A few years ago federal and postal employees were given a Roth option within their Thrift Savings Plan (TSP); the employee cannot contribute to the TSP Roth (TSPR) unless they are contributing the full 5% that is matched by the government. Employees that are saving more than 5% in their TSP can put any amount over 5% into their TSPR.
In this article I would like to cover the unique way the government crafted its plan for withdrawal of TSPR funds. Obviously, the benefit of the TSPR is that you can contribute after-tax dollars and have those funds grow tax-free over your career, and then withdraw those funds tax free in retirement. If you ask anyone these days, most will tell you that they expect tax rates to rise in the future. This makes a strong argument for investing in the TSPR.
Let’s look at a hypothetical example of an employee who wants to withdraw funds from their TSPR in retirement from 62-66 to get their full social security check. This is a smart plan for any federal retiree in that you can defer your SSI and get the larger amount without any taxable distributions coming out of your TSP. Unfortunately, the way the government has the TSPR set up this cannot be done.
It is important to remember that you work for the government. We always say in our retirement seminars “The good news is you work for the government. The bad news if you work for the government.” The government is in the tax business so there are policies and procedures they impose on federal employees that are advantageous to them.
Let’s look at our example again. Let’s assume Fred wants to pull $20,000.00 out of his TSPR for 4 years to get him to 66. Any normal Roth IRA outside the government will allow you to take all the money from your Roth and incur zero tax liability. The TSP forces employees to take money from their normal TSP every time they take money from their TSPR because they are in the tax business, therefore if Fred wants $20,000.00, the TSP forces him to take $10,000.00 from the TSPR and the other $10,000.00 from the normal TSP which is taxed at 20%. Now instead of Fred getting $20,000.00, he will get $18,000.00 because of the taxes he has to pay.
This is surprising to most federal employees, and most of them don’t find out until they make the withdrawal request.
I want you to know this information ahead of time so you can make plans that benefit you and your family in retirement.
Postal Benefits Group
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About David Fielder of Postal Benefits Group
David Fielder is President of Postal Benefits group, possibly the largest and most well-known company in the Country specializing in retirement planning and seminars for postal employees. Mr. Fielder has personally counseled over 5,000 postal employees on their postal retirement benefits and holds numerous certifications, and with thousands of hours spent helping postal employees gives him experience and practical knowledge about postal benefits like no other. Experience is everything when it comes to counseling postal employees on their postal benefits.
David Fielder has conducted over 75 retirement seminars over the last 8 years and is the author of THE POSTAL BOOK, a great resource for postal employees seeking to maximize their Postal Retirement benefits
Numerous postal unions have contracted Postal Benefits Group and David Fielder to present retirement seminars and he has been contracted by the APWU for retirement seminars in over 40 states to date.
If you have questions on retirement and want a down to earth expert to give you answers you can actually understand, David Fielder is the quite possibly the best resource you will find anywhere.
The figures mentioned in the article are hypothetical and for illustrative purposes only. The formula and calculations have not been verified or reviewed for accuracy by PSRetirement.com or any of its affiliates. Please contact your financial professional with any questions. The opinions in this article do not necessarily represent those of PSRetirement.com.