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July 21, 2019

Federal Employee Retirement and Benefits News

Category: Articles


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6 Important Questions Clients Need to Ask on Inherited 401(K)

To minimize tax liability and ensure that one gets the most of the insurance, it is very important that clients who are to receive or rather inherit a 401(k) from their loved one know the plan’s rules. They should check if the 401(k) original owner has started taking the required minimum distributions so as to make the right decisions by knowing their claiming options. In addition, whether they can add on their inherited assets into their own 401(k) plan or not is determined by the relationship between them and the original 401(k) owner.

How to Avoid Nasty Surprises When Retirement Arrives

Distributions will still incur taxes in retirement despite contribution taxes on traditional 401(k) are deferred. So as to minimize their taxable income in retirement, workers should not direct all their savings to a traditional 401(k). Rather, they should consider stocking away some of their money in a Roth 401(k) if such a feature is offered in their plan.

Retirees Fleeing These Three States in Huge Numbers

Connecticut, New Jersey, and Maine saw the biggest number of residents moving to other states. A large number saying the main reason for the relocation is retirement. It is said that many retirees move to other states to minimize their tax liability and as well reduce their cost of living.

Federal Employees Set to Soon Have More Withdrawal Options for Their Money in Retirement Accounts

It was announced that by the officials of the Thrift Savings Plan, that the plan of new account withdrawal options will soon be implemented and made available for military personnel and federal employees who are contributing to the plan.

401K Retirement Questions

Retirement Preparedness for Generation X

Recent studies have shown that for people under the age of 55, a substantial portion of them, 65 percent, do not think that the money they’re putting aside now will last them through retirement. For people over the age of 55, that number drops to 45 percent, but it is still quite a lot, especially if one has been meticulous about their savings.

Concerning those above the age of 45, the split in attitudes comes with a number amount: about 75,000 dollars in retirement funds saved. The difference is clear. $75,000 seems to be the natural amount one would have if they had been saving diligently for their future financial security. When nearly half the people surveyed fall below this target amount, it suggests that something addressing retirement savings, in general, must be done.

More statistics reveal an even bigger issue: of those with less than 75,000 dollars saved for retirement, 3/4ths of them do not think what they have managed to save so far will last them through the rest of their lives. This is in opposition to people with over $75,000 in their accounts, where that number of those concerned is only a 1/3rd. This is the dilemma of Generation X. They are the first demographic less likely to have a pension than those who had come before them, making them wholly responsible for their own retirements.

Social Security may have to pick up the brunt of the difference, should people not have enough to live on once they reach retirement, with estimates putting it at nearly 62 percent of their projected income. The people with over $75,000 in the bank are much more optimistic, with Social Security expected to only make up a fourth of their take-home amounts, the remainder based on a mixture of annuity, pension, and other savings.

The main divide between these two camps seems to be two-fold: what the person currently makes, and what their pension looks like. Higher incomes and secure pensions mean less worry. In addition, people under the $75,000 mark also tend to have more debt, which usually takes precedence over savings.

So what can be done?

There are few steps a Gen-Xer or anyone can take to help ease some of the retirement burden, today. The most obvious step would be to enroll in a good retirement plan with a rate high enough that, extrapolated, could cover your base living expenses in your retirement. This could all be automated in most cases. Couple this with further education in terms of how and where to save your money might alleviate some of the retirement anxiety.

Preparing for Retirement Generation X Under 55

Taking Risks with your TSP

With its focus on American Treasury securities, the G Fund is the most invested fund in the Thrift Savings Plan or TSP. Before 2015 it was the default fund for TSP enrollees who hadn’t made any moves to divide up their assets between different investments. Because the G Fund’s principal and interest is backed by the Government, it is the safest bet of all possible TSP investment options.

The main failing with the guarantees offered to employees through the G Fund is that people playing it safe with that investment might miss out on many of the chances to grow their retirement fund through other avenues in the market. And with things like inflation, a wavering growth in the market, the safe retirement fund you’ve been saving towards might not be as much as you thought by the time you reach it.

Take the period between 2009 and 2018, for example, wherein the return on the G Fund was only 2.3 percent, while the return on the S&P 500 C Fund was much higher, at 13.17 percent. That’s a big difference. Even taking out the huge market fluctuations in 2009 and 2010, the C Fund still averaged a return of 8.53 percent.


It may sometimes be wise to move assets to the G Fund during periods of market unrest, especially when you’re close to retirement age, but during these periods of economic downswings, the savviest move for investors would be to put their money into the C Fund; it is cheaper, and essentially investing like it was on a discount.

The reason people might be risk-averse might lay in the structure of the TSP itself. How can workers make investments based on the risk and rewards of certain funds when the TSP doesn’t provide any of that information. A lot of investors either have to guess or play it safe, opting for things like the G Fund. This is not a great move as through things like FERS current pensions are not as big as they used to be two or three decades ago.

This isn’t to claim that an investor should ignore the G Fund completely, but it is usually a wise move to diversify and put your money into different investments, and not miss out on any gains.

While things like fear of market losses, are totally valid, more often than not, the main reason people tend to play it safe with investments is listening to bad advice from a co-worker who, while most likely having your best interests at heart, are not financial advisors, nor do they know all the details of your particular circumstance. Things like moving, personal goals, debt, and your retirement date all are factors in how and when you should be moving your investments around. Setting goals and then following through are the key factors in deciding how to invest.

While the TSP has occasionally addressed investing over time and risk management before, including the retirement income calculator offered on their website, these resources are not the end all of advice in the matter either. While risk-averse planning is an excellent place to start, in order to make the most of your future retirement, it would make sense to get a fuller spectrum picture of what certain annuities might do as for their possible reward on return.

The best plan is knowing what you want, and then working backward to figure out the best way to get there. Professional financial advisors, both within and from beyond what the TSP offers, is an excellent way to go. They can steer you in the right direction, or at least give you a bigger picture of what you may or may not be missing out on by keeping your retirement fund focused on the low-risk investments only.

Thrift Savings Plan Investment Risk

Getting More Out of  Your Retirement Checks

Taking advantage of your Social Security benefits and maximizing your retirement checks, is paramount in regards to your easing into a cozy retirement. Before making any decisions that may have an impact on your retirement fund, it is important to consider what this would mean for your future. The same is said of collecting your Social Security too early.

At current, 60 million people are drawing from the country’s Social Security fund, while 170 million people are paying into it. One thousand four hundred dollars was the average amount per month that a recipient of Social Security was able to draw, with that number getting higher or lower depending on the person’s particular circumstances.

Pensions from employers are no longer the norm in this country, with only 20 percent of companies offering up any pensions. Social Security is different, as it is paid out by the government, and guaranteed to a person collecting. Though meant to be supplemental, it is the primary source of income for a lot of retired Americans.

So how do you stretch that monthly check to make it last? There are a few steps you can take now to help ensure a more lucrative future.

The 35 Year Plan

Thirty-five years or more is the ideal length of time, according to financial experts, if you want to maximize the amount you receive, which is determined by when you stop working.

The pay you receive from Social Security is determined by the average monthly payments you made during those 35 years. That number is then used to figure out what sort of benefit payout you earned throughout that time. The reason you want to work more is that higher averages in those years can bring up the lower averages during the leaner years when figuring out your Social Security amount. If you don’t pay into the fund for at least 35 years, a zero year is entered in its place, and that can significantly lower the amount you collect.

Keep Working

You will see a significant jump in the amount of your benefits if you continue to work past the age of 65. They will give you more for delaying retirement and keep increasing that amount by about 8 percent a year until you turn 70, which is the age you have to start collecting.

So even though you can start collecting at age 62, you certainly shouldn’t if you’re younger than 65, if you’re able. If you collect early, each month will have a reduction on it until you reach the retirement age. Still, even if you keep working past 65, you should apply for Medicare, so you don’t have to pay more into it.

Spousal Benefits

Your spouse’s benefits are also something to take into consideration. For people born before 1954, you can get 50 percent of what the house’s highest qualifier received at 65, meaning if your spouse made more than you, you too can reap the rewards by having your benefits bumped up to match theirs.

Change Locations

Certain states have much lower taxes on Social Security benefits. Retirement is an excellent time to consider relocating yourself to a new state in which this might be the case. Thirteen states currently tax your Social Security income, including Colorado and Vermont. Places like Florida, a popular spot for retirees due to the warm weather, do not.

Retirement Checks

More Withdrawal Options Coming for Government Workers

There are soon to be more withdrawal options coming for military members and government workers, in regards to their retirement funds.

Taking effect this coming September, the TSP will soon get rid of some of the more aggravating restrictions it formerly had for investors.

The changes have been underway for the last two years, originally from a piece of legislation that was drafted back in 2017. With over 5.9 million investors contributing more than 591 billion dollars in the TSP, these new modifications are going to affect a lot of people.

In the past, 36 percent of people eligible for enrollment in the TSP opted to take their money out of the state-sponsored retirement fund in favor of a private company’s savings plan, claiming the lack of options on how they can manage their TSP as the main reason why.

Michael Kennedy, director of financial consulting company Korn/Ferry International, said of the new changes “They’ve been very limited in the past and I think [the new changes are] going to be very beneficial.”

Previously, people enrolled in the TSP had minimal options to receive their funds if they were to leave the military or their government jobs before three years of steady employment. Those options were to purchase an annuity, a payout of a lump sum, or monthly payments. But it came with a catch, as any withdrawals were only allowed to be taken in equal parts from the former employees pre-tax and post-tax amounts of their Roth IRA. Couple with that, the former employee was limited to one choice of partial withdrawals, with any secondary withdrawal being the final one allowed, applied to the entire rest of the fund. Most people were left with very little wiggle room.

Starting on the 15th of September though, people leaving their positions with the government will have way more options. Mainly, they’ll be able to make withdrawals from the account once a month, once a quarter or once a year, depending on what you need. This is up from the rigid rules prior. Additionally, money won’t have to pull money equally from the two funds, giving the policyholder more freedom to manage their accounts.

Previously, still working employees over the age of 59 and a half years old were only permitted to make an age-based withdrawal only once without incurring a penalty on their taxes. Now, those employees can make age-based withdrawals up to four times per year without any taxes levied.

The Thrift Savings Plan Board of Directors would like for these new changes to encourage employees to stick with the TSP. They hope that the freedom these changes allow, along with the TSP’s low fees and charges, would make it the best available option for current government workers.

Enrollees will be informed of these new developments to the TSP through a newsletter and the website. A greater focus on the ease and low overhead of a website will also be stressed, although there will be traditional paperwork that could be filled out as well. It is hoped that by educating investors on all their options, the new TSP will roll out without many hiccups.

This may just be the beginning. There are even more changes on the way, including targeting funds in 5-year increments over the previous 10-year plan, raising the automatic investment percentage for new hires to 5 percent (from the prior 3 percent), and extra authentication steps to get into online accounts. This is expected to go into effect at some point during this year, with the other two updates planned for the summer and fall of 2020.

TSP Returns

New Bill Would Ban Chinese and Russian Investments with the TSP

A new bill soon to be hitting the Congressional floor is looking to stop the Thrift Savings Plan’s I Fund from investing in Chinese and Russian owned interests.

Jim Banks, a Republican Congressperson out of Indiana is the one who introduced the measure, citing, as he put it, a malicious pattern of behavior from those two countries, directed at the United States of America.

Congressman Banks suggests that if we are to confront growing threats from these hostile countries, it is not wise to be supporting their economies financially. It is his position that these countries, in particular, are attempting to undermine the stability of the United States, and it would be a significant error to be giving money their way. He hopes that this legislation will be seen as “common sense” when put before the rest of Congress.

In November of 2017, the I Fund had been altered so that it was an MSCI ACWI index, meaning that investments in companies with Chinese and Russian interests are currently permissible. Should Banks’s bill pass, it would not be enforced until 2020, but it would make it so that investing within those countries would no longer be an option.

In regards to returns on investments or any additional incurred fees, Banks claims that his bill would have no impact on the Thrift Savings Plan, although such a statement may be dubious, as he has offered no clear response yet as to what sort of changes getting rid of those investments might cause.

There have been other people in Congress who have proposed things similarly before, and other changes to the TSP as well. For instance, Oregon’s Democratic Senator Jeff Merkley is trying to alter the TSP to stop investing in companies that deal in fossil fuels, hopefully addressing concerns about climate change. Both these Senator’s bills have yet to pass.

Thrift Savings Plan Investments China Russia

Low Expenses Make The TSP a Great Investment

Compared to a lot of employer-based retirement funds, low expenses are one of the Thrift Savings Plan’s best attributes.

4.1 basis points was the ratio of expenses in 2018 (which translates to .41 cents in expenses for every 1000 dollars put into the fund) which is the lowest, by far, of any plan. So low a lot of people are skeptical of it. Personal and employee based investments like annuities or IRAs are not even close, even considering the nearly double of the TSP expense ratio since 2015, when it was only 2.9 basis points.

It should go without saying, the lower the expenses, the more money you have in-pocket to reinvest in other things and to collect interest on the account you do have.

You may be asking, why are these costs so low? How is this possible?

There are several reasons for this.

The main reason is that there is no overhead like a regular retirement plan available to the public at large, wherein the financial institution offering the plan is looking to acquire clientele. Advertising, and operating in general, costs a lot of money, and while more significant funds are constantly looking to take on more investors, the TSP does not have to put money into such concerns, as it is available only to federal employees by default.

Another reason is based on how the TSP operates as a broad-based index fund. These types of investments do not have very high expenses when it comes to trading. Securities exchanging, as you’d find in private retirement plans, will typically charge much more to process.

There is also the matter of how the TSP can diffuse their expenses due to employee forfeitures. Anyone leaving their federal jobs before three years has to give up 1 percent automatic contribution that was being put into their retirement fund when they started working. That means the only people collecting on the fund are the ones who put into it. Couple that with the 50 dollars fees that are applied when TSP loans are processed, and you have a quick, low impact way to reduce expenses.

The staff is also a factor, as the TSP is run by a smaller number of people than some of the larger companies that deal with retirement funds and investments.

With these low overhead costs, the money comes back to the investor. With the BRS and FERS, you get a match back on a certain percentage of your contributions: firstly, the 1 percent automatic contribution, and secondly, the match back on up to 5 percent of your base pay provided by the government. Consider how generous this is with the knowledge that there are no match back plans for about 20 percent of private retirement fund companies, with 3 percent being the industry standard.

TSP Investment Thrift Savings Plan Retirement

Get the Most of Your TSP by Matching Funds

Under the BRS or the Blended Retirement System, you will have your contributions to your government retirement fund – the Thrift Savings Plan, or TSP – matched by up to 5 percent of your pay. While it seems like the faster you put into the TSP, the more money you’ll make from the match back, that is not always so.

How Does the BRS and TSP Work Then?

Currently, the federal government will automatically put 1 percent of your pay into the TSP even if you haven’t opted to do so yourself. This is for anyone who joined the military after the 1st of January in 2018. You can get up to 5 percent back though, in matching funds, should you choose to contribute more.

Its a two year period though before the matching funds kick in. And anyone who came over from another retirement plan and joining the BRS can collect the matching funds from as far back as the aforementioned date of January 1st, which was the day the BRS began.

Real simple: if you make 1000 dollars, and put in 5 percent (which would be 50 dollars) the government will match that amount, making your contribution double to $100. Regardless if you choose to contribute more for yourself or not, the government will stop matching at that 5 percent mark.

Be that as it may, it still makes sense to put into the TSP as much money as you can. The maximum you’re allowed to contribute to the TSP in 2019 is $19,000.

Every payday, in addition to living expenses and retirement contributions, you still draw on your allowances with your check. Active service members can contribute bonus money to the Thrift Savings Plan too

But should you put all that extra money into the fund? Probably not.

Your TSP contributions will stop automatically if you hit that $19,000 benchmark before the year is up, and if you stop contributing, that means the 5 percent matching funds from the government will stop too. While the federal government will continue to put in the 1 percent automatic contribution as mentioned above, maxing out your contributions means missing out on some matching funds.

If you do have extra money, your TSP contributions should be pushed up to the monthly max, in order to maximize the amount you get matched back. For those deploying or getting a bonus, the smart move is to not put it all directly into retirement but dole it out slowly, in order to get the most free money back from the match fund.

For those in a combat zone, there are special provisions, and the TSP can take a contribution of more than the 19,000 dollars, up to 56,000 dollars. This increased amount is only valid for the Traditional TSP plan. The Roth TSP plan still maxes out at 19,000 dollars. Be advised, under these provisions, the 5 percent basic pay match back is still in effect regardless. Look into your finances before invest to make sure you get the biggest bang for your retirement bucks.

Matching Funds TSP Thrift Savings Plan Money Retirement

Unwanted Surprises in Store for 401(k) Retirees

The 401(k) is the most well-known retirement fund in the United States today.

This is for many reasons, including its ubiquity, but another main reason is it’s deferred tax status, meaning any of the money you put into the account you don’t have to pay taxes on until you take it out, lowering your current taxable burden by putting the money into a savings account before it is calculated into your take-home pay.

While this is great for your pocketbook today, when you do inevitably take your money out of the 401(k) plan when you retire, those taxes are going to be due.

Let’s say you’ve been fastidious in your retirement savings and have a million dollars stashed away in your 401(k). Sounds like a lot of money (because it is) but once you start withdrawing, that million dollars is going to end up more like 700,000 dollars after paying your income tax, along with any federal and state taxes due on that amount. Even if you don’t have a million dollars, a good portion of it will invariably end up going back to the government in taxes.

If you’re one of the many people who are planning on leaning into your 401(k) as a primary source of income in your retirement years, it is super important to remember that you’ll be owing taxes on that amount when it comes time to withdraw and to plan accordingly while rates are constantly in flux. Figure 20 percent of the amount in federal taxes and up to another 10 percent for state and local municipalities.

Age, needs, and how close you are to retirement are definite factors when determining what you’ll allow yourself each month from your 401(k). People of 59 and a half years old will not be penalized for early withdrawals, but anyone dipping into the 401(k) before that will. And if you are continuing to work while collecting your 401(k), you could be putting yourself into a higher tax bracket by, essentially, doubling your taxable income. This could affect things like the premiums you pay on Medicare as you get older.

The smartest move, especially if you’re still working, would be to put off collecting on your 401(k) as long as you possibly can. Until you reach the age of 70, you are not required to pull any money out of your 401(k). After then you are subject to required minimum distributions which you need to take out of the 401(k) annually to avoid a fee that is imposed by the IRS.

Even taking a large sum out of the 401(k) at once won’t do much, as you’ll owe the same amount tax wise whether you get the money now or later.

There are certain things you can do to safeguard yourself against this eventuality, including filling out forms that would hold 20 percent (or however much of a percentage you want) of your 401(k) aside to pay the taxes on it when it comes time.

401(k) often come with a second component, known as a Roth, which differs from the traditional 401(k) in that it is put into the account after you’ve already been taxed on it, therefore making withdrawals on it come tax-free. This is a good move if you can afford it up front while talking with a financial advisor on how to split your income between a traditional and Roth 401(k) to maximize your take-home pay both now and when you retire.

401K changes taxes retirement

Should You Retire Early and Keep Working Until Retirement Age?

Should people consider an early retirement plan?   Many people have dreams of leaving their jobs before retirement age, but taking early retirement can be a bad thing too. For one thing, retirees tend to suffer from both cognitive and physical decline due to a lack of activity. It could also lead to unhealthy actions that include smoking and drinking.

According to experts, studies have shown health problems increase for workers who qualify for retirement benefits and are alleviated when policies are introduced to encourage them to work.

Why It’s Better To Do A Lump Sum Pension Distribution

With more and more companies going from pension plans to defined contribution plans, it may be best for employees to go with a lump sum distribution instead of an annuity option. According to one expert, this may be a desirable action if they opt to work with an experienced CFP. Putting the lump sum into an IRA will maintain the tax-deferred status of the money and gives people flexibility in making withdrawals.

When a person owns the IRA, they have control over the account and its distributions.

A Costly Mistake People May Be Making

A quarter of 401(k) participants – 35 years old and younger – have gotten into their retirement accounts for the sole reason to pay off credit card debt. There are several reasons not to do this – missing out on the chance to earn more money and the 10 percent federal tax money for withdrawing the amount needed.

How People In Their 40s Can Save For Their Retirement

40-year-old and older clients are in a good position to save for their retirement, as they’re coming up on their peak earnings years. This allows them to pay debt down and contribute more to their retirement plans. They can save money in Roth or traditional IRA, decrease their risk exposure, have an array of investments, and get the best insurance coverage.

Federal Retirement

How FERS Disability Benefits Are Figured Up

How are disability benefits determined for FERS employees?

Here’s a look at the annuity calculation if you have yet to turn 62:

If ineligible for voluntary retire before age 62, the disability annuity is determined like this:

-For the first year, you’ll receive 60 percent of your three highest income but will receive none of your Social Security disability benefits.

-After the first year, you’ll get 40 percent of the highest three income and only get 40 percent of the Social Security disability benefit you are eligible for.

For employees with less than three years of qualifying service, the annuity is based on the salary average from the day you began the service until you no longer worked and were eligible for disability retirement.

If considered eligible for the immediate annuity at the time of your disability retirement, the OPM treats the application as a retirement request for regular annuity and will process it as such.

Here’s a look at the annuity calculation for age 62:

If retirement based on disability happens before age 62, but you reach the age, the disability benefit is recalculated as if you worked until that age. The time on disability is added to the earned service, and the amount is then multiplied by 0.01 percent unless you have worked for 20 years (time on disability is included) and you are 62 years old.  If this is deemed the case, the multiple rises to 0.011. The total calculation for it is based on two things:

Multiplied by the three high income on the day you were put on disability retirement

Rise of all FERS COLAs paid between the date of disability retirement and when you turned 62.

Social Security Disability Insurance

Since FERS employees get coverage by Social Security, you will have to apply for both the FERS disability benefits and Social Security Disability Insurance. Without it, the OPM will not process the application.

A Look at COLAs

You can get annual cost-of-living adjustments (known as COLAs) no matter what age of the disability retirement but you will not get any special retirement supplement, which provides you with an approximate amount of the Social Security benefit earned while you were a FERS employee.

Disability Retirement

Your TSP is Not the Same as an IRA

It doesn’t hurt to say – one more time – that a Thrift Savings Plan (TSP) is not the same as an Individual Retirement Arrangement (IRA). Yes, they work in similar fashion being that they are tax-advantaged retirement savings plans, but they have different rules. If you don’t know these rules, you could pay quite a bit at tax time.

Some people have questioned the legitimacy of the Roth tax trap outlined in another article, with one person saying when someone takes money out of a Roth TSP, the withdrawals are seen as coming from their own contributions. If the withdrawal is more than the amount contributed, then it can be taxed.

While the statement is true for Roth IRAs, it’s not for TSP withdrawals or another employer-sponsored retirement plan. Should someone see this statement and take it to heart for the TSP would be in for a real shock at tax time.

What are some other key rules’ differences for the TSP and IRA?

-One rule is to stop people from contributing to a Roth IRA or deduct contributions from a traditional IRA if the income they have is above a certain amount. No limits apply to TSP.

-A person can contribute to a TSP only from their federal salary via a payroll deduction, but contributions to an IRA can come from any source.

-A traditional IRA can be converted to a Roth IRA, but money in the traditional TSP must remain in the account and cannot be moved into a Roth TSP.

-Contributions to the traditional IRA are no longer acceptable if you are working when you turn 70 1/2. Instead, you must start taking the required minimum distributions. If you’re working after this age, you can still contribute to the TSP without having to take any Required Minimum Distributions until you retire.

-If you quit working in federal service when you turn 55, you can access the money in your TSP without any penalties. For special category jobs (air traffic controllers, customs and borders protection officers, DSS agents with the Department of State, firefighters, law enforcement officers, nuclear materials couriers and Supreme Court and Capitol Police) the age is 50. In an IRA, there is a 10 percent penalty on early withdrawals for whatever is used before the age of 59 ½.

Always read the rules of each savings plan before you do anything to ensure you are not hit with an unexpected tax bill.

IRA and TSP fees

How You Can Use Your TSP Funds When You’re Still Working

Federal employees who have worked their career and contributed to their personal savings are now in the accumulation phase of life. If you need to get into your TSP while working, there are a few things that you can do, but you need to understand the different types of withdrawal and how these types can affecting withdrawals made in the future.

Loan TSP-20

With this loan type, federal employees can borrow half or less of their TSP balance when not working, but no more than $50,000. There are two kinds of loans – residential loans and general purpose loans.

General Purpose Loans – These are loans that must be repaid in five years or less, but there are no required documents to show the need for such a loan.

Residential Loans – These loans must be repaid within 15 years, and documents must be provided to show the need for these types of loans, including the costs of the purchase or development of the home. These loans are also available to make renovations of a primary home.

People interested in either one of these loans will need to complete the TSP-20 TSP Loan Application form.

How Do You Repay TSP Loans

Payments with interests are placed back into the Roth or traditional parts of accounts in the same way in which the money was provided. TSP loan payments are deposited into the TSP account based on the present contribution allocation.

$50 are held back for administrative costs and is deducted from both the Roth and traditional accounts (should a person have both).  The fee is subtracted from the entire loan amount. For instance, if you borrow $1,200, the TSP will give you $1,150, which is the amount you will need to repay along with interest.

Financial Hardship TSP-76

Regardless of your age, you can request a financial hardship, but the minimum amount is $1,000. You may make as many withdrawals as you want, but requests must be made six months apart.

If you take a hardship, you cannot make any contributions to the TSP while you’re working for a minimum of six months. On top of that, there is a 10 percent early withdrawal penalty if you take the hardship younger than 60 years old. You will incur this tax along with the income tax you have to pay.

Age – TSP-75

A one-time service, age-based withdrawal can be made if you are still working for the federal government and are over 59.5 years old. The withdrawal must be a minimum of $1,000 or the entire vested account balance if the amount is less than $1,000. TSP contributions are still permitted, and you can get your match. You can also roll the TSP over into an Individual Retirement Account or do what you want with it.

The tax you are hit with depends on where the money went.


What Is A FERS Annuity Really Worth?

Federal employees get to enjoy the advantages of a great benefits package, such as the FERS annuity (a benefit considered one of the best in the workplace). What is the FERS annuity?

This is a pension that federal employees can enroll in if they began their career on or after Jan. 1, 1984. The pension amount is based on how many years the federal employee worked and their last three years of salary, but what’s the actual worth of the FERS annuity?

The actual value may not matter for some individuals, while others consider it a big deal when it comes to investment allocation.  It is important to look at all income streams such as the FERS annuity and Social Security when figuring out what your asset allocation is, but how can one value the income stream?

How can you value your FERS annuity?

The simplest method to value the income stream is to determine the income percentage that is expected to be withdrawn from investments. The majority of studies noted that a four percent withdrawal rate is the usual rate. So, if you withdrawal just four percent of the entire investment, you can make the investment lasts the entire rest of your life.

This is what retirees want to have – income that lasts their entire life. If you choose to do more than four percent, you increase your chances of running out of money. Once you’ve determined how much is the right amount, now you need to determine what value it is needed to generate your needed income.

Many retirees will invest wisely in their TSP when retiring, but they look at just the TSP balance when determining the allocation.  A 50/50 (stocks/bonds) retiree portfolio can change dramatically when the FERS annuity is added in. If the four percent rule is applied to investment withdrawals, the value will rise. With a guaranteed annuity, this is thought to be considered as the money is seen in fixed dollars.

A Look At Investment Allocation

If Social Security vales are included in the investment allocation, the worth would be around $500,000, and with two streams of incomes considered, an investor’s allocation would be seen as conservative especially if the TSP balance was also in the hundreds of thousands of dollars.

What About The Emotional Factor?

Should all federal employees then need to consider putting their TSPs into stock funds? If viewed in a logical sense, the majority of them could do this. However, investing is much more than math and numbers.

Emotion is another factor to consider, as they play a role in how one makes investments. The problem is that emotions often lead to terrible investment decisions. There have been an array of studies looked at the emotional side of investment – and they’ve all drawn the same conclusion: People will buy stocks when it’s high but sell when they hit low.

All you have to do is look at the 2009 stock market to get a sense of this truth. Many federal employees jumped out of the market because of their inability to handle things. It was the worst time in the last several decades to get out of the market.

The reason they left – they were emotional!

How Does This Apply To You?

There is much more to this than your TSP balance or investment when addressing an allocation. Logically, the majority of fed employees can take some risk with their TSP, but since logic isn’t always there, there is still some importance of understanding what risks are involved. While another 2008 could happen, you may not want to see stock funds drop.

Yes, a TSP investment strategy needs to be included in your financial plan, but it should also entail your Social Security and FERS annuity.

Calculate Annuity

Maximize Your Inheritance With Contributions to the TSP

While you can’t place your inheritance money into your TSP account, should you come into a large sum of money this way, there are a few other factors to consider so that you can maximize the amount you get.

There are only two ways one is allowed to contribute to the TSP. One would be through a 401(k) plan from an employer prior to working for the government. The other would be deducted from your paycheck, like a normal contribution. Inheritance monies are not considered a “qualified plan” meaning you can not contribute any of those funds into your TSP.

But that doesn’t mean there aren’t ways to work around it.

First, consider how much of your paycheck you’ve already been contributing to the TSP. If it hasn’t been the maximum amount allowed, it would be wise to increase it to that. Then, you can fill in the gap in your budget with the money from the inheritance. Nineteen thousand dollars was the elective deferral amount for TSP contributions in 2019, and if you happen to be over the age of 50, you are also eligible to catch up by putting in another 6000 dollars. And if you’re married, and your partner has their own plan through their jobs, they should be able to do the same thing too. Now you’re saving for retirement without straining your own budget.

But let’s say you’re already putting the maximum amount into your TSP and you aren’t allowed to contribute anymore. As long as you’re still working, an IRA for you and your partner might be the way to go. There are plenty of other limits about what you can and cannot do with both a Roth IRA and a traditional IRA, so a quick visit to the IRS Publication 590 might be in order to find out the exact rules and allowances you can contribute there.

Beyond that, if you’re already maxing out your allowable contributions for both your TSP and your IRA, you should take the inheritance money and look into a taxable account. As opposed to the TSP and IRA, there are no breaks, like receiving tax-deferred earnings or subtracting the amount you’ve already contributed, with this type of account. The benefit is that there are no limitations or penalties on what you can put in or take out of this account. And if you earn interest or capital gains on these funds, when it comes time to pay the taxman, you should be able to do so at a percentage that is less than what you would have if you were paying for it out of one of your retirement accounts.

TSP Money Loans

Great Places to Retire 2019

If you’re set to retire in 2019, here are some great places to look into that might suit your needs as you enter the next phase of your life.

Athens, Georgia

The home of the first garden club in America (founded 1891) this city is home to the University of Georgia and east of Atlanta by 70 miles. The population sits at 127,000 people, and the median home price and cost of living are both well below the national average, at 29 percent and 7 percent respectively. The weather is a mix of clean air and mild temperatures, and there is a large local art scene too. Retirees are exempt from the state income tax for up to 65,000 dollars plus your social security funds. No state inheritance tax. This city has also been on the Forbes list of best places to retire for the last five years.

Wentachee, Washington

Named after a nearby native American tribe, Wentachee is a small yet beautiful community located along the Columbia River. At about 150 miles away from Seattle, this city with a population doesn’t have the rainfall of its big brother. Fresh air, a walkable downtown, low crime, plenty of local doctors, and no state income tax can make Wentachee an ideal place to retire.

Clearwater, Florida

Freshwater springs are the namesake of Clearwater, Florida, a community located between Tampa Bay and the Gulf of Mexico. Home prices are lower than average by 15 percent on a city with a population of 116,000. Bikeable and walkable, lots of side work available, no tax on estate or state income, and sporting plenty of doctors per capita, this sunny city is an exciting place for retirees on the move.

Boise, Idaho

The capital of Idaho, with a population of 227,000, Boise is located in the southwest quadrant of the state and is great for the more outdoorsy types. The winters are mild, which is good because there’s plenty of camping and other natural wonders to see in the area. Lots of doctors per capita and no tax on Social Security puts Boise high on the list of best places to retire by the Milken Institute.

Fargo, North Dakota

Unlike the other entries on this list so far, Fargo does have Social Security tax and state income tax, though not on estates or inheritance. Nevertheless, this city of 122,000 (the biggest population in North Dakota) is right by Minnesota border, and has a median home price 11 percent lower than the national average, and holds steady at average for cost of living expenses. A strong economy and walkable neighborhoods make Fargo a good place to retire for those up north.

Green Valley, Arizona

With an elevation of over 3,000 feet, desert city Green Valley sports a small population of 32,000 people and is home to lots of retirement communities. Located in the Santa Cruz River Valley, it is south of Tucson by only 20 miles and is a beautiful place to get a home, with the median price 24 percent lower than the average. Low crime, good air, and the desert climate makes for winter months that are very mild. There are no Social Security taxes in Green Valley.

Lawrence, Kansas

Home to the University of Kansas, this city, founded in 1854, sports a population of 97,000 and is a short drive to Kansas City, only 40 miles away. Seventeen percent below the national average, if you’re looking to purchase a home, there are plenty of doctors per capita in Lawrence, and a low crime rate combined with good air quality make this walkable city a safe place for active retirees.

Best Retirement Places in United States

The TSP Modernization Act Now Has a Set Start Date

As reported on the TSP website itself, the new changes under the TSP Modernization Act are now set to begin on September 15, 2019.

While the timeline had been laid out previously, this announcement finally answers the long-standing question of “when” will these changes officially go into effect.

The announcement also had other new information in it directed and HR and payroll employees about when and how people can take hardship withdrawals while they are actively enrolled in the service.

Beginning on the start day of September 15, anyone in the TSP who is currently taking withdrawals for financial hardship while still actively in service was previously disallowed be able to put money into the TSP. That is no longer the case, and the TSP participant can resume their normal contributions even before they finish with the standard suspension period of six months.

Anyone who is receiving hardship pay on that crossover date of September 15 will receive a notice from the TSP, letting them know they can once again begin contributing if desired. It will not be automatic and have to be done by the participant.

The TSP Modernization Act makes multiple other distinct changes for government workers who have invested in the Thrift Savings Plan. Currently, TSP participants can only take a single age-based withdrawal out after their 59 and a half birthday, or a single departure from the fund should they move on to other employment away from the federal government.

For those working past the age threshold of 59 and a half, the TSP Modernization Act would let the employee now take out multiple age-based withdrawals. The same is true for former employees who have begun working elsewhere. The TSP Modernization Act also would allow the employee to make payments quarterly or yearly, and enables the employee to change their withdrawal schedule to be amended throughout the year.

TSP Thrift Modernization Act Start Date

Make your Retirement Last with Income Annuities

As a retiree, making your money last as long as possible should be a top priority, but for many newly retired people, they don’t know how to look into insurance options that would aid them to this end.

You can guarantee yourself a nice supplemental monthly income in the form of income annuities and alleviate some of the periods of your retirement that might leave you economically uncertain. As compared to a retirement fund based solely on your plan’s investments, with an income annuity, you can stretch your retirement much further. As research by The American College of Financial Services has shown, income annuity can help your portfolio last until age 95 by at least 20 percent.

As the price of health care goes up and life expectancy is on the rise, annuities are certainly an excellent way to address these issues. Life Insurance and Market Research Association reports that in 2018 alone fixed annuities hit a record high point, with 133.5 billion dollars in sales.

To buy into an income annuity, all you have do is put a part of your retirement fund in with an insurance company who in turn will send you “paychecks” on the month for a predetermined period of time, usually for the rest of your life. While this invalidates you from making the kind of money you might with stocks, you’ll be getting money every month just like a paycheck. This can reduce some of the stress of your living expenses, with a reliable amount coming in to count on every 30 days.

There are other annuities available too, beyond the basic income annuity. While that one is good for your basic retiree, your situation might make another type, like indexed annuities or variable annuities, worth looking into. These more complex types of investments can be added to the income annuity, but they are more costly upfront than the most basic option.

Although it seems like a no brainer, a lot of retired people still haven’t taken advantage of the simple income annuity and the guarantee it provides, mostly citing worries over liquidity. When investing in a “life only” annuity, the most basic, surviving members of your family does not get any money paid out from that amount upon your death. Other annuities do payout after your demise, but for reduced funds in your monthly take. But on the other hand, if you were to purchase a deferred income annuity, you’d be poorer before retirement, but collecting better rates, and then have more money later.

With unknown costs around every corner, especially getting into old age, a monthly annuity can help you have some peace of mind, and enjoy life a bit more.

retirement income annuities

What to Do With Your TSP When Leaving the Military

Your military career is approaching its end, and now it’s time to retire. What should you do with the large sum of money in your TSP (Thrift Savings Plan) that you’ve been paying into since the very beginning?

There will be expenses, of course, that you previously hadn’t had to worry about in such a degree when you were in the military, including important things like health insurance. While the money in your TSP can certainly cover that, you should think twice before you do that.

According to almost all experts in the matter, it is unwise to tap into your TSP (or any) retirement fund before you reach the minimum distribution age of 59 and a half years old.

But why?

Firstly, the TSP only charges a low .04 percent service fee for any transaction, which is the lower than you will find with any other investment, even things like index funds which financial advisors all say are good investments as well.

Secondly, the TSP is a tax-deferred program, which means that when you put your money into it and keep it in until your retirement, the IRS won’t impose a tax on it. If you do touch that money early, not only will the IRS take taxes on it, but there’s also a 10 percent penalty fee on top of that, regardless if you’re making Roth or traditional contributions.

After retirement, you will have to pay taxes on the amount you take out, but dipping into it early means you’ll be paying taxes on all of it at once, a large sum, in addition to the 10 percent fee. The same with the Roth, which you normally won’t have to pay taxes on. Unless you tap into it before your 59 and a half birthday, in which case you’ll be paying the government taxes on the whole thing.

And this is no small amount. It’s 20 percent for federal taxes, and the 10 percent extra for penalty. Add in up to another 10 percent in state taxes, depending on where you live, and you’re looking at close to 40 percent of your money getting taken away before you even have a chance to touch it. Let’s say you had 150,000 dollars in your Thrift Savings Plan, and the tax bill would be 60,000 dollars.

So what can you do?

The easiest thing you can do it not touch the money in your TSP. Simple as that.

Even if you left the service before the 59-and-a-half year threshold, the TSP allows you to continue contributing to it, even with money from your IRAs or other civilian retirement plans. And on the other hand, if the 401(k) plan offered by your current employer offers you better options than your TSP, you can easily move the money to that plan without (or with a very small) penalty. Talk to your financial advisor about options and ways to move your money around so that it can work best for you.

TSP Thrift Savings Plan Military Leave

The TSP and Fossil Fuels

The question is, what should the government be doing with the massive balance of 578 billion dollars currently sitting in the federal retirement fund, the TSP, or Thrift Savings Plan?

Many government workers would like to see their TSP funds in waiting invested in different avenues that could positively affect the environment or society in general. Other workers think that this could be potentially harmful, as the idea is to invest the TSP fund specifically in safe ways so that it continues to turn a high yield for when they retire.

The TSP, in general, does not really come into question with partisan politics, because the TSP board has always put the money into low-cost index funds, essentially playing it safe. That is why the TSP is known as one of the best retirement plans in the entire nation.

But that doesn’t mean it can’t, or hasn’t already, been improved upon, and investing the TSP in funds that are in favor of positive social change has a precedent. Those instances include pushing for employers to hire from a gender and racially more diverse pool, making sure that there are no terrorist ties to any international options, empowered companies run by minorities or females by using managed funds instead of index funds, and the Federal Employee Socially Responsible Investment Act.

The newest proposed bill to create a more socially aware TSP is Oregon’s Senator Democrat Jeff Merkley’s RISE Act of 2019.

The Retirement Investments for a Sustainable Economy (the RISE part of The Rise Act of 2019) should give, according to Merkley. The idea being that there will be more investment options in the TSP focused on reducing climate change.

Merkley contends that giving people the option of fossil-fuel-free investments would let people express their value systems with their money, and get them more actively involved in their own retirement funds, thus making them aware of any potential risks involved while doing something potentially good for the planet.

Stocks in fossil fuels had once been a safe bet, but over time have not returned the yields they once did and have become an increasingly more perilous option. The RISE Act of 2019 should help mitigate those risks, and help pensioners against the “carbon bubble” that is ripe to pop.

The RISE Act of 2019 proposed that there should be a Climate Choice Stock Index Fund for investors, which would be there to make sure that money is put into stocks that have no negative record when it comes to climate change or fossil fuels.

This is the second time Merkley has attempted to pass a bill like the, citing last years attempt that too offered a Climate Choice Stock Index Fund, but it did not make it to the floor, getting stymied by Homeland Security before it was put up for vote.

TSP Thrift Savings Plan Fossil Fuels Climate Change Stocks

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