Q: I would like to take a portion of my TSP balance and transfer it to a self-directed IRA. What is the process for doing that? What are the estimated costs and penalties? A: In your circumstances — actively employed and younger than 59 1/2 — the TSP won’t allow this.
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: Under FERS, federal LEOs can retire at age 50 (IRS Publication 721). There is an exception to the 10 percent early withdrawal penalty from a TSP account for “qualified public safety employees” (IRS Publication 575). If I wanted to take money out of the TSP to pay off my house when I retire at age 50 and leave the rest in the plan until later, I would be subject to the 10 percent penalty for early distribution. I understand that the exception is not automatic, in that the TSP will put code “1” (early distribution) in box 7 (type…
Q: I retired when I was 55 years and 10 months old in February 2008. I did a partial transfer of my TSP to IRAs. There is approximately $10,000 left in the TSP. Would I be subject to the 10 percent tax if I withdraw it all? I will be 59 1/2 in October 2011. A: No.
Q: I am a former federal employee who was separated after two years of service. I still have my TSP account and enjoyed how user-friendly it is. Is it possible for me to continue making contributions to my TSP account even though I am now working in the private sector? If so, how can I set this up? A: You can’t make regular contributions to the TSP after you separate from federal service, but you can transfer pre-tax IRA and 401k money into the TSP. Contribute to your employer’s 401k plan and then transfer it into the TSP when you…
Q: I know nothing is guaranteed, but I’d like to earn 5 percent on my TSP balance over the long haul. Looking at the stats for the F Fund, it looks like putting my money in the F Fund will result in a 5 percent gain over the long haul, with only minor fluctuation, unlike the stock funds. I’d appreciate your insight, particularly on the flaws of my theory. A: If what you mean is: “How can I maximize my chances of earning exactly 5 percent, per year, from my TSP account?” then my answer is to invest it all…
Q: What is Pension Max? Some people say it’s good while others say it’s not. I can’t seem to find any information on it. A: Pension Max is a term used to describe substituting a life insurance policy on a pensioner’s life for a pension survivor benefit. In the case of a federal annuitant, it’s a bad idea. It favors the pensioner at the expense of the survivor. Of course it pays off very well for the insurance agent who sells it to you.
Q: Is there a certain time/age requirement for drawing out your TSP? A: You must start taking Required Minimum Withdrawals based on your life expectancy by April 1 of the year after the year you turn 70 1/2, or when you separate from federal service, whichever comes later.
Q: I am considering retiring at the end of 2011. I have all my thrift in the C fund. I don’t plan to use my thrift savings to live on during retirement or to withdraw it. What is the best option for me to do with my thrift, leave in? Withdraw it and place in an IRA? What do you advise? A: The TSP is the best investment vehicle you’re likely to find, anywhere. Leave your money there as long as you can.
Q: I plan to retire at the end of November 2011 with about $230,000 in my TSP. I need to withdraw about $25,000 to pay off a loan and I plan to transfer the remainder to an annuity. I understand the tax bite on the withdrawal will be about 20 percent. Would it be to my benefit to wait until after Jan. 1, 2012, to withdraw the $25,000 because I will be in a lower tax bracket as opposed to 2011 or does it matter? A: It might be. The answer will depend upon your specific circumstances and what happens…
Q: I am considering shifting my savings from the L2030 into the L2050 now while the share prices are low ($10.14 as of today). Do the share prices grow strictly by fund performance or by the number of shares held? I understand that the fund balancing is by design more aggressive and the chance for loss is greater. But if I made the switch would it not make more sense to do so now at the lower share price? A: In this case, it makes no sense at all.