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March 29, 2024

Federal Employee Retirement and Benefits News

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TSP Index Change Discussed On Whether It Should Continue Or Not

The Federal Retirement Thrift Investment Board (FRTIB), the agency that is in charge of managing the Thrift Savings Program for current and former federal employees, held a meeting this week which included the topic of revisiting and possibly changing the Board’s 2017 approved decision to begin investing their funds to a different international market index that would have money goes into companies based in Communist China.

Back in 2017, the Board decided to move TSP’s I Fund tp the MSCI All Country World Ex-US Investable Market Index from the current MSCI Europe, Australasia, and Far East Index. This change would be implemented in 2020. The investment change will go from a focus on European, Australian, New Zealand, Hong Kong, and Japan indexes to a larger scale of 48 markets worldwide, which includes China.

Back in 2017, the FRTIB took a vote to change the index that the Thrift Savings Plan’s I Fund is based on. This move is a shift from a primarily Euro-centric index, along with Japan, Hong Kong, Australia, and New Zealand, to investments in 48 markets around the world.

A few months ago, Senators Jeanne Shaheen D-NH and Marco Rubio R-FL urged Michael Kennedy, the Chairman of the FRTIB, to stop this move as current and former federal workers would be inadvertently supporting Communist China and their actions regarding oppressing human rights and their controversial monitoring systems such as the Social Credit system, along with their ever-growing aggression to the US.

This week, more senators urged the Board to stop this decision in a letter. These included Senators Rick Scott R-FL, Josh Hawley R-MO, Kirsten Gillibrand D-NY, and Mitt Romney R-UT along with Shaheen and Rubio.

They state that this move to the new index would take the retirement savings of former and current US Military personnel and federal employees and invest money into companies and equities that help the Chinese military and the abuse of human rights of the Chinese people. They also mentioned that a lot of companies in the Chinese market are not transparent about their finances, and the market has a history of dangers involved and cited a scandal that happened recently with one of the largest accounting firms in China.

The Board did not decide on changing anything during their latest meeting this week regarding the index change. However, Russell Ivinjack and Bill Ryan from Aon Hewitt, the consulting firm that advised on the new index, reanalyzed the matter and still agree that this switch is recommended. Ivinjack mentioned that the TSP is required by law to provide an I fund that widely and thoroughly represents non-US investments. He said that the current representation at roughly 58% of non-US investments, but that the new index would move that number up to 99%, which is closer to meeting the required law. He also stated that the company did not advise on this change in the index in the past because of the high risk of liquidity. However, in 2017, that risk marginalized as markets progressed in development, and there were improvements on index managers managing liquidity problems unlike before, which is why they recommended the move.

Bill Ryan, a partner at Aon Hewitt, said that analysis showed that the performance of the new index outdid the current index in both weak and strong global market conditions, along with the Chinese financial transparency issues in mind.

A member of the FRTIB, Bill Jasien, asked if tracking emerging markets index that did not involve China would be possible. Still, both Invinjack and Ryan addressed that this strategy would be very risky as it could have investors going after trailing returns.

federal employees

Three Tax Errors You Want To Avoid From Making

Thinking that financial decisions ultimately come down to one’s desires is not hard to believe. Although individual preferences should influence most financial choices with goals and main concerns in mind, these can sometimes potentially turn well-intentioned ideas into a disaster. These disasters could be mistakes that can have you reaching for the wrong goals, take the wrong approaches, and use the wrong tactics. Unfortunately, many errors could become unsalvageable during retirement when the risks are high.

When it comes to retirement, many soon-to-be and the newly retired seem to tend to not really consider taxes. This can be a big issue that can cause many problems for them in the future. Focusing on taxes during your retirement planning can not only prevent you from being vulnerable to the following three errors but will also enable you to take advantage of the benefits they can offer.

The first mistake that many make is that they do not fully understand how their taxes will adjust when they retire. The kind of tax you pay will be the first significant change you will encounter. When employed, almost all of your earnings will probably come from your salary and are taxed under the category of ordinary income.

Though, in retirement, your income may come in through different cash flows. This different cash flow may be liable to be taxed differently from each other with different rates, as well. For example, pension benefits, Social Security payments, and retirement account distributions, such as traditional IRAs, are taxed under the ordinary income rates. However, long-term capital gains and dividends which are qualified are liable to lower capital gains tax rates. However, there might be good news with distributions from tax-advantaged accounts such as Roth IRAs not facing taxes.

Because there are different rates depending on the category the income falls into, this can open up the chance to receive the same after-tax income with less pre-tax earnings. This can help extend the value of your savings for a prolonged period of time than planned.

For instance, if you make withdrawals that are qualified from tax-advantaged accounts that tend to be not liable to tax, it will not be considered as income. Some amounts of your Social Security payments may also not be liable to tax if you keep what is called provisional income below the minimum amount that they will tax more on. Now, if some of your earnings come from accounts that are liable to tax, it may be advantageous for you to be liable to capital gains tax of 0 to 15 percent, which brings down the tax you will have to pay.

Now, for those that will have their income from accounts such as a traditional IRA, which is taxed under the category of ordinary income, you will be facing higher tax rates.

The method in which how you will pay your taxes will also be different when you are retired. Unlike before, where your employer withheld income tax from your pay, you will have to calculate these expenses yourself. It is recommended that you put aside these tax withdrawals when you receive your income so that when the time comes around to pay taxes, you will have the money to pay your taxes. If you do not end up having enough, you will have to take out more money than expected, which can have you face more taxes or even penalties.

To help avoid this issue, you may want to look into having portions of your cash flow or flows withheld. With S.S. or pension plans, it may take a little patience to set up withholdings. However, doing this with IRA accounts is much easier and efficient. Though this is contingent on your custodian, up to 100 percent of a payment will be eligible for transfer to federal income taxes, as well as state income taxes. This enables you to not have to calculate and make tax payments based on your estimations. However, these withholdings are still liable to tax, so be sure to be careful. It is recommended to seek advisement from your financial adviser.

The second error that many make is not creating tax diversification. When it comes to investment, diversifying can assist with making sure your investments are keeping in line with your retirement plans and can also lower the risk of losing money. When it comes to taxes, diversification is having investments in various kinds of accounts so that you have more mobility to lessen the tax liabilities you face by using an account according to your needs financially.

Now, because there are different categories of tax treatment that investments fall into for the Internal Revenue Service, it is best to go over those. These three categories are tax-advantaged, taxable, and tax-deferred.

Tax-advantaged investments. These investments are made after being taxed and can grow without being taxed. Also, there should not be any tax held liable on payments as long as the withdrawals are in line with qualifications. Such accounts that are tax-advantaged are Roth 401(k)s and Roth IRAs.

Taxable. These are after-tax investments where any profit made is held liable to tax at the end of the year. Such accounts are taxable brokerage accounts.

Tax-deferred. With tax-deferred accounts, you can receive tax deductions on your contributions at the moment. Your gains on the investment will not be liable to tax as it grows. Your taxes are in deferment until you start to receive payments, which is usually when you reach the age of 70 and a half years. Such accounts that are tax-deferred are 401(k)s and traditional IRAs.

Many employees wrongly focus mainly on investments in tax-deferred plans with 401(k) & 403(b) accounts, as they are readily obtainable by their employers, providing an immediate reduction in tax and associated current advantage on money. Most do not think about how this can affect them in the future.

So why is this even an issue? Because you don’t get everything, you see. For example, if you have $800,000 in an IRA, this does not mean you have that amount to make purchases with. When distributions begin with tax-deferred accounts, the payments face income taxes at the state and federal level. After taxes, only 50 to about 70 percent of those distributions will be available to you.

So what is recommended for those that are working and for those that are retired? Those that are are still working need to implement saving tactics in a smart manner. They need to know what approaches are accessible to them to determine when to properly contribute to the correct programs at the correct opportunities in time. Likewise, if you are self-employed or have a side hustle going on, you want to know that there are extra openings to save for retirement outside of what your employer may provide, such as the instances mentioned before in regards to tax-advantaged and taxable accounts.

For those that are retired, it is recommended to set up a retirement cash stream that is tax-efficient and go over calculations as to when would be the best time to make conversions with their Roth IRA to form or improve their tax diversification.

Their conversions can help assist with paying your taxes and allocate your investments under the tax advantage category. Usually, the best time for these conversions happens more before 70 and half years of age, when RMDs (required minimum distributions) start. However, these can still be done with benefits after the RMD age when you are readying to hand off your assets to your beneficiaries later on.

The third error that many end up with is having to take out a large required minimum distribution when you reach the age. Ending up with a large RMD is generally the consequence of the two mistakes mentioned above, which are saving too with having a lot of your assets allocated to tax-deferred accounts and not implementing strategies for tax diversification.

For those that may not know what exactly an RMD is: an RMD is a required minimum distribution that is taken from your retirement or pension accounts annually, which begins when you are 70 and a half years old. The minimum amount starts off at 3.6 percent of the amount that you have in your account and continues to increase every year.

A majority of those that are retired usually see that their expenses are much larger in the beginning of their retirement–probably due to spending a lot on finally doing things they’ve always wanted to do, like taking a trip to Bora Bora. However, these types of expenses tend to taper off as people settle into retirement.

Now, the opposite can be said for their taxable income. Generally, the taxable income starts off low as most of their retirement income is supported by their Social Security benefits, pensions, and other savings that were squared away for retirement. However, when RMDs begin, the taxable income tends to increase drastically, where the number of earnings that are liable to taxes is much higher than what is needed to maintain their cost of living,

They face paying taxes on money they do not need.

To avoid this problem, it is crucial to understand how your retirement income will be liable to taxation, along with having tax diversification. Be sure to have a plan before the required minimum distribution starts. For those that charitably inclined, there are QCDs, which stand for qualified charitable distributions. With this process, you can donate right from your IRA to your choice of charity. These payments to charities can be used for your RMD. This action will lessen your gross earnings and the taxes that come along with it. However, this can only be counted to your RMD if you donate directly from your account.

To ensure that you avoid errors that can hurt you in retirement, be sure to seek out with a professional financial consultant to go over strategies and calculations on how to maximize and take advantage of opportunities that benefit your financial needs, along with ways to set up tax diversification and how to have your income as tax efficient as possible.

Tax Bracket

Things to Look Out for When It Comes to Enrolling Into Medicare

Transitioning into retirement can have its hurdles. Especially when it comes to the federal government’s healthcare system. For most, one becomes able to apply for Medicare once they reach 65 years of age. However, things can get a little tricky for when and how to apply along with their options, regulations, and penalties

We will be going over a few problems that are quite common.

The first: missing out on registering during your first initial enrollment timeframe. If you do not enroll within the given period, this can change your rates permanently, or this can also delay your benefits.

You can enroll for seven months during the year of your 65th birthday. You can register three months before your birthday month, your birthday month, and also the three months after.

If you do not apply within that given timeframe, you will have to wait until the general enrollment period to register. Not enrolling on time will not only delay receiving medical coverage, but you will also be facing more expensive premiums.

Good news for some, though: if you are receiving Social Security payment at the age of 65, you automatically become a recipient of Medicare. This means that you do not have to sign up, as Medicare will contact you.

For those that are working at age 65 and already have health coverage with their employer, you shouldn’t have an issue with keeping your healthcare plan with your employer. If you decide that you would like to switch over to Medicare from your current health insurance, be sure to go over all the benefits and disadvantages of both coverages. Generally, most medical insurance from employers is more advantageous than the federal government health care plan.

If you need a bit of help navigating Medicare, be sure to reach out to your State Health Insurance Assistance Program as they provide free counseling to assist you.

The second common problem is if you do end up missing your initial enrollment period, and you decide to use Medicare, you will have to pay more than you would have in the beginning.

The cost of how much more you will have to pay is calculated by how long it took to apply and which coverage of Medicare you need,

For Part A, which is the coverage plan for hospital stays, this tends to have no premiums. Still, if you are not eligible to receive it for free and you did not enroll to purchase this coverage initially, you have to pay 10% more for a given time frame, which depends on how long you waited until you applied.

For Part B, which is the coverage plan for doctor’s visits, if you do not enroll in time, more than likely, you will have to pay more for life. The cost can go up 10 percent for every 12 months it took for you to register.

For Part D, which is an optional plan for prescriptions, you can select to have this under your plan. It is recommended if you pass on the Medicare Advantage plan, and instead choose the Original Medicare option. However, if you did not apply for this during the initial enrollment period and you do not have this plan for 63 days, you may find yourself paying more with a penalty for late enrollment. The amount you will have to pay will be calculated with how long you did not have the coverage for.

The third problem that many face is not understanding the difference between Original Medicare and Medicare Advantage.

Original Medicare is the traditional coverage that is provided by the federal government. They offer Part A and Part B coverage. Two additional coverages are elected by choice for those in this program: Part D, which covers prescriptions and Medigap, which helps cover expenses that Medicare does not cover.

Original Medicare allows you to be free from selecting a primary care doctor, and you usually do not have to receive a referral to see a specialist. However, there is no annual cap on what you will be paying outside of what is covered.

Medicare Advantage is a total coverage option that is provided by private medical insurance companies that are selected by the government. These plans usually offer Parts A, B, and D.

These plans are guided by regulations from the federal Medicare system. They have to provide coverage that the Original Medicare provides. However, these regulations can be changed annually, so be sure to review these every year. Also, Medicare Advantage can provide more coverage of other medical services, which is why premiums and coverage of service can be quite different between these plans.

The good news is that you are not locked into just one plan for life. You can change from Medicare Advantage to Original Medicare–or the other way around– but this can only be done during selective enrollment timeframes.

Keep in mind that changing plans can have you not eligible to continue services with your current doctor, or you may risk being disqualified for Medigap when switching to Medicare Advantage. So be sure to do all your homework before you decide to change coverages.

The fourth mistake that you could encounter is losing your Medigap policy if you switch over to Medicare Advantage from Original Medicare. This means that you can lose coverage that pays for additional expenses that Original Medicare does not fully cover.

Now, if you do decide to change over to Medicare Advantage, be sure to check out the guide on how to do this by Medicare at their website. You can allow losing your Medigap coverage, but you may never be able to get it back in the future. You are only guaranteed to receive Medigap during the first enrollment period as insurance companies are not able to deny you coverage or raise your premiums due to pre-existing conditions.

After the initial enrollment, a majority of the states allow for insurance companies to deny you or raise your premiums if you have pre-existing issues. This can risk you losing additional coverage or have you pay way more than before for Medigap.

Enrolling in Medicare

Set Up Your Own Pension If You Don’t Have One

With the scarily rising trend of pensions becoming less and less available for private-sector workers, it may be beneficial to set up your own through an immediate annuity.

For this type of annuity, you start by paying a lump sum to an insurer. In return, they will pay you a monthly income, normally, until your death.

Just like most things, you want to think about the negatives before you think about starting an annuity. One major con is that once you pay them the lump-sum, it is very rare to be able to have that returned to you. However, there are a few insurers that let you withdraw once from your account for specific emergencies.

Another negative is that the worth of your payouts become less against inflation as time goes on. A majority of insurance providers provide an inflation rider with their immediate annuities, but that can bring down your beginning payments up to 28 percent to increase your payments each year to combat inflation.

Another factor you may want to consider is how the interest rates will affect your payments. Your age and interest rates determine how much you receive from the immediate annuity plan. The payments are lower when the interest rates are low.

10-year Treasuries are normally linked to the payments, and the rate is at a record low. Currently, getting an immediate annuity right now may not be the best time due to this factor.

If you can, waiting will be beneficial because you will receive larger payments when you are older, and more than likely, the interest rates will be much higher than what they are at this time.

For those that are concerned that the interest rates can even fall lower than where they are now, or you need to receive a bit of assured income as soon as possible, an annuity ladder may be the best course of action. You will be investing your money into an immediate annuity throughout a few years.

For instance, you want to put in $500,000 into an immediate annuity; you would purchase a plan for $100,000 the first year and another $100,000 every two years until you have invested all the $500.000. If the rates are higher, you will be able to take advantage of those rates. If the rates are even lower than they are currently, you will have payouts paying you at a higher rate from the previous purchases.

Something else you can do is invest in a deferred annuity instead. This also goes by the name of a longevity annuity, which provides a guaranteed income once you hit a certain age that is agreed upon between you and the insurance company.

With a deferred annuity, you can contribute a maximum of 25 percent or $130,000 (whatever may be less) of your 401(k) or IRA into an annuity that is called a qualified longevity annuity. This allows you to not have to take an RMD (required minimum distribution) once you are 70.5 years of age. However, you will need to begin receiving payments from this annuity when you are 85 years old. Keep in mind that these payments are liable to income tax.

A possible downside to deferred annuity payments is that they are linked to interest rates as well. If you see that rates may rise in the future, you may wish to hold off until then.

Federal Employee setting up pension for retirement

Though the TSP Has Changed, There Are Still More That Participants Want

The Thrift Savings Plan just recently did an overhaul on their withdrawal rules for both current and retired employees, which was implemented on Septemeber 15th of this year–a move that has not been done since the TSP started well over three decades ago.

These new withdrawal policies were finally made largely due to the participants’ feedback over the years, where the majority viewed the program quite well aside from the withdrawal policies that most were unhappy with and wanted to see changes.

However, there are still other changes that TSP participants would like to see changed.

Although there were surveys that the TSP used to determine what needed to be changed, they also analyzed the actions of their members. Just in the first year, they saw that over a third of eligible participants moved their TSP into IRAs or other third party tax-favorable retirement accounts instead of keeping their funds within the Thrift Savings Plan. These moves had them forfeit benefits of low admin fees and investing in the G Fund, which is government securities fund specifically for the TSP. However, it seemed that the flexibility to access their money was more important.

During the stages of analyzing and reviewing what new withdrawal options should be put in, the TSP had to post their proposed policies publicly to allow comments and feedback from their participants, which they had to review then and explain the comments why such rules were or were not added to the new change.

Unfortunately, it seemed that the board that manages the TSP was unable or not compelled to make any changes based on these comments on the postings. They stated for some remarks that because of tax codes, they were not able to make certain changes as it fell under the jurisdiction of the Internal Revenue Service. However, the comments are a great way to know what changes they would still like to see in the TSP.

One of the popular requests made by participants was to have the ability to convert their traditional TSP into Roth balances from the account. These conversions, which are well-known to be done with IRA accounts, would have the individual pay income taxes on the balance, but they would be able to withdraw from their Roths free from the liability of more taxes.

The TSP responded that though they have contemplated the idea of granting Roth conversions from within the accounts, they concluded that with tax complications that would arise and the substantial risk of unrecoverable financial problems that they would not make this change. Along with that, but this matter was out of the sphere of what changes they were allowed to make by the TSP Modernization Act of 2017.

Another change that was asked for was in regards to the TSP’s process and procedure on paperwork and filings for withdrawals or changes to the accounts. The main issue was about having to receive a notarized signature from a spouse consenting to most changes or withdrawal requests. Though for those under CSRS, which only requires a notice to the spouses, the TSP stated that this a procedure that needs to be met under the law.

However, they also replied that even if the law was not involved, permitting an investor to change the amount or regularity of their installment payouts without the agreement of the spouse would disregard why the rule was created in the first place; to protect the spouse from having the participant deplete their accounts without agreement. Because of this, it is highly unlikely this will ever be changed.

Other comments touched on how the withdrawal options that were being changed were not sufficient. For instance, one policy change will let participants with both a traditional TSP and Roth account elect where the money comes, whether just from the traditional balance, Roth balance, or a proportionate withdrawal from both. Before the new rules, the latter option was the only option available. In the posting, it was suggested that account holders should be able to select the percentage or amount from both accounts.

The board state that they did also review this possibility but that it would be impossible to do administratively. However, an account holder can still do this by making one withdrawal from their traditional TSP and then another withdrawal from their Roth account.

The board also thought about letting participants choose to make withdrawals from one or multiple funds instead of the proportional formula that is in place. However, they decided against it at this time because of the amount of overhaul that would need to be done in regards to changing withdrawal forms and the programming system to allow those types of withdrawals.

Though the TSP does make changes, it can be said that it is done very slowly. Though, they have made it clear on what changes they do not ever plan to make. For those of you that still want to see those changes for the options that will be accessible to you, you can still mostly do them by withdrawing your account and taking your money somewhere else.

TSP Participants Want More

The FRTIB Hopes to Keep More Participants in The Program with The New Changes

The FRTIB (Federal Retirement Thrift Investment Board) hopes that the new withdrawal policies that were set into place mid-Septemeber will help with keeping more participants in the program when they separate due to retirement or another career. A majority of financial professionals say that the Thrift Savings Plan (TSP) is the greatest 401(k) program with its 5 percent employer match and low admin fees.

Though it has excellent benefits for participants, many current and former federal and military personnel tend to leave the plan for a third party retirement savings plans such as IRAs and 401(k)s when they are separated from their government jobs. Some investors make this switch to have more options in investing in particular markets that the TSP funds do not offer.

However, the primary motive that people say why they are or were switching to other plans is because the withdrawal policies for TSP have been quite restrictive and mainly had stayed the same since its creation over three decades ago–at least until September 15th, when new rules were set into place. The new changes made should lower the number of participants leaving once they leave their jobs.

It still too soon to read on what exact effect the new, flexible policies on withdrawals will have on separated federal employees. Still, the news and information about these new policies have definitely created interest from a lot of TSP’s participants. Currently, there are about 5,800,000 account holders, which also comprises of nearly 39,400 accounts that are worth over a million dollars. The investors did a majority of these million-dollar accounts by focusing their funds and holding in the C & S funds for over ten to twenty years or more.

These new policies were set into place to maintain more participants in the Thrift Savings plan once they leave their federal or military positions. Or to even keep their accounts open with the minimum amount of $250 (if they still do wish to depart from the plan). That way, if they wish, they still have an account that they can go back to. Unfortunately, those who completely close their TSP accounts are not able to open up another TSP account. Many tend to have regrets leaving the program due to other accounts and options, costing them a lot of money in fees and additional charges.

Here are the new withdrawal rules that were put in to allow more flexibility for account holders to access their money:

  1. For those that are no longer employed by the federal government, they are allowed to make multiple post-separation partial withdrawals as long as they are least 30 days apart.
  2. For those that are still active in civil or military service and at least the age of 59.5, they will be able to make four age-based in-service withdrawals annually.
  3. Participants are now allowed to select to withdraw money from their traditional TSP balance, Roth, or a proportional amount from both accounts.
  4. It is no longer a requirement to make a full withdrawal once the participant is 70.5 years of age and no longer working their federal job. However, they will need to take RMDs (required minimum distributions) as directed by the Internal Revenue Service.
  5. Those that are separated can select when to make installment payments on a monthly, quarterly, or yearly basis.
  6. Participants can stop, restart, or request changes to their installment payments whenever they wish to do so.
TSP News

New COLA to Take Effect in January

In January of next year, a majority of retired federal employees will have their monthly annuities adjusted for inflation of 1.6%. Though the adjustment is on track with other previous years, it seems to be under the increase that was given in January of this year.

The COLA (cost of living adjustment) will also take effect on retirement benefits for the military and Social Security.

As of now, there are two major federal retirement programs, which are the Federal Employees Retirement System (FERS) for employees hired in 1984 and on and the Civil Service Retirement System (CSRS) for workers employed in 1983 or before. Between these programs, there are some rules that are different. The CSRS applies the adjustment for inflation to retired workers of any age. However, those that are covered under the FERS program, the adjustments are not applied unless you are at the minimum age of 62. (Exceptions can be made for those that are in positions that have a mandatory early retirement like law enforcement or for former workers that retired on disability.)

There is only a small percentage of current federal workers that are still under the CSRS program, but 62% of retired employees are receiving CSRS benefits at this time.

Though both the FERS and CSRS programs are calculated based on time served and salary, the more giving of the two seems to be CSRS. As of this time last year, the average monthly annuity of a CSRS recipient was $3,781, which is more than half of what retirees under FERS receive at $1,506.

In January of this year, those that are under the CSRS system received an inflation adjustment of 2.8%. Those that are in the FERS program had an adjustment of 2%.

The cost of living adjustment will also take effect on survivor beneficiaries in both retirement benefit systems. The monthly benefits were $596 on average for FERS and $1,646 for CSRS last year.

The new COLA will increase the average monthly S.S. benefit to $1,503.

Although CSRS recipients receive higher benefits under the program, the FERS program has Social Security along with contributions made by the employer toward TSP accounts to compensate for the difference. Though there are some retirees under CSRS eligible for S.S. benefits due to other work, but these benefits are liable to an offset that lowers their benefit by a significant amount.

There will also be another change in January to the Federal Employees Health Benefits Program (FEHBP), which will see an increase in monthly premiums by an average of 5.6%. A majority of former and current works are under this program.

Those under the FEHBP system may have the opportunity to change plans if necessary during its yearly open season starting on November 11th and closing on December 9th.

This inflation adjustment will only affect those that are retired. Currently, federal employees are still waiting for what their raises will be for 2020. This is decided during the processing of the federal budget.

New COLA

Veterans and Senators Ask the FRTIB To Not Invest in Communist China

Recently, a letter was written by a group of influential veterans advising all American retirement funds not to invest in companies in China. This letter was signed by retired vets, such as U.S. Air Force Brigade General Robert Spalding, Lieutenant Colonel Allen West (once a former member of the House of Representatives), Colonel Darrell Smith, Gunnery Seargent Jessie Jane Duff, U.S. Air Force Lieutenant General Thomas McInerney, and U.S. Army Lieutenant General William Boykin.

In the letter, they state that the Chinese Communist Party just recently celebrated its National Day, which is regarding approximately 70 years of their misgoverning over their Chinese citizens. The government is relentlessly progressing toward repressing the human rights of its citizens. Not only that, but the Chinese Communist Party has become more antagonistic with its ever-growing threats to the U.S.

The signers stated businesses that provide the resources and funding for the Chinese Communist Party are enabling this government to oppress the Chinese people. This involves companies that assist China in supporting its social credit program, breaching American and international sanctions, unlawfully build up islands in the South China Sea, and strengthen its advanced technology military capabilities.

The letter claims that there are many U.S. pension funds and other investors that are underwriting Chinese companies that are doing these activities, as mentioned above. They state that 6 percent of Morgan Stanley Capital International All-Country World Index, which is around 6 trillion dollars are being placed on Communist China’s stocks.

They also mention that the TSP (Thrift Savings Plan) will be copying the Morgan Stanley Internation Index in 2020. If this is allowed to happen, current and retired Federal Government workers and military personnel will have their retirement investments support Communist China’s companies.

The signers find this to be unsupportable as they have served in the military for the U.S, and cannot support having their investments assist their enemies.

They are seeking for the President to stop the TSP from possibly supporting Communist China.

This group is not the only one that is demanding the board in charge of the TSP, the Federal Retirement Thrift Investment Board (FRTIB), to change their plans in regards to investing funds to companies in China. U.S. Senators Jeanne Shaheen D-NH and Marco Rubio R-FL released a similar plea back in December. The senators likened this situation to the unimaginable idea of U.S. government workers and military having supported Soviet Russian businesses during the period of the Cold War.

The senators said that Americans should not be underwriters for Communist China, which can be a threat to the U.S. They also wrote directly to the chairman of the FRTIB, Michael Kennedy, requesting that the chairman change the move to invest in Chinese companies. They also asked him how this decision was even made possible.

At this time, the Trump administration is reviewing implementing restrictions on investments going into Communist China, which involves U.S. government retirement savings. The Chinese Communist Party has made points that if this were to happen, this would damage trade talks with the U.S.

federal employees

The States That Will Not Tax Your S.S. Income

Many retired U.S. Citizens rely on Social Security to get them through their retirement. The Social Security Administration state that almost 50 percent of married couples rely on their SS benefits for about 50 percent of their cash flow. 2 out of 5 couples rely on about 90% of their income to come from Social Security,

For those that are or will rely on these benefits to support their living expenses, it is essential to know about the taxes that can affect your retirement income. Depending on where you live, your income can be liable to taxes from the state and the federal government.

However, some states do not tax Social Security benefits, which may be quite beneficial in saving a lot of money if you retire in one of these states.

Currently, 37 states do not tax your Social Security Benefits, including:

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Mississippi

Nevada

New Hampshire

New Jersey

New York

North Carolina

Ohio

Oklahoma

Oregon

Pennsylvania

South Carolina

South Dakota

Tennessee

Texas

Virginia

Washington

Wisconsin

Wyoming

There are seven states, which are Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming, that do not have any taxes on state income, and SS payments are filed under state income taxes. The other states do have a state income tax. However, it is only dividends and investment income that are liable in those states. Most states that do charge income tax tend to have exceptions for SS benefits.

The state of Illinois may change its laws to start taxing Social Security income, as the state has financial troubles. There are proposals that want to start taxing SS to assist with the state’s finances. This is still very much in the talks, but those that live in Illinois may want to state updated on this issue.

Now, if you reside in one of these states, your income is still liable to federal taxes. Though you only have to pay federal taxes depending on your income, the income limit is very low that most beneficiaries will have to pay.

The Social Security Administration reviews yours combines income to calculate the taxes owed. Your combined income is made up of 50 percent of your entire annual benefit amount, along with any other income you may receive. For example, if the Social Security Administration pays you $20,000 a year, and you receive $25,000 from another retirement income, your combined income would be $35,000.

You might have to pay federal taxes on some of your benefits if you receive a retirement income over the minimum threshold.

For those that are single:

0 percent will be taxed if you receive a combined income under $25,000 annually.

Up to 50 percent can be taxed if you receive a combined income between $25,000 to $34,000 annually.

Up to 85 percent can be taxed if you receive a combined income of more than $34,000 annually.

For those that are filing jointly:

0 percent will be taxed if you both receive a combined income of less than $32,000 annually.

Up to 50 percent will be taxed if you both receive a combined income between $32,000 to $44,000 annually.

Up to 85 percent will be taxed if you both receive a combined income of more than $44,000 annually.

If you decide to move to one of these states for retirement to save money, this may be beneficial. However, make sure that you go over the cost of living and other taxes in the other states to see if the overall expenses and taxes are worth the move.

If your SS benefits are mainly what you rely on during retirement, make sure you calculate the taxes into your budget, so you know what to expect. The more you know what to expect, the fewer surprises there will be.

federal retirement taxes in the United States

The Different Rules Between A Roth IRA and A Roth TSP

There are various distinctions when it comes to withdrawals between a Roth IRA and a Roth TSP that can possibly have you paying more in penalties and taxes if you don’t know what they are. Even though both vehicles have both are designed for saving money for retirement, they have different regulations that guide them. The TSP, like other with programs such as 401(k), for example, are employer-sponsored programs. And because of this, the rules and regulations can be constrictive compared to IRAs, which are private plans for people.

Withdrawals will be taken proportionately between your Roth and traditional TSP balances, except for those that elect for specific withdrawals from one account or the other. To have your withdrawal qualify for Roth purposes, you must be at least the age of 59.5 and must have had a Roth balance in your TSP account for a minimum of 5 years. If you do not meet these requirements, the earnings part of the Roth withdrawal will be liable to income tax. Despite the TSP Modernization Act that was passed in 2017 and fully implemented in September of this year, Roth withdrawals still are seen to be coming from contributions and salary.

You are not able to have traditional or Roth balances inside the same IRA, and therefore there is no problem of equal distributions between traditional and Roth balances. There remains the question of qualified withdrawals from a Roth, and the definition of what constitutes a qualified withdrawal is the same as that used by the TSP. Any amount taken out when the withdrawals are not eligible will be subject to income tax. However, keep in mind that Roth withdrawals are not considered proportionally to come from contributions and earnings within IRAs.

If you withdraw from a Roth IRA, your withdrawal is considered as coming from your contributions, which has already been taxed on. If you take out more than the amount of what you have put in with contributions, the withdrawal from any Roth conversions that may have been made will be considered second. These conversions already have been taxed, as well. You will only have to pay tax if you withdraw the gains you made, but only if the withdrawal is not eligible. Qualified Roth withdrawals are never taxed.

Here is a clarification on how you can get a qualified withdrawal with the five year time period that is necessary. First off, the five years is considered the 1st of January from the five years of conversion or contribution. For example, if you made your first contribution in March of 2015, the five years would be met on the 1st of January, 2020. The time period does not start again with the following contributions or conversions to the Roth IRA.

Secondly, there is a different five time period rule that is only for conversions, and a 10% early withdrawal penalty is liable. Because the Thrift Savings Plan does not permit conversions, this principle applies solely to IRAs. Although it is valid that you can withdraw converted money whenever you wish without paying federal taxes as they have already been taxed, if you end up making the withdrawal before 59.5 years of age, you will have to pay the penalty if the conversion does not qualify for the five years. The five year period also does restart with every conversion made after the initial conversion.

These different rules can be mindboggling, but a good rule of thumb is to only withdraw from when you have had the Roth for a minimum of 5 years, and you are of age 59.5 or older. This way, you will avoid any taxes or early withdrawal penalties.

thrift savings plan

New Changes to The TSP Creates A Brighter Retirement Future

The TSP (Thrifts Savings Plan) had some significant changes made to its withdrawal options this year that will give many federal employees and families a better opportunity to invest efficiently for their retirement. 

For a long time, the TSP has given its participants affordable investment choices to help them establish a reliable retirement fund. Due to the TSP Modernization Act that was passed in 2017, this has allowed the board in charge of the TSP to create and implement new changes based on feedback from the participants so that people would have more accessibility to their retirement money.

So what are these changes that went to effect on September 15th of this year?

Participants can make multiple withdrawals.

Those withdrawals can be taken out from specific accounts that are desired.

Participants no longer have to make full withdrawals once they reach the age of 70 and a half.

Payments of their withdrawal can be selected to be paid to participants every month, every quarter, or once a year.

For personnel in uniformed services, this has been a second update to the Thrift Savings Plan in the past few years. Early last year, on January 1st, military personnel started to get a contribution to their TSP that is equivalent to 1 percent of their base salary. They would also get a 5 percent matching contribution of what they contribute to their accounts. In that 5 percent, the initial 3 percent would be matched to each dollar, and the other 2 percent would be matched 50 percent for each dollar.

So with these new rules in place, what can be done to maximize the benefits of your TSP account? Below are a few pointers that may help you:

First off, decide how much you can save each month from your budget and put it towards your savings account. You can even have this done automatically.

Second, make sure you take full advantage of the matching contribution that is offered as that if free money for your future. If you are apart of the Blended Retirement System, you will get a 1% contribution of your base pay. However, everyone should try and maximize their contributions for the first 5 percent so that they will receive a match from their employer.

Another thing that your future self will thank you for during retirement: save a portion of extra money that may appear in your life and put it towards your TSP.

You will also want to consider investing for the long run that can help build and grow your investments. It may be more beneficial to put your investment towards funds that are tied with the stock market for a potential higher return for your retirement. A mistake that many can make is that they handle their investments with too much reserve too early that their investments don’t provide sufficient returns for the future. 

And lastly, it is always smart to seek professional advice from an expert that can help you expand your savings and portfolio to assist with preparing for a secure retirement.

With the new changes that have been an upgrade to the TSP plan, the future is looking brighter for many.

federal retirement

New COLA to Take Effect in January

In January of next year, a majority of retired federal employees will have their monthly annuities adjusted for inflation of 1.6%. Though the adjustment is on track with other previous years, it seems to be under the increase that was given in January of this year.

The COLA (cost of living adjustment) will also take effect on retirement benefits for the military and Social Security.

As of now, there are two major federal retirement programs, which are the Federal Employees Retirement System (FERS) for employees hired in 1984 and on and the Civil Service Retirement System (CSRS) for workers employed in 1983 or before. Between these programs, there are some rules that are different. The CSRS applies the adjustment for inflation to retired workers of any age. However, those that are covered under the FERS program, the adjustments are not applied unless you are at the minimum age of 62. (Exceptions can be made for those that are in positions that have a mandatory early retirement like law enforcement or for former workers that retired on disability.)

There is only a small percentage of current federal workers that are still under the CSRS program, but 62% of retired employees are receiving CSRS benefits at this time.

Though both the FERS and CSRS programs are calculated based on time served and salary, the more giving of the two seems to be CSRS. As of this time last year, the average monthly annuity of a CSRS recipient was $3,781, which is more than half of what retirees under FERS receive at $1,506.

In January of this year, those that are under the CSRS system received an inflation adjustment of 2.8%. Those that are in the FERS program had an adjustment of 2%.

The cost of living adjustment will also take effect on survivor beneficiaries in both retirement benefit systems. The monthly benefits were $596 on average for FERS and $1,646 for CSRS last year.

The new COLA will increase the average monthly S.S. benefit to $1,503.

Although CSRS recipients receive higher benefits under the program, the FERS program has Social Security along with contributions made by the employer toward TSP accounts to compensate for the difference. Though there are some retirees under CSRS eligible for S.S. benefits due to other work, but these benefits are liable to an offset that lowers their benefit by a significant amount.

There will also be another change in January to the Federal Employees Health Benefits Program (FEHBP), which will see an increase of monthly premiums by an average of 5.6%. A majority of former and current works are under this program.

Those under the FEHBP system may have the opportunity to change plans if necessary during its yearly open season starting on November 11th and closing on December 9th.

This inflation adjustment will only affect those that are retired. Currently, federal employees are still waiting for what their raises will be for 2020. This is decided during the processing of the federal budget.

retirement dates

Less Than Stellar Economic Data Can Affect TSP

Earlier this month, a lot of data in regards to the economy was released which revealed lack-luster data about private-sector jobs, the worst manufacturing report in the last ten years, and a service sector report that was quite weak. These reports point toward a decelerating economy on a general scale, along with a growing risk of a recession on the horizon.

Payroll data from the government was also released, which eased some fears for the moment from some negative predictions made by financial analysts. The payroll data wasn’t stellar but was in pace with forecasted calculations.

The ISM (The Institute For Supply Management) provided its monthly manager’s index report on monthly purchases with a low report of 47.8, which shows a decline in manufacturing. Last year, the highest score was at 60. 47.8 is the lowest since the 2008 recession.

The Institute’s non-manufacturing report also was below the expected points of 55, coming in at 52.6. Even though this is still growth, this report still shows a drop in acceleration as the score was 60 last year around the same time period as this year.

The jobs report for September revealed that the unemployment rate was at a new low in 20 years at 3.5% and that 136,000 job positions were formed. Data shows that manufacturing and retail are failing to create new jobs, while business, service sectors, and the medical industry are still generating new jobs.

Though this report is not bad enough to ring the alarm on recession concerns, the report is lacking enough that many will not be surprised if the Federal Reserve cuts the interest rate even further at the end of this month. With rate cuts, equity prices usually spike if recession fears are not high.

The Federal Reserve may also have good reason to cut the interest rates as wage growth remains steady at around 2.9%, which pacifies inflation fears.

Businesses that are a part of the S fund are facing the likelihood of being less profitable than larger businesses in the C fund. And because they usually do not accelerate their earnings with stock buybacks per each share, this makes these companies more prone to being affected by economic deceleration.

If you are a TSP participant, be sure to keep an eye on these reports in the future as they can affect your investments.

Federal Retirement Data Chart

Get Prepared for Making Changes to Your TSP Contributions and Taxes

With the end of the year coming very quickly, it is recommended to take a look at your contributions to see if any adjustments in the amount needs to be made along with checking this year’s tax withholding to make sure that you will not be liable to paying a large amount of income taxes when they are due early next year.

The IRS will soon have next year’s catch-up contribution maximum and the elective deferral amount. There are guesses that the current maximums of $6,000 for a catch-up and $19,000 for elective deferral will be the same for next year. Others have guessed that these amounts will only increase to $500 more for each option.

Also, both FERS workers and military personnel that are under the blended retirement system need to keep in mind that they need to put in a contribution every pay to be eligible for the matching employer’s contribution for that period.

If any change is made for next year’s elective deferral amount, it is highly recommended to be prepared before the new year. Be sure to know what day you are paid so that you can make any changes in your contributions in time. The first paycheck that you get next year will be based on any changes made this year. So if there are any changes you want to make for the first pay period of next year, be sure to get those changes in place before the end of the year. You will want to check with your payroll office as to which pay period these changes need to be made to be effective for the first 2020 paycheck.

Another thing you will want to look into is to see how many pay periods there are next year. Normally, there are 26 pps, but from time to time, there will be a year with 27. If thee elective deferral does increase to $19,500, a $750 contribution will max out the amount for a year that has 26 pps. For a year that has 27, the amount would be $725.

Another important thing to get prepared for is your 2019 income taxes in regard to your TSP earnings. The TSPMA (Thrift Savings Plan Modernization Act) did not alter how TSP payouts are taxed or the method on how taxes are held from those payouts. Those who choose an installment of payments seem to get some bad news because of the withholding rules in their first year of retirement.

The TSP has released a new document, which is called Tax Information: Installment Payments to go along with the venerable Tax Information: Payments from Your TSP Account. The latest document refers to installment payments, which are either dependent on whether they are anticipated to go on for a decade or more or on your expected lifespan.

The document states that the TSP has to withhold money as if the individual is married with dependents of 3 for income taxes for any liable amount. However, this can be changed if you select to make another choice. The standard required amount if you do not make a change will generally not be enough for many to cover their income taxes. If you have not made that change this year, you can still do it for the remaining time that is left to have extra amounts to be withheld for taxes. For many people, they would rather have their taxes withheld, instead of having to pay taxes on estimations.

For those that live in a state that does tax retirement earnings, you will want to prepare for your state-level income taxes as well. Unfortunately, TSP does not do withholds on state or local taxes, so be sure to calculate this amount with a professional tool or go over this with your financial advisor so that you have an estimate to pay when due.

money TSP thrift savings plan roth contributions

Be Sure to Take Advantage of Catch-Up Contributions Before the Year is Up

With only two months left to the end of 2019, there is limited time for TSP participants to make an election for catch-up contributions to their TSP, and those that are contributing large amounts may need to change their investments to lower amounts if they are at risk of reaching their yearly contribution limit before the end of the year.

For those that are not sure what catch-up contributions are or whom they apply to catch-up contributions are for those who are at least 50 years of age or older and have reached the contribution cap of $19,000 for 2019, or are on their way to reaching the amount by the end of December.

The catch-up limit that can be invested maxes out at $6,000 for 2019. These contributions are made by withholds from payroll, so to maximize benefits with just a handful or so of pay periods to go, participants will have to elect large amounts to be held from their paychecks. However, this is only recommended if they are able to live off of shortened income until the end of this year.

Fortunately, in 2021, the TSP will implement a policy where TSP holders will automatically be able to make contributions until they reach the catch-up limit, rather than having to elect to make these extra catch-up contributions.

Additionally, FERS members need to plan their savings so that they put at least 5% of their income in each pay period of the year into their investments to get the maximum government contributions. If they reach the annual cap of $19,000 before the end of December, they would no longer be allowed to contribute more until the following year. Also, any contribution matches that are up to 4% of earnings would stop and will not recoverable. However, the standard 1% of salary agency contributions will still be in effect.

For any questions or doubts to be addressed, TSP participants should reach out to payroll to get information on how many TSP contribution periods are left for the year. Keep in mind that these TSP contribution dates are not quite the same as pay distribution dates. Once they have correct dates, they can then make changes if able to make the most of their investments.

Catch up on TSP contributions before deadline

Be Sure to Read This Before Rolling Over Your TSP Account Into an IRA

The costs of the TSP fund are definitely one of the low-priced plans out there, even with the expenses going up over the years. That is why many experts recommend really thinking things through before moving your TSP balance into a third-party account.

The cost ratio for the C, F, & I funds is 4.1 points. The ration for all of the L, G, & S funds is 4.0 points. This means that 41 and 40 cents, respectively, for every thousand dollars contributed. However, even though those ratios are quite low, it isn’t the lowest.

There is a fund out there that has $0 expenses by Fidelity Investments. However, what’s the catch? Well, just like many promotional items out there, the main purpose is to get you into the store or the membership so that you will purchase other items at the normal price or even higher. Though zero expenses may seem tempting, the overall costs in the future may be more than what you would pay for your TSP account.

More importantly, if you are a federal employee who chooses to leave your money in the TSP after retirement don’t expect any help from the Thrift Savings Plan Board when it comes to advice.  Similarly, the income options the TSP offers are significantly limited and the TSP Annuity, which is run by MetLife, simply isn’t a very good option at all.

For those that are turning 70.5 or will be soon, if you are considering rolling your traditional TSP into an IRA, be sure you receive your RMD (required minimum distribution) before you make this transition.

It is mandatory that you take your initial required minimum distribution at the beginning of the year that you become 70.5 years of age, even if it isn’t until the very last day of the year. You can defer the first distribution up until the first of April of the next year, but the RMD must be taken before you take other distributions.

If you have read of the 60-day rollover that is allowed once per year, this is only eligible from one Roth IRA to another and from a traditional IRA to another traditional IRA. These rollovers do not count on TSP plans and IRAs. Though this also does not count with direct rollovers, if you plan to roll your balance into an IRA, make sure it is a straightforward rollover.

If you considering a TSP to IRA rollover make sure you work with a knowledgable professional who understands your retirement benefits and knows the ins-and-outs of the TSP.  Making a mistake and selecting a TSP income option can be irreversible and is seldom the best option once you consider all of the available choices out there.

Retirement Funds

Will TSP Ever Change Their Investment Options Now That Withdrawal Changes Have Been Made? By Richard Brenner

Will TSP Ever Change Their Investment Options Now That Withdrawal Changes Have Been Made? By Richard Brenner

 

After years of criticism of restrictions from TSP members, The TSP Modernization Act was passed in 2017 and was put into effect this year, allowing more freedom for TSP holders to access their savings.

Since these changes have gone into effect, those that have left federal or military service are not able to take unlimited partial withdrawals from their account, but can only do so once every 30 calendar days. They can also make installment payments and partial withdrawals at the same time. They also now have the option to receive installment payments every month, quarter, or year, which they can stop, restart, and change the regularity of payments whenever they wish to do so. Along with that, they are now able to choose to pull their payments from just their Roth, their traditional TSP account, or both.

For those that are over the age of 59 and a half and still federally employed or in the military, they are able to take up to 4 age-based in-service withdrawals from just their TSP account, Roth, or both accounts as well.

For those that take hardship withdrawals, there no longer will be a six-month penalty of not being able to contribute to their accounts.

Since the implementation of these new TSP withdrawal options, there have been a few challenges that TSP holders have encountered. Below are some:

The first challenge for some is that the withdrawal requests are now to be requested online, which can be difficult for those that are not able to get to a computer, online, or a printer. On top of that, even though these withdrawal requests need to be done online, the forms still need to be printed, signed, and sent in.

The second challenge is the notarization of signatures. The following forms need to be signed in front of a notary official for each withdrawal or change request by the TSP account holder (or spouse in some cases):

  1. Withdrawal Request for Separated & Beneficiary Participants
  2. Changes to Installment Payments
  3. Age-Based In-Service Withdrawal Request

This definitely can be a challenge for those that are nowhere near a notary.

Now, even though new changes have been implemented to provide more flexibility for participants to access their money, the criticisms in regards to investment choices still have not been addressed or changed. Currently, there are just five basic funds. Four of these funds, the C fund, F fund, I fund, and S fund, are connected to an index. The 5th fund, the G fund, is linked into short-term treasuries, which are specifically for the TSP. The principal and interest in this fund are absolute, but the G fund can be hit when we reach the statutory debt limit.

There had been a version of the law in that would have enabled participants to invest a portion of their TSP into a third-party mutual fund through an investment ‘window,’ however that law was never enacted and TSP participants are left with the very limited investment options that have been in place for years.

Throughout the years, there have been bills that were proposed in Congress that would have the TSP offer specialized funds along with other bills that would not allow investments in current funds to fund certain activities or businesses.

However, the TSP has indicated that they are against these kinds of proposals.

 

 

 

About Richard Brenner

Richard Brenner is an independent, licensed financial professional who specializes in offering retirement solutions to federal employees.  Rich lives in Mount Laurel, NJ,  and graduated from Lafayette College with a B.A. in Economics and Business and has been assisting families with wealth preservation strategies since 2000.

Richard Brenner can be reached at;

[email protected]

609-605-0291

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Rich Brenner, licensed financial professional and federal retirement expert

Is Your Retirement Money as Safe as You Think It Is?

Understanding how much risk you can endure is essential when investing in something new.

A question I received the other day from a reader had me thinking that some investors may not comprehend how much of their money is at risk. The question I was asked during an online chat held recently was about a husband and wife both having an investment and retirement accounts that were a mix of brokerage accounts, 401(k)s, and Roths, that total well over the FDIC insurance limit of $250,000. Their main concern was how much they were covered for and if their investments were insured.

To start with, the Federal Deposit Insurance Corporation or FDIC for short was created by Congress as an independent federal agency to insure bank deposits. What the reader failed to mention was precisely how their money was invested. There are several ways it could be invested, including in bonds and/or stocks, or in a certificate of deposit. A representative for the FDIC named David Barr mentioned several significant bits of information this couple should be made aware of.

Barr explained that banks are supposed to disclose that they are not insurance, even though they do sell non-deposit items. The majority of retirement accounts are in the form of certificate of deposits. With that being said, if the couple purchased annuities or mutual funds, or any number of things from the bank, even if they total less than $250,000, they would not be insured.

Non-retirement deposit accounts at the bank are insured separately from retirement accounts placed in certificate of deposits. So, for example, if you have $250,000 in retirement deposit accounts and $250,000 in individual or joint accounts, then you will be fully insured for $500,000.

There are four categories of insurance ownership which are: joint, trust, retirement, and individual. Each category is separately insured. Do not think of these as certificates of deposits, savings, or checking accounts.

Barr was able to provide an example of how insured a married couple may be. The wife in her individual accounts (including savings, checking, and certificate of deposits) has upward of $250,000. Her husband has the same in his individual accounts as well. In their joint accounts with each other, including certificates of deposits, checking, and savings, they both have upward of $500,000. In her IRA, Roth, Keogh, and other certificates of deposits, the wife has upward of $250,000. The husband also has the same in his various retirement certificates of deposits. Both the husband and wife set up a revocable trust as the other person as the beneficiary for $250,000. The total FDIC insurance after taking all this into account is $2 million.

Barr further explained that investment products offered by the banks that are not deposit accounts are not insured by the FDIC, regardless of how much money is in the account. He suggests using a tool by the FDIC called the Electronic Deposit Insurance Estimator if you are unsure if your money is federally insured. It assists customers in figuring out how much of their money, if any at all, exceeds their coverage limits on a per-bank basis.

The Securities and Exchange Commission (SEC) also provided additional information on how your money is protected:

National Credit Union Share Insurance Fund (NCUSIF) is a federal fund that insurances credit union member deposits up to $250,000 in federally insured credit unions. It is also backed up by the federal government.

 

Securities Investor Protection Corporation (SIPC) is a Congress created a non-profit organization that protects investors against the loss of their securities (like stocks and bonds) and cash that are held by an SIPC member brokerage firm. However, there is a $250,000 cash limit and a $500,000 protection limit.

 

Federal Deposit Insurance Corporation (FDIC) insures money market accounts, certificates of deposit, and savings accounts. This organization only insures deposits. The FDIC does not insurance mutual funds, securities, or other similar types of investments that thrift institutions and banks offer up.

The SIPC issued a warning that stated that investments in the stock market would fluctuate in market value. The SIPC was not created to protect people from these risks, and that is the exact reason why it does not bail out investors when the overall value of their bonds, stocks, and other investments decrease for whatever reason. SIPC replaces missing securities and stocks when it is possible to do so in a liquidation.

The Securities and Exchange Commission stated that investors may or may not be knowingly placing their securities or cash in the hands of a non-SIPC member. Firms are legally required to inform you if they are not SIPC members. SIP does not give protection to investors if they are sold valueless securities and other stocks.

Saving Money

Picking the Best Withdrawal Options for TSP

Contributing to the thrift savings plan is popular throughout the course of being a federal employee. Additionally, employees of FERS get an added benefit of a 5% match on contributions to their thrift savings plans. 

The thrift savings plan has a few retirement withdrawal options. The time comes after contributing to the thrift savings plan during employment that you need to access your funds. You can do a partial thrift savings plan withdrawal every 30 days, or you can make a full withdrawal. In addition, you can leave your funds in your thrift savings plan. That being said, to do this option, you have to start taking Required Minimum Distributions no later than April 1st of the year after you turn 70 ½ years old.

Even though the thrift savings plan has various withdrawal options to choose from, it can be confusing to pick which route to go down. Which one is the right one for you?

Your own personal situation requires a tailored made plan to fit your needs. Therefore, there is no one-size-fits-all option for how you should access your thrift savings plan account.

Examine this case study about Stewart to obtain a greater understanding of the withdrawal options available to you.

Case Study

After reaching his minimum age for retirement of 57 with 32 years of service under his belt, Stewart retired from federal service. After retiring, he began to receive the benefits of his Special Retirement Supplement (SRS) and FERS pension. 

Stewart contributed to his thrift savings plan throughout his working career. The two legs of Stewart’s retirement stool were sturdy enough to cover all his regular expenses and gave him enough income to live comfortably. Now that he is in retirement, he wants to access these funds. What is the best way to do this?

There is a ten percent early withdrawal penalty for those who want to access their thrift savings plan funds early. Thankfully, Stewart’s daily needs were met through his SRS and FERS pension. Furthermore, he used his thrift savings plan money to spend on his children and to travel. However, because he waited until he was 57 years old, he did not have to worry about that early withdrawal penalty, and he still had enough money to cover everything.

Stewart decided to keep his funds in his thrift savings plan because he wanted to make regular withdrawals to pay for future adventures. Due to him leaving the funds in his thrift savings plan account, he can do up to one partial withdrawal from his thrift savings plan every 30 days. He, therefore, decided to use the partial withdrawals to cover any future adventures and to give some extra money to his grandson. 

Stewart’s case is an excellent example because it showcases deciding what to do with his thrift savings plan in a way that can help other retired federal employees. He was able to live comfortably in retirement once he figured out that his SRS and FERS pension would give him enough income. 

Stewart covered his immediate spending needs and realized he wanted greater flexibility with his thrift savings plan. He chose a withdrawal strategy that worked best for his goals, which was spending time with his grandson and traveling more. 

I would encourage you to start thinking about the direction you want to take with your thrift savings plan. You may choose a different withdrawal strategy than Stewart if you need the money to meet your daily needs. 

 

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