What will you do if Congress raises the amount you must contribute to your pension? That’s a question that many of you should be prepared to answer — just in case. In the current environment, every federal employee should be considering the most likely threats to his or her financial plan. One threat that should be on your radar is a bill the House passed May 10 to raise employees’ pension contributions by 5 percent of their pay. I thought I’d take a stab at quantifying the impact of this bill on an individual employee. I considered a hypothetical employee,…
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. My husband retired from 36 years of federal service on June 2. He is in CSRS. We hope he will begin receiving his check within a month or two. Given that he retired halfway through the year, and given that his initial checks will be only 60 percent to 70 percent of what is due, we anticipate that he could get the money owed for those first months in a lump sum in the next tax year. This could be a sizable sum and could have significant tax consequences. It also makes it hard to plan for the correct amount…
Q. I plan to retire next month at age 62 and withdraw my entire Thrift Savings Plan account. I know that they will withhold 20 percent for federal taxes, but how can I keep from being taxed on that amount as income in the same calendar year? With my current rate of pay, adding some $300,000 to $400,000 in the TSP withdrawal will surely kill me in taxes. A. Assuming that you are determined to withdraw your entire account balance at once (why would you do this?), you can roll over part of your withdrawal to an IRA.
Q. I have a Thrift Savings Plan loan and I am retiring. I’m reading everywhere and understand that I must pay back the loan to avoid a taxable distribution. What is the time frame for that? Your reply to someone last year was, “Your loan balance will be automatically declared a taxable distribution if you fail to repay it after you retire.” But is there is time frame after I retire? Does it have to be paid by the day I separate, or can it be paid a few weeks after my official date of retirement? A. You will have…
Q. I am 61 and plan to retire at the end of this year. I have about $60,000 in the Thrift Savings Plan. Should I withdraw this year or next for a better tax benefit? A. It’s impossible for me to say, since this will depend upon your tax returns and the tax code for this year and next. In general, however, I recommend that you leave your money in the TSP for as long as possible.
Q. I retired under the provisions provided for federal law enforcement officers at age 52 (I’m now 58) under CSRS and am confused concerning under what circumstances and when I can withdrawal my entire Thrift Savings Plan balance without paying a 10 percent tax penalty. It’s my understanding, after reviewing the information in the TSP book, that after age 55, you can begin making withdrawals from your TSP either as a monthly paid annuity based on life expectancy or monthly installment payments but that the 10 percent penalty will apply if I withdraw the balance lump sum if done before…
Q. I have received several inquiries about establishing Voluntary Contribution Plan accounts with the Office of Personnel Management, funding the account and then rolling those voluntary contributions into a conventional Roth plan administered in the private sector once the employee has retired. I am a little skeptical about the prudence of this. It appears to me on the outside that this is simply a way of talking people into using the federal government to change the “color of money; read: launder” and then roll it into a Roth where a plan administrator will now make a fee on your hard-earned…
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…