Q. Based on a reading of Internal Revenue Service Publication 721, it appears to say that since the CSRS and FERS retirement systems are considered “eligible retirement plans” you could roll over a distribution (including a regular annuity payment) into another IRA and defer the taxes, or into a Roth IRA and pay the taxes immediately. If this is the case, the normal IRS limitation on contributions to IRAs and Roth IRAs are bypassed. Am I reading this correctly? A. From IRS Publication 721: “Distributions eligible for rollover treatment. If you receive a refund of your CSRS or FERS contributions when you…
Monthly Archives: May, 2013
Q. Upon retirement, I’m considering transferring a portion of my Thrift Savings Plan balance in monthly payments directly into a Roth IRA. Since my TSP is pretax, I understand that taxes will need to be paid on these funds upon conversion to a Roth. I am in a state with no income tax on federal pensions and distributions from the TSP (North Carolina) and want to be sure that this transfer from my TSP to the Roth will be considered a TSP distribution for tax purposes, and therefore, subject to federal and not North Carolina taxes. Does the Office of Personnel…
Q. If I were to take the MRA+10 option and defer my retirement until I turn 62, can I still move my total thrift savings (401(k)) out of the thrift program? A. Yes.
Q. Is F Fund performance based just on the principal amount, or does it pay a percentage or dividend at quarter end or year end? A. TSP funds do not distribute earnings. Dividends and interest earned increase the share price.
Q. On reading some of Mike Miles’ column, I see him advising to invest in the L Fund most closely matching your life expectancy. So is he saying that at 60, I should invest, say, in L2040? Would he recommend this even if/when I begin withdrawing money regularly for retirement income replacement? A. That is what I have recommended you consider doing if you’d like to maximize the standard of living your money will likely support over your lifetime. Of course, if you’re managing your money, you’re ultimately responsible for the outcomes.
Q. I recently retired from the federal government due to becoming permanently disabled at age 61. I received my disability approval from the Social Security Administration. I withdrew a portion of Thrift Savings Plan funds to cover expenses as a result of not being able to work. Why was 20 percent tax deducted from the distribution of funds at age 61 and with the legal purpose of being disabled? A. Because that is the default federal income tax withholding rate for the distribution. The money has been applied toward your tax liability for the year.
Q. If I leave my money in the Thrift Savings Plan, will I be penalized? Is it correct to say that I have the option of rolling it into an IRA or withdrawing all of it or part of it? A. You may leave your money in the TSP until the IRS minimum distribution requirements begin. The TSP does not penalize you for leaving your money there.
Q. Which account does my Thrift Savings Plan loan come out of? If I have enough in the G Fund, will TSP take the loan directly from the G Fund, or will it take the money out proportionally? For instance, I want to take a $35,000 loan, and I have enough in the G Fund to cover that loan, and I would prefer that the entire loan come out of the G Fund. But if the loan is taken out proportionally, does that mean 80 percent of the loan comes out of my stock funds, 5 percent out of the F Fund…
Q. I will retire within the next eight years. When I get ready to withdraw my Thrift Savings Plan, can I do it at various intervals or annually? I hear you may have to take it all out at one time. A. You may withdraw your money as a lump sum or through monthly withdrawals. Visit www.tsp.gov to learn more about your options.
Q. I have a 401(k) plan from a previous job in the private sector that allowed yearly post-tax contributions after the pretax limit contributions had been reached. Can I roll over the post-tax contributions in my 401(k) to the Roth TSP? A. Not unless the funds are held in a Roth 401(k) account.