Q. My husband has been in the military for six years, and he plans on retiring at 20 years from the military. He will then work with the State or Defense Department and work for another 20 years before we retire. I am a DoD civilian employee. We would like to enroll him in the Thrift Savings Plan. But, we are not sure of which TSP plan (traditional or Roth) would benefit us the most. Any advice? A. It’s impossible to know now which will work out to be best for you. Without that knowledge, I prefer the tax break…
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. In January 2011, I was forced into retirement at age 62 due to a surgery that left me visually impaired. I took a partial withdrawal to pay off personal expenses. The Thrift Savings Plan deducted 20 percent for federal taxes before the distribution was made. However, when federal taxes were filed jointly, I owed $16,000 in taxes due to the TSP money. Why did I pay taxes twice when I met the 59½ age rule? A. That’s a question that only your tax-preparer can answer, although I doubt you paid taxes twice, and there would have been no early withdrawal…
Q. I retired in April 2008 and took a lump-sum distribution from my Voluntary Contribution Plan, with the interest going into my Thrift Savings Plan and the principal amount going into my money market fund. Is it still possible to take the entire VCP principal amount and put it into a Roth IRA four years after retirement? When I attended various CSRS federal retirement seminars in 2007 and 2008, I was never informed of the option to transfer the principal amount to a Roth IRA. A. This is not possible.
Q. I am a FERS employee contributing to the Thrift Savings Plan. At the recommendation of a pre-retirement seminar, I am looking at a one-time in-service withdrawal of $100,000 into a Roth IRA. I realize that it will add $100,000 to income for 2012, but this is the year my husband’s business is losing money anyway. We intend to pay taxes now (presumably when they are lower, though my income will drop significantly when I retire) and not pay taxes on future earnings. Smart or dumb? A. You shouldn’t make that move without a thorough analysis of the tax implications using pro-forma returns and…
Q. I’m going to retire in May, and I’m considering withdrawing my Thrift Savings Plan in equal monthly payments. Based on the TSP website calculator, my $190,000 will give me 288 payments using a 1.5 percent interest rate. If I die after, say, 150 payments, what are the options open to my wife? A. A beneficiary participant account will be established for your spouse beneficiary, and she may then manage it or withdraw from it as she chooses, subject to the applicable TSP and Internal Revenue Service rules.
Q. There is around a $5,000 annual limit to a Roth IRA based on income and age. Does that limit apply to TSP? In other words, can I put all $17,500 plus the $5,500 catch-up contributions for those age 50 and older into the Roth TSP and pay taxes on it now, rather than later regardless of my income? I am a civilian over 50 years old in FERS. A. The Roth IRA limit does not apply to Roth TSP contributions.
Q. I have elected to switch to CSRS under FERCCA. I understand I will be given the option of the refund of my portion of Thrift Savings Plan contributions. When I left the Postal Service after my first seven years in the 1980s, I withdrew my CSRS money. If I take the refund of my portion of TSP deposit over the CSRS maximum contribution, can I pay back the withdrawn CSRS money without tax implications? A. The refund of your TSP contributions will be taxable, since you never paid taxes on the money when you earned it. You may then…
Q. Can I roll over the funds in my traditional Thrift Savings Plan to the Roth TSP? I thought I had read that you couldn’t, but I see where you can roll over from a 401 plan, so it would make sense and just pay the taxes this year on the whole amount. A. You may not convert traditional TSP to Roth TSP money.
Q. I just started a Roth TSP and wondered if there was a five-year waiting period to start drawing it out? I am almost 61 years old. A. Yes, the five-year rule applies to Roth TSP withdrawals.
Q. I have a considerable amount in my Thrift Savings Plan account. I was reading Fedsmith, and it says there is a real possibility of taxes on dividends (when I retire and draw TSP) raise from 15 percent to 43.4 percent. I cannot roll over my basic TSP to my Roth portion of TSP. Do you think it advantageous for me to pull out my TSP and put it in a Roth IRA on the outside? A. Your TSP withdrawals will be taxed as ordinary income and not capital gains, so this is not an issue to be concerned about…