Q: Are monthly payments taxed? Is there any way to get around paying so many taxes on your TSP withdrawals? A: Your TSP withdrawals, unless they are rolled over, are taxable as ordinary income.
Q: I read your article about a fully inflation-indexed immediate life annuity. How does it work, and since TPS doesn’t offer it, who should we turn to in order to find out more information? A: My article was arguing for the development of an inflation-indexed annuity for federal retirees. No such solution currently exists. I encourage you to contact your members of Congress to suggest that such an annuity be part of any retirement reform package.
Q: Market volatility has me scared. Is there a way to cancel a withdrawal request if the various fund (C, I, and S) values are below a certain amount? Or do I simply put in my withdrawal request and take my chances? I have already taken my one-time withdrawal, so my next one will require me to close my account and transfer the funds to an IRA. A: You put in your request and take your chances. If you’re so nervous, why not move your funds into the G Fund until the withdrawal is complete? Better yet, request monthly payments…
Q. I read that the IRS changed the 2012 maximum contribution to 401(k)s to$17,000 from $16,500. However, I haven’t found any update on the TSP website or the Federal Times saying whether this will also apply to TSP contributions. Have you heard any news on this? A. Not yet, but I expect the TSP to follow suit.
It’s often said that it doesn’t pay to try to time the investment markets. However, we are in a situation now that makes one particular timing move a good bet for Thrift Savings Plan investors: moving some money out of the F Fund and into the G Fund. The G Fund, a unique investment fund available only to TSP participants, guarantees to give you back whatever money you put into it, on demand, without risking the loss of your principal — like a money market fund. In other words, it’s liquid. But unlike a money market fund, which typically pays…
Q. What are the advantages of moving my entire TSP into an IRA when I retire? A. The only good reason is that you MUST withdraw the money in ways not permitted by the TSP – multiple lump sums, for example. I regularly counsel my clients to leave their money in the TSP as long as possible.
Q. 1 will turn 70 in July 2012 and would like to know when I must begin withdrawing from my TSP and is there a certain amount that I must withdraw? A. Since you will not be 70½ until 2013, your first withdrawal will be due by April 1, 2014, the year after the year in which you reach age 70½. This withdrawal will be for 2013, and your subsequent withdrawals will be due by Dec. 31 each year beginning with 2014. The minimum amount due each year is a moving target based on your life expectancy. Fortunately, the TSP…
Q. You suggest in one of your responses that you can move funds from your IRA to the TSP. What are the limitations and rationale for doing so? A. The money must be all pretax money – no nondeductible contributions. The rationale is that you will enjoy fully diversified, nonoverlapping investment funds at ultra-low cost, and the G Fund. Using these funds will enable you to implement an investment strategy that will produce superior risk-adjusted expected rates of return.
Q. I was in the 2010 Fund. Then when that date came and went, I was at a loss as to which fund to go to. There is the plain L, and then it goes up from there. I plan on retiring in or about 2013. Which fund should I be in? One that is aggressive yet safer than the one above the 2010 fund? A. I can’t tell you which L Fund you should be in, but once the L 2010 fund “matured,” your money was moved into the next more conservative fund: the L Income fund. Now the…
Q. I will be retiring in 2012 and must also take a required minimum distribution from my TSP in 2012. I would like to do a partial withdrawal in the amount of the RMD prior to the date I retire, to be followed by monthly payments upon retirement. My question is whether I can rollover the RMD into a Roth IRA, so that I would be paying income tax on the Roth IRA withdrawals as the withdrawals are being done, rather than on the entire amount of the RMD. If I read the TSP material correctly, it appears that this…