Q: I am a 54-year-old FERS employee who will be forced to retire soon. My 6.2 percent mortgage will eat up over half my pension. Would it make sense, upon retirement, to withdraw enough from my TSP to payoff the mortgage and leave the remaining funds? I will need 65,000 and have about 170,000 in my TSP. A: Whether it’s a good idea or not will depend upon how the move fits into your overall retirement strategy. Without a clearly defined strategy for managing your resources through retirement, it is impossible to say whether the move will help or hurt.…
Q: With it taking up to 12 months to start receiving a full retirement check once you retire, how long will it take to receive my TSP lump-sum payment after I retire? A: I can’t tell you, exactly, but based on my experience, it shouldn’t take more than a couple of weeks.
Q: Two of the biggest selling points of placing assets in a revocable living trust is that when you die your assets can be distributed privately and without the need for probate. But if everything is done privately and no probate court is involved, how would the IRS know whether or not the decedent’s estate was subject to estate taxes? A: The decedent’s estate is required to file tax returns, trusts or no trusts.
Q: My wife, a federal employee, has a traditional IRA. Some of the contribution made to the IRA was with money that was considered a deduction when it was contributed, thus no taxes were paid on those contributions. Some of the contributions over the years were made with after tax money. She could not deduct those contributions because of our combined income. My wife would like to know if she can transfer the money from her IRA to her TSP? Can all the increase in the value of the IRA be transferred to the TSP, even if the increase occurred…
I recently interviewed Kimberly Palmer, author of “Generation Earn: The Young Professional’s Guide to Spending, Investing, and Giving Back.” Palmer recommends young professionals save at least 25 percent of their pretax income as they earn it. She adds that up-and-coming feds should take advantage of their retirement benefits, particularly the Thrift Savings Plan. I advocate the TSP as the best retirement investment vehicle available anywhere. Its low expenses, efficient design and simplicity make it better than any other defined contribution retirement plan I know of. I agree with Palmer’s advice to maximize your TSP contributions. Generally, I prefer to see…
Q: I will be rebalancing my portfolio biannually to the initial allocation until I reach an age that justifies a change to a more conservative approach. To complete this action, do I process both an interfund transfer and a contribution allocation? Is biannually OK? A: You’re asking for specific, individual investment advice, which I can’t provide through this forum. In general, I recommend that Thrift Savings Plan investors using this do-it-yourself strategy set the contribution allocation to 100 percent G Fund and then periodically rebalance the existing assets to their selected allocation. I recommend that you rebalance no more frequently…
Q: I withdrew money from my Thrift Savings Plan and now it’s tax time, so we have to pay quite a bit. Will I be able to change the Code 1 into an “L” on Form 1099 so we do not have to pay so much in taxes? A: No, you can’t just change the code on a 1099 to avoid paying taxes or penalties. If you took an early distribution and don’t meet one of the IRS exceptions, you’ll owe the penalty. Maybe you should consult a CPA before filing your return.
Q: My wife retired in February. Our current plan is to take $50,000 from her Thrift Savings Plan to pay off some high-interest debt and leave the rest in the TSP to be invested into a monthly annuity. Is this allowed? Does she have options as to what annuity the money is invested in? Is their an option for a lump-sum survivor payment of the unpaid balance at the time of death? How does she proceed with implementing her final decision? A: She may take one partial withdrawal from her account, if she hasn’t already done so. She may also…
Q: I will inherit approximately $40,000 because of the death of a family member. What is the best way to get this money into my Thrift Savings Plan account? A: If these funds are not already in a traditional individual retirement account or other eligible tax-deferred retirement plan account, you can’t add them directly to your TSP account. You could use these funds to support a higher regular contribution rate, if allowed, to your TSP or a traditional IRA. As long as the IRA contributions are tax-deductible, you can transfer the funds into your TSP account later.
Q: Can you run through a few scenarios with different annuity rates? [The Thrift Savings Plan annuity interest rate of] 3.625 percent is a fairly low rate to lock in for the long term, especially with inflation. How does the monthly annuity distribution look as interest rates change? For example, what would the distribution be for $100,000 at 5 percent, 10 percent or higher? The TSP annuity calculator doesn’t give me the ability to run these scenarios. A: I won’t run rates for you, but you can estimate the payments with a calculator and the knowledge that the payment will…