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 If I take the refund of my portion of TSP deposit over the CSRS maximum contribution, can I pay back the withdrawn CSRS money without tax implications?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…
Q. I am interested in seeing if the Thrift Savings Plan can be managed on a bucket type of withdrawal strategy. I realize it would take an act of Congress to get the rules changed. Can you identify the member of Congress whose pet project is the TSP? A. No, but you can use a “bucket” strategy in the TSP now. Just allocate your account the way you’d like, take your withdrawal and then rebalance your account. The “bucket” strategy is just another way to look at an asset allocation strategy. Even if you use “buckets” for your money, there…
Q. Does the Fed’s announcement that it will not raise interest rates until unemployment reaches a specific target make the Thrift Savings Plan F Fund more attractive in the near term? A. To the extent that it reduces the probability that market interest rates will rise, it reduces the F Fund’s downside risk. With interest rates near zero, and most outstanding bonds trading at a premium, I’m not sure that I’d call the F Fund particularly attractive, however.
Q. I plan to retire in 2013. I am 58 years old. If I want to pull from my Thrift Savings Plan will I have an early withdrawal penalty? A. No.