on to assure reimbursement if our TSP or…

Q. I have been a retired CSRS employee for more than two years and understand that I can transfer my traditional IRA to the Thrift Savings Plan, where the expenses are much lower. Some portion of my traditional IRA contributions in my early career years was tax-deductible. How would that be treated when I move the funds to the TSP and eventually start withdrawals? Or do you recommend I transfer the traditional IRA to TSP since some of my funds are tax-deductible? A. I think you mean that your IRA contains money that has already been taxed. That is, contributions that were…

Q. I have an existing Roth account with AmeriFund. The beneficiary to this fund is my daughter. If I roll this over into the Thrift Savings Plan, can I still have my daughter beneficiary and my husband beneficiary of my traditional TSP, since the funds remain in separate pretaxed and nontaxed accounts? A. One beneficiary designation will apply to both the traditional and Roth balances in your TSP account.

I recently completed the first phase of a study of the financial effects of disability on federal employees. The results may surprise you, as they did me. I found that a five-year reduction in your income due to a temporary disability early in your career could reduce your standard of living in retirement by more than 50 percent. This is even more surprising when you consider that this is after taking into account the maximum disability retirement benefits available under the Federal Employees Retirement System. I did not realize that a limited loss of income — limited in the amount of…

Q. I will be retiring this year. Do you think the Thrift Savings Plan annuity has a fair return? The life insurance has me puzzled. It is very expensive. Is there a better way to get this much coverage? A. I wouldn’t lock in a TSP annuity at today’s historically low rates of return. You should shop the individual life insurance market for guaranteed level term insurance and compare the rates with Federal Employees Group Life Insurance.

Q. I will be 59½ in August. I would like to make an in-service withdrawal from my Thrift Savings Plan. At this time, I have a loan out on my account. Do I need to repay this loan before I take an in-service withdrawal for the total amount in my account, and how much tax will I be charged for this withdrawal? A. You do not need to repay the loan before taking an age-based in-service withdrawal. The automatic tax withholding rate on these withdrawals is 20 percent unless you transfer your payment to another retirement plan or account.

Q. I will be retiring June 30. I contributed $100,000 to my Voluntary Contribution Plan account between September 2010 and the present. I plan to roll over the $100,000 to my Roth IRA upon retirement; have the Office of Personnel Management withhold 20 percent for tax on the interest that it earned; then roll over the remainder to the Roth IRA also. Is that doable? A. The accrued interest will be considered a conversion. I believe that is doable, but you should check with your tax preparer to be sure.