Q. I recently asked to withdraw my Thrift Savings Plan account. I understand that they automatically withhold 20 percent of the balance. I live in Pennsylvania and was wondering if I will have to pay more taxes even though TSP withheld the legal limit of the 20 percent. I am trying to figure out if I should be expecting a bill from the Internal Revenue Service once I file my taxes for 2012. Maybe I’m overthinking this, but I’m trying to buy my first house and heard rumors that the money can be used for this without penalty. A. The 20 percent withholding…
Author Mike Miles
Mike Miles
Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to fedexperts@federaltimes.com and view his blog at money.federaltimes.com.
Q. I am taking the Postal Service Voluntary Early Retirement Authority on Jan. 31. I’ll be 56 then. I’d like to take a full withdrawal from my Thrift Savings Plan in monthly payments and then possibly roll the balance into an IRA at age 59½. I understand that 20 percent will be withheld automatically from my monthly payments for taxes. If I withdraw the balance a few years later, will the 20 percent figure still apply, or can I roll it into the IRA without the tax hit?
Q. I am a federal forestry tech (firefighter) and am facing mandatory retirement in 1½ years. I am wondering if the fiscal cliff will affect the Thrift Savings Plan like a couple years ago and the bottom will fall out. If so, would it be prudent to move my TSP more to more conservative accounts? A. No one knows what the future holds, but market timing only adds unnecessary risk to your investment strategy. Select and implement the asset allocation scheme that supports your goals with the minimum of risk and stick to it. That’s the safest bet.
Q. I will be retiring the end of this month and would like to know if I will have to pay Massachusetts state taxes on my Thrift Savings Plan? A. This is a question for your tax preparer.
Q. I retired in 2011 and have $50,000 remaining in my Thrift Savings Plan. Would it be wise to rollover my TSP into a Roth IRA and pay the TSP taxes now in case the fiscal cliff threat worsens? A. It’s impossible to know for sure, but you’ll need to run pro-forma tax returns for the next few years to see the effects. If you’re not sure, I’d stay put in the TSP for as long as possible.
Q. I am a 47-year-old air traffic controller. I have completed my 25 years of service and retired Dec. 29. I have been investing in the Thrift Savings Plan my entire career. I want to draw a monthly payment of $1,500. If I do this, is it considered an annuity which I can claim under 72(t)? Or would it be better to buy an annuity equaling the amount I need and let the rest ride until I am 59½? A. The rules for satisfying the 72(t) exception to the early withdrawal penalty are complex and strict, so you should be…
Here are 12 things you can do in 2013 to improve your standard of living in retirement: 1. Determine and record your definitions of success and failure in retirement planning and investing. Good planning and management starts with an understanding of what constitutes success and failure from your efforts. To make the right decisions, you must know whether success means achieving a certain level of economic wealth or a certain standard of living, or some combination of the two. Does failure mean running out of money too soon, or failing to leave enough behind? Figure this out before you start…
Q. I’m a 52-year-old federal employee serving in military status. I have the following in my Thrift Savings Plan account: C Fund — $145,000; G Fund — $30,000; F Fund — $10,000; and I Fund — $7,000 for a total of $192,000. I have other IRA investments of $70,000. I plan to buy back about eight years of military service for my federal retirement. My risk level is somewhat moderate, and I wanted to know if I should move a percentage of my C Fund into G? The fiscal cliff concerns me. I’m not sure if I’m balanced in my…
Q. I was involuntarily separated under FERS discontinued service retirement with 26½ years of service. I was rehired to a federal job and opted to receive both salary and annuity. I no longer contribute to FERS and understand why I no longer get matching contributions to the Thrift Savings Plan, but why can’t I contribute my own money to TSP and get the tax deferral? I have a TSP account but do not plan on withdrawing money until I permanently retire in several years. A. The only way that you’re allowed to contribute to the TSP is through payroll deferral or…
Q. My husband and I inherited IRAs from my mother when she passed away at age 86. Why must I take required minimum distributions from these IRAs when I am only 59 years old and my husband is 46? A. Because the rules for beneficiary IRAs say you do. Or, you could not and pay the 50 percent penalty instead.