Q: I’m recently separated, keeping the house, and want to refinance in order to release my wife from the original mortgage. I do qualify to refinance, but am upside down by about $30,000. I’m a federal employee, and would have to take the $30,000 out of my TSP retirement account. If I make an early withdrawal from my TSP account that will be used solely for refinancing my home, will I still have to pay tax and the IRS early withdrawal penalty on the $30K? A: None of the circumstances you mention will excuse you from the early withdrawal penalty.…
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Q: In answering a previous question about maximum nondeductible contributions to Individual Retirement Accounts, you wrote: “Your participation in the Thrift Savings Plan should not prohibit you from making the maximum nondeductible contributions to a traditional IRA in 2009.” Is the answer the same if I have a Roth IRA instead of a traditional IRA? Can I max out both TSP at $22,000 and ROTH IRA at $6,000? A: The rules are different for Roth IRA contributions. You’ll have to use an online calculator or the rules contained in IRS Publication 590 to see if you can contribute to both.
Q: I just read the “lost decade” article in Money Matters and I am wondering why you did not mention the L Funds. I have all my Thrift Savings Plan funds allocated to L Funds as recommended to me since I am in my 10-year window of retirement. Is that a mistake? Should I also diversify into the other five individual funds? A: I’m not a fan of the L Funds, but I can’t say that using them is a mistake. The problem I have with them is that it’s difficult to know whether the robotic allocation shifts they make are…
Q: What happens with Federal Employees Retirement System unused sick leave and annual leave at retirement? I will have 2,080 hours at retirement and would like to cash that time in toward my Thrift Savings Plan. A: Based on the current regulations, the potential candidate for this maneuver would be unused annual leave, which must be taken in cash at retirement. Nothing definitive has happened on this yet, but it is under consideration.
Q: In 2006, my financial adviser convinced me to take a one-time within-service Thrift Savings Plan withdrawal and roll it into an Individual Retirement Account for purposes of stretching the IRA withdrawals. My money was invested in a variety of funds within the American Funds group (all front-end loaded). Of course, my funds were decimated in 2007 and 2008, and I have yet to recover. Can I roll my IRA funds back into the TSP after having exercised the withdrawal? I am trying to rectify what I have come to believe was a serious error in judgment. I am 65…
Q: I retired three years ago at age 56 with 33 years of civilian service in the Civil Service Retirement System. I elected to take my Thrift Savings Plan contributions and roll them over to a qualified program. I began drawing off my investment in the fall of 2008. After talking to our tax adviser this year, I learned that I was penalized for early withdrawal in 2008 and will be again in 2009 because I will not be 59 1/2 until June of this year. After attending a retirement seminar several years ago, I was informed that because I was…
Q: I’m retirement eligible and in the Federal Employees Retirement System. I’m 60 years old and, after having paid for my military years, I’m two months away from 40 years of service. Does my Thrift Savings Plan account continue to draw interest as I receive my annuities? A: Your TSP account continues to produce the returns that accrue to the funds in which it is invested.
Q: I was told that if you withdraw money from your Thrift Savings Plan account, you are subject to a 20 percent fee and then also subject to pay taxes on the money as income at the end of the year. A: There is no fee to withdraw from your TSP account. Under certain circumstances, there will be a tax deposit withheld from your withdrawn amount, which will be credited against your tax bill for the year.
Q: I consider myself very good at saving money for and with my family as well as managing my family’s budget. We have a young toddler, and my wife and I are still building our family. I am 34, have been with FERS (active employee) since I was 33, and I have four years of active military time I am almost done buying back. I have my wife saving a little more than 11 percent of her incoming from teaching school (company doesn’t match), and I save 15 percent per paycheck (20 percent if you count my federal match). I…
Q: What are the options of drawing out money from my Thrift Savings Plan when I retire? Can I draw monthly payments without buying an annuity and leave the majority invested? A: You have a number of options for withdrawing the money, including partial and full withdrawals. The details are explained in the materials available here. You may elect monthly withdrawals, which are a form of full withdrawal, without buying an annuity, and continue to invest the remaining account value as you choose.