Retired FERS-VERA/VSIP Considering 72(t) TSP Withdrawal Options

[evilanne]

Just got my 1st FERS Supplement Payment this month...it included partial payment for the days in June when I reached MRA and July. The monthly amount is more than I expected...Life is good.

 

[evilanne]

It is about an hour north of Cheyenne in Platte County. I worked at FEW 2000-2005. My original intent was to move back to Cheyenne but their housing market is really crazy right now.

 

[nasa1974]

I just met my MRA and am looking forward to getting the FERS Supplement. My understanding is that it should be automatic and should start in August. Keeping my fingers crossed that I don't need to jump through any hoops to make it happen.

I just bought second home in a very small town in Wyoming this year...it was a repo and needs a lot of work. I was able to get some of the major items (Roof, Plumbing, Electric & HVAC) done long distance during the COVID shut down & before they lifted the 14 day self quarantine requirement. I made my first trip there last month. I loaded up a U-Haul trailer with some basic necessities and made the trip. I will be doing the same again sometime next month. It is definitely a challenge and an adventure.

Where in Wyoming? I spent two and a half years in Cheyenne at FEW Air Force Base.

 

[evilanne]

I just met my MRA and am looking forward to getting the FERS Supplement. My understanding is that it should be automatic and should start in August. Keeping my fingers crossed that I don't need to jump through any hoops to make it happen.

I just bought second home in a very small town in Wyoming this year...it was a repo and needs a lot of work. I was able to get some of the major items (Roof, Plumbing, Electric & HVAC) done long distance during the COVID shut down & before they lifted the 14 day self quarantine requirement. I made my first trip there last month. I loaded up a U-Haul trailer with some basic necessities and made the trip. I will be doing the same again sometime next month. It is definitely a challenge and an adventure.

 

[evilanne]

Gross. If you only earned $6,000 and have social security, medicare & taxes withheld. You can put the whole $6K in a Roth.

 

[Maricar19]

Yes to both questions as long as earned income is equal to or greater than your contributions.

Thanks for the response. Is it based on gross or net?

 

[evilanne]

Yes to both questions as long as earned income is equal to or greater than your contributions.

 

[Maricar19]

Bump

Not sure if this is the correct thread to post my question, please be kind (LOL).
My spouse worked until March 2019 and earned $17343 and contributed $2800 to Traditional TSP.
Spouse retired since then.
Question 1: Will spouse be allowed to contribute to a 2019 Roth IRA?
Question 2: Will I also be allowed to contribute to my 2019 Roth IRA based on spouse's earnings?
Thanks for any response.

 

[Maricar19]

Not sure if this is the correct thread to post my question, please be kind (LOL).
My spouse worked until March 2019 and earned $17343 and contributed $2800 to Traditional TSP.
Spouse retired since then.
Question 1: Will spouse be allowed to contribute to a 2019 Roth IRA?
Question 2: Will I also be allowed to contribute to my 2019 Roth IRA based on spouse's earnings?
Thanks for any response.

 

[evilanne]

Update: I haven't taken advantage of any of the new rules that the new law give us, but I like the flexibility available. I'm currently taking life expectancy payments that get calculated each year and even with the withdrawals, I have more money in my TSP account than when I started. With the new rules, Roth TSP makes more sense and it is good to have a mix in both traditional and Roth accounts in retirement.

I agree with uscfanhawaii, I really like the outside Roth IRA option in addition to TSP. It is a good emergency fund since you can withdraw your contributions (after tax) without any penalty and some of the funds may be withdrawn without penalty if for one of the stated exceptions. Since there is a 5 years rule attached to Roth accounts that may impact you and/or your beneficiaries, I would suggest contributing to both TSP Roth and an outside Roth sooner rather than later, even if it is for a small amount (not sure if 5 year rule impacts TSP Roth withdrawals). You can still open an outside Roth for 2019 as long as you fund it before April 15, 2020.

 

[RazorCat]

Sorry if I got a little long winded in my post.
But, thank you so much for clearing up the eligibility requirements for moving IRA funds back into TSP once a person has separated from government service. I honestly wasn’t sure it was an option after retirement. Never thought to look under the Plan Participation page as I was looking over the publications concerning IRA transfers to TSP, and form TSP-60. Clear as mud as always. You almost need a shovel to dig deep enough on the TSP website to find clear, concise answers to simple questions.
I’ll be moving the majority of my investment gains back into TSP, with about 25% going to a different outside self-directed IRA.
Would love to hear TSP’s reasoning behind not allowing Roth transfer. I’ve considered converting some money to an outside Roth, but really don’t see an advantage at my age (60). My tax burden should remain constant, or lessen, as I go forward. Just have to re-adjust earned income slightly each year to keep taxes as low as possible.
Thanks again for the information. Another reason I love this site. It’s a wealth of investing information.

 

[uscfanhawaii]

Originally Posted by uscfanhawaii
If you like the TSP options, then you must also like the index funds that the TSP funds mimic. Bond Fund, S&P 500, Small Cap, Int'l Fund. Those are all available in outside IRAs and do not require high Brokerage Fees. My outside IRA funds are with Vanguard (and there are many others available too). Sure, you could use a broker to pick special stocks, or even use a Managed Fund that have higher fees. Point is....you CAN do that, but don't HAVE to. Together with the better withdrawal options that you recognize, you can see why the majority of retirees take everything out of TSP and move it to an outside IRA. It also explains why TSP has a big banner on it's home page, urging retirees to leave their funds in TSP and part of their big effort to convince people to stay.

I wrote to TSP (maybe I should have written to the FRTIB directly) and told them that I thought they should be trying to help Fed workers to make the best decisions for the worker, and not just try to convince retirees to stay. To me that should be a fiduciary duty, not an advertising blitz. But their response was just that they could only do what was allowed by Congress, and altho changes were being proposed, they take a long time to be approved and put into action. So why don't they tell retirees to take their $$ out until the rules are more beneficial to the worker? But I did not respond to them....they seem to be missing the point.

One other idea....take MOST out of TSP. Then, when (and if) they change the rules, put it back in. As long as you maintain a TSP account in retirement, you can transfer IRAs INTO the TSP. So do it when it becomes advantageous to do so.

Just expressing SOME of my frustrations with TSP. I was SO EXCITED when I first heard that TSP would be instituting a Roth option. Then I was SO DISAPPOINTED when I found out the rules that were put in place restricting the Roth Option. All my Roth $$ are in an outside IRA. None in TSP.

uscfanhawaii,
I realize this is an older post, but that brings up an interesting point about taking TSP funds that were previously transferred to an outside IRA, and rolling them back into TSP. Of course, there's no readily available information on that option on the TSP site.
But, with their (the TSP board) biggest concern being the mass exodus of retiree's money out of TSP, you'd think they would open up a "reverse rollover" option.

Razor,
Thanks for digging up that old quote!
With the new regs, it MAY be time to think about putting funds back in. As Anne said, there is a form for that. But FRTIB still has reluctance to embrace Roth. I think Anne is right....only traditional now. AND, if retired and took out ALL TSP Funds, that's it. Can't go back.

As for Roth, I still recommend an outside IRA. But the new regs will be a step in the right direction. Will have to wait till the new regs come out to see how they implement the new law. Hope it doesn't take the whole 2 years that they were given. I retire the end of this year!

 

[evilanne]

Another Option that would be really nice is if they allowed you to do conversions to Roth within TSP. All that would be required is that they transfer given amount from traditional to Roth and issue a tax form. Based on the proposed changes, and getting rid of the proportional rules and not requiring RMDs on the Roth portion, this would make perfect sense if they want us to keep more of our money in TSP but that may be asking too much

 

[evilanne]

RazorCat,

You can rollover traditional IRA back into TSP with TSP Form 60. See https://www.tsp.gov/PlanParticipation/EligibilityAndContributions/RolloversTransfers/methods.html You may have to transfer it all into a tIRA and then transfer a portion back to TSP. Once they implement TSP Modernization Act, I'm hoping I can do a 2nd partial rollover to a tIRA in a few years to reduce life expectancy payments for a few years with intent of transferring it all back in after I turn 59.5. This would be allowable based on IRS rules so it should be permitted in TSP when they modernize.

 

[RazorCat]

If you like the TSP options, then you must also like the index funds that the TSP funds mimic. Bond Fund, S&P 500, Small Cap, Int'l Fund. Those are all available in outside IRAs and do not require high Brokerage Fees. My outside IRA funds are with Vanguard (and there are many others available too). Sure, you could use a broker to pick special stocks, or even use a Managed Fund that have higher fees. Point is....you CAN do that, but don't HAVE to. Together with the better withdrawal options that you recognize, you can see why the majority of retirees take everything out of TSP and move it to an outside IRA. It also explains why TSP has a big banner on it's home page, urging retirees to leave their funds in TSP and part of their big effort to convince people to stay.

I wrote to TSP (maybe I should have written to the FRTIB directly) and told them that I thought they should be trying to help Fed workers to make the best decisions for the worker, and not just try to convince retirees to stay. To me that should be a fiduciary duty, not an advertising blitz. But their response was just that they could only do what was allowed by Congress, and altho changes were being proposed, they take a long time to be approved and put into action. So why don't they tell retirees to take their $$ out until the rules are more beneficial to the worker? But I did not respond to them....they seem to be missing the point.

One other idea....take MOST out of TSP. Then, when (and if) they change the rules, put it back in. As long as you maintain a TSP account in retirement, you can transfer IRAs INTO the TSP. So do it when it becomes advantageous to do so.

Just expressing SOME of my frustrations with TSP. I was SO EXCITED when I first heard that TSP would be instituting a Roth option. Then I was SO DISAPPOINTED when I found out the rules that were put in place restricting the Roth Option. All my Roth $$ are in an outside IRA. None in TSP.

uscfanhawaii,
I realize this is an older post, but that brings up an interesting point about taking TSP funds that were previously transferred to an outside IRA, and rolling them back into TSP. Of course, there's no readily available information on that option on the TSP site.
But, with their (the TSP board) biggest concern being the mass exodus of retiree's money out of TSP, you'd think they would open up a "reverse rollover" option.
I know I have a qualifying situation with some current investments in a company that will sell in the not too distant future. I currently receive monthly interest payments on my investment at a rate of 12% annually. When the company sells I will, as a limited partner, also receive a dividend based on the percentage my investment represented in relation to the initial valuation of the company at startup. The initial value of the company based on the total amount of investments required for startup was $2.1 million. The last offer we received from an outside investor, and rejected, was $19.2 million. The business has had an average growth rate in sales of 21% per year over the past 6 years. Our best year was 2017 with a growth in sales and clients of 24%. So, we continue to grow exponentially with each passing year. From my discussions over coffee with the CEO recently I'm guessing we're looking for an offer in excess of $25 million before he'll even consider entertaining a sell offer. That's roughly an 1190% increase in the value of the company since startup.
Point being I'm going to have a large chunk of money I have to invest somewhere. And I have no intentions of remaining the current company (Equity Trust) that manages my IRA that's channel to this investment. They suck in every category as a financial institution.
But, they're a necessary evil due to the way the investments are structured.
I would love to roll at least part of that IRA back into TSP with the rest going into an outside IRA with another, more reliable financial institution.
You'd think FRTIB would open up a re-investment option to draw more money from current participants back into TSP.

 

[evilanne]

Update:
Partial Withdrawal: Back in October, I withdrew approximately 30% of my account as a direct transfer to an IRA. Total process took a few weeks. Faxed TSP Form 77 ~ mid October, Online Message in TSP account indicated they received request, they were reviewing and it gave me option to cancel for about 3 days, another message indicated when they would disperse the funds, actual withdrawal was October 25, a check was sent by mail to designated address (wish they would use electronic funds transfer); it arrived November 1st.

I plan to eventually converting IRA to Roth over time. Last September I converted an old IRA to my Roth IRA.

Full Withdrawal based on life expectancy. Faxed TSP form 70 on 29 December. It was rejected 5 January. I used a gel pen to sign/date when I got it notarized…never use a gel pen on any TSP form. They interpreted 1 in 2017 to be a 0 due to light trace from the gel pen and the side of the little boxes. The Notary’s date was very clear (no boxes).

Rejected Full Withdrawal Request.
Your full withdrawal request was rejected during processing. An explanation has been sent to you at your address of record.

I went over existing 1 and 7 with a different pen and faxed again on Monday 1/8 and followed up several times this week. Thursday night status:

Pending Full Withdrawal Request submitted 01/11/2018.
You have a pending full withdrawal request (View Withdrawal Request) that should be effective as of close of business 01/12/2018. You may cancel this request until 12:00 noon, Eastern time, that day.

Based on numerous calls to TSP, I am convinced that TSP goes out of their way to discourage you from withdrawing any of your money. It is about 50/50 on getting good/bad information from the person answering the phone. My pet peeve is they have to verify everything in the summary information included on each TSP form prior to answering any question regarding your account.

Luckily, I won't have to deal with them again for at least a few years once my monthly payments process.

 

[evilanne]

I'm going to keep the bulk of my money in TSP...just need to determine (1) how much to take out for the partial withdrawal (2) whether to open new account or use existing IRA with broker and (3) when to start monthly payments. Once I start the monthly payments based on life expectancy I'm locked in with that method until age 59.5--same rules apply with TSP or IRA. The only benefit of IRA is frequency of payments (could be quarterly, semiannual or annual vs monthly) as calculated annual amount is the same. It is just simpler doing it with TSP, not having to worry any fees or the calculation being in accordance with IRA rules.

 

[uscfanhawaii]

If you like the TSP options, then you must also like the index funds that the TSP funds mimic. Bond Fund, S&P 500, Small Cap, Int'l Fund. Those are all available in outside IRAs and do not require high Brokerage Fees. My outside IRA funds are with Vanguard (and there are many others available too). Sure, you could use a broker to pick special stocks, or even use a Managed Fund that have higher fees. Point is....you CAN do that, but don't HAVE to. Together with the better withdrawal options that you recognize, you can see why the majority of retirees take everything out of TSP and move it to an outside IRA. It also explains why TSP has a big banner on it's home page, urging retirees to leave their funds in TSP and part of their big effort to convince people to stay.

I wrote to TSP (maybe I should have written to the FRTIB directly) and told them that I thought they should be trying to help Fed workers to make the best decisions for the worker, and not just try to convince retirees to stay. To me that should be a fiduciary duty, not an advertising blitz. But their response was just that they could only do what was allowed by Congress, and altho changes were being proposed, they take a long time to be approved and put into action. So why don't they tell retirees to take their $$ out until the rules are more beneficial to the worker? But I did not respond to them....they seem to be missing the point.

One other idea....take MOST out of TSP. Then, when (and if) they change the rules, put it back in. As long as you maintain a TSP account in retirement, you can transfer IRAs INTO the TSP. So do it when it becomes advantageous to do so.

Just expressing SOME of my frustrations with TSP. I was SO EXCITED when I first heard that TSP would be instituting a Roth option. Then I was SO DISAPPOINTED when I found out the rules that were put in place restricting the Roth Option. All my Roth $$ are in an outside IRA. None in TSP.

 

[evilanne]

Thanks for the link Alevin. I'm actually toying with idea of taking H&R Block's tax course to get better understanding of tax issues.
I have a better understanding now as to why many dislike TSP after they leave federal service. I still think its low cost index fund options and the security of the G Fund are excellent. I don't like the the fees associated with going through a broker, where I currently have several accounts. I need to look into what impact the DoL rule implementation will have on Discount Brokerages. For IRAs in a fee based account, I believe it is currently ~1% of account balance annually in addition to any annual/hidden fees imbedded in any fund you may invest in but no transactions costs for buying/selling. A lot depends on how much trading is done and the actual returns achieved, but many brokers seem to put people in well known fund families, reliable dividend stocks &/or bonds with low to moderate risk that typically require little management, IMO. Decisions...decisions...good thing I have time to examine different alternatives.

 

[alevin]

Hi Anne, you are finding out why some people choose to pull all of their tsp out into an outside IRA account in one fell swoop. more flexibility on when and how to do withdrawals to manage their funds as they think best. That may or may not be best idea for you, in terms of management fees on funds that you aren't spending right away. though Vanguard management fees are comparably low, but you'd lose access to G fund, where you can never lose money (but can still lose purchasing value) of that money over time.

Qualified dividends are taxed at longterm capital gains rate (for you it sounds like that would be 15% at this point). Ordinary dividends are taxed at regular earned-income tax/short-term capital gains/marginal tax rate (for you it sounds like that would be 25% at this point-marginal rate). TSP withdrawals will only ever be taxed at marginal income tax rates. Any qualified dividends you earn on funds outside tsp would be taxed at the appropriate longterm cap gains rate while any ordinary income from tsp withdrawals would be taxed at marginal rate, as would any ordinary dividends on funds earned outside your iras. tax on dividends are calculated separately from earned income when you do your taxes, and rolled up into total of what you owe as you work through the lines on the 1040.

Here is a link that may be helpful to you on understanding qual dividend/cap gains vs ordinary dividends/interest/earned income and what falls into what category and how it affects your tax calculations:

Introduction to Qualified Dividends