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Federal Retirement Comfort and Financial Security
/by Dianna TafazoliThe journey to federal employee retirement promises to be everything that human nature is: complicated, a little bit frightening, exciting, anticipative, wonderful and riddled with the strong emotion of change and what to do with it. When you think about retiring from Federal Service, there is so much to do. There are hundreds of things that could be added to the list of things we have to do to get ready for your federal retirement.
Federal Retirement Financial Plan
However, it is apparent that there are two travel companions we must carry with us into our retirement future – a solid financial plan and an action plan tailored to our own individual needs and desires. There is no perfect time to retire and there is no perfect set of goals by which to reach for. There is, however, a best time to retire and there are SMART Goals that are realistic and attainable. There are logical steps to making decisions. We can only reach a place where we can even discuss retirement through hard work and self-reliance; and we know that plans will often fail even under the best of circumstances, if we make them without the commitment and wherewithal to stick with them, stay the course and know when to modify our plans.
From 2007 to 2009, the country faced a temporary slow-down in the economy. A slow-down in the economy is technically called a recession. Foreclosures and job losses were at an all-time high. 2010 to present have still not normalized the economy for many Americans, but it is getting better.
Given the brutal economic melt-down of the past years, should we prepare differently for retirement? The answer is NO. It is not that we should prepare differently for retirement, but that we should prepare always early and consistently for retirement. The two key words – Early and Consistent are not dependent on the state of the economy, but rather on proactive individual determination to enter retirement in relative comfort and security.
Barriers must always be included in the plan. These are things that might prevent us from accomplishing our retirement goals. A good plan must be flexible and evolve over time as events in our lives change.
Retirement is a methodical process of carefully orchestrated steps culminating in an individual action plan and a very well laid-out financial plan. What is perhaps the most critical thing that any of us can do to protect our retirement future, irrespective of the sway of the economy, is to consider the words of an ancient proverb: Cut Your Coat According to Your Own Size. In essence, it means you must measure your coat (your resources) to fit your budget (your expenses) in good times, so that in bad times, it will still fit. Be careful with spending and saving in hard economic times. Be fanatical about spending and saving in good economic times.
P. S. Always Remember to Share What You Know.
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Which Retirement Account Do I Withdrawal From First?
/by Dianna TafazoliFederal Employees and Retirement Account Withdrawal Options
What account to withdraw from first in retirement to give us the greatest benefit.
Your tax-deferred status has allowed you to protect some of your money from taxes and allowing it to grow tax-free in your pension plan or other savings vehicles. Once you start receiving distributions, you will have to pay taxes on the money. Therefore, we need to be educated and wise in deciding which accounts to draw from first.
When you deposit money into your regular bank account it is likely that the money has already been subject to taxes. Therefore, when you withdraw the money you don’t have to pay taxes on it again. You also do not owe taxes on any of the interest earned. You declared the interest earned when you filed your yearly income tax return.
If you must make withdrawals in retirement, the money should come from your savings account first because it is not subject to taxes. Using the savings withdrawal method first also allows you to postpone paying taxes on those accounts that are tax-advantaged.
Roth IRAs with after-tax contributions and tax-free growth have the added advantage of exemption from required minimum distributions that may apply to other retirement accounts. After age 70.5 when you must begin to take distributions from other accounts, your Roth account can continue to grow tax-free. Monies in the Roth account after your death can be used by your beneficiaries tax-free. Given these circumstances, the Roth IRA is the account you should consider withdrawing from last or as far down the road as feasible.
How you plan to handle your accounts is very personal and depends on unique factors in your life such as the kind of account and assets you have and how long you have had the assets. It also depends on the level at which the account has already been taxed and the expected rate of return. Your estate plans must also be evaluated before you make decisions. If at any time you have questions or are not certain about what steps to take, always consider speaking to someone who has expertise in financial management and handling taxes in retirement. It should also be noted that under most circumstances, if you do not take the required minimum distribution after age 70.5, you will suffer a 50% penalty on withdrawal shortfall. The Internal Revenue determines the formula to calculate the penalty.
Otherwise it is estimated that most of your retirement account withdrawals will be subject to approximately 20% required federal tax withholdings. If you have tax liabilities in one year the Internal Revenue might require you to pay an estimated tax. Visit the Internal Revenue Service to find out more about estimated taxes in publications 590 and 554 or online at www.irs.gov.
Many retirees think about selling their homes to get a tax break in retirement. Things to consider:
- If you are single selling your house for a profit of up $250,000 that amount may be exempt from taxes.
- If you are married with joint ownership up to $500,000 may be exempt from taxes.
- The caveat is that you must own the home and it has been your primary residence for two of the last five years.
- You have not used the exclusion in the last two years.
Other retirees think about paying off their mortgage if it has not been paid off prior to retirement. Things to consider:
- Mortgage debt has a tax advantage if most of the payment is going towards interest.
- If the payments are basically going towards principal then you may not have a tax advantage.
- If your balance remains high enough to generate a tax break, you may still want to consider paying off the mortgage if you meet the following criteria.
• You are already clearly and without doubt maximizing your retirement savings.
• You have already paid off other debt that has a higher interest rate and does not have a tax-deductible advantage for you.
• Your emergency fund is robust and will sustain you according to your financial plan and individual action plan.
Being debt-free is certainly appealing. However, any financial decisions you make
concerning you retirement future requires much thought in addition to being educated about your options and the consequences of your actions. Remember every decision we make carries an associated cost.
P. S. Always Remember to Share What You Know.
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Thrift Savings Plan (TSP) Withdrawal Options
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TSP Withdrawals and using IRAs correctly in TSP Rollovers
/by Dianna TafazoliTSP, IRA Rollovers and other Options
There are three common types of IRAs – Traditional, Roth and Rollover. Finding the right IRA for you requires being educated about what each one offers. All IRAs are designed to help you for retirement but each has its unique features.
An IRA is an Individual Retirement Account (IRA) that provides either a tax-free or tax- deferred way for you to save for retirement. IRAs allow you to invest in just about any investment and these investments can grow tax deferred. Each IRA has unique eligibility requirements and benefits.
IRAs rely primarily on the power of long term, tax-deferred compounding to provide your retirement savings the opportunity to grow faster than in an account that is taxable. When you earn interest, receive dividends or sell an investment for gain, you are not obligated to pay taxes that year on the earnings. All taxes are deferred until you withdraw those earnings in retirement. Your money continues working for you while building your nest egg for year after year.
Roth IRA
Unique Benefits, Eligibility Requirements
- Any earnings are tax-free if withdrawn after age 59.5 and the account has been open five years or more
- Contributions (not earnings) can be withdrawn tax and penalty free at any time
- Contributions are not tax-deductible
- There is a single 5 year holding period when determining whether earnings can be withdrawn federally tax-free. The period begins January 1 of the first contribution to any Roth IRA account.
- Regular contributions are allowed up to age 50
- Catch-up contributions are allowed age 50 +
- Up to age 50 – 2009 contribution limit $5,000
- Over age 50 – 2009 contribution limit $6,000
- Modified adjusted gross income and tax filing status determine how much you can contribute
- For 2009, single tax-filers with $120,000 or less in annual income and joint-tax filers with $176,000 or less are eligible. For 2010, single tax-filers with $120,000 or less in annual income and joint tax-filers with $177,000 or less are eligible.
Traditional IRA
Unique Benefits, Eligibility Requirements
- Any earnings grow tax-deferred until withdrawn after 59.5 at which time they are taxed at your current rate
- Contributions and earnings can be withdrawn penalty free after age 59.5
- Contributions may be tax-deductible
- Allows investment earnings the opportunity to grow tax deferred until withdrawn
- Your age and tax filing status (joint or single) determine how much you can contribute annually
- Contributions may be tax-deferred depending on your tax filing status, modified adjusted gross income, and participation in employer-sponsored plans.
- Maybe opened by anyone with taxable compensation or a spouse (if you file jointly) with earned income and who was not 70.5 years old by the end of the current year
- Up to age 50 2009 contribution limit $5,000
- Age 50 – 70.5 contribution limit $6,000
- Over age 70.5 2009 contribution limit (not allowed)
Rollover IRAs (TSP 70 and TSP Withdrawal)
Rollover IRAs allow you to consolidate your TSP, possible 401(k) and 403(b) accounts along with any other employer-sponsored retirement accounts into one account maintaining the assets’ tax deferred status. Using form TSP 70, a TSP withdrawal can be a good decision because of the limited TSP investment options that exist and the much larger array of options available through Rollover IRAs.
There are a few outside companies that specialize in helping Federal employees with their TSP funds after retirement or once an employee has reached 59 1/2. Two of those companies that you may want to consider can be found at TSP-70.com and TSP-withdrawal.com.
P. S. Always Remember to Share What You Know.
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How Much Money Do You Need In Retirement
/by Dianna TafazoliWhether you are ten years, five years or just 1 year from retirement, you need to have a way of estimating how much money you are going to need to retire. Financial experts say we will have to replace about 70 to 80 even 90 percent of our annual salary in retirement in order to maintain the lifestyle we have become accustomed to. Decisions – decisions.
Let’s examine Four Steps that will help to estimate how much money you will need to retire comfortably. This is where tracking our weekly, monthly and yearly spending comes in. We need to always know what is coming in, what is going out and how much we can afford to spend. Planning for our comfort and security in retirement requires grit, tenacity and sheer will power to make a plan and follow it.
How Much Money You Will Need In Retirement:
- Estimate your retirement expenses, including taxes and even one-time major purchases. Make a list and revisit it often. These are not items you think about in your head, they need to be put on paper and then they become real.
If you need help determining how much you need seek out the help of a qualified Federal Retirement Expert.
- Determine how much retirement income will come from your known resources. Compare income from TSP and other savings and your Federal Annuity with estimated retirement expenses.
You could also be eligible for Social Security of a Military Pension.
- Compute the gap between how much money you need to retire and the amount you will receive from your known resources. Evaluate the gap and measure its size with financial and economic scrutiny.
- When doing a retirement analysis and assessment, factor in inflation and life expectancy. Look at your assessment from both ends of the spectrum – the best scenario and the worst.
Formula for Estimating Your Federal Retirement Income:
The majority of Americans will rely basically on two sources of consistent retirement income – Social Security and Employee Pensions. The other component should be savings and investments (Thrift Savings Plan (TSP) and outside investments like IRAs). Let’s be practical, we don’t all have that category separate and apart from vehicles provided through employment. However, it is never too late if you put your plan in place and stick to it.
P. S. Always Remember to Share What You Know.
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Create A Spending Log
/by Dianna TafazoliUse the spending log example to see how you are spending your money. You just might be surprised. As you begin to prepare for Federal retirement, it is important to make certain you are eliminating as much waste as possible. Your spending log might show you where you can cut back and perhaps add a bit more to savings.
Without a lot of thinking, use the table below and quickly jot down how much money you think you spend daily in any given week. You may also itemize the things you spend your money on. Then revisit your personal spending log and examine in detail how you are spending your money.
Personal Spending Log
Weekly |
Income + $ (A) |
Spending – $ (B) |
Sunday | ||
Monday | ||
Tuesday | ||
Wednesday | ||
Thursday | ||
Friday | ||
Saturday |
A minus B gives you a guestimation of how you are spending your money on a weekly basis. Part of your retirement readiness checklist requires you to look at how much money you spend daily and if you can redirect some of the spending to create greater money management efficiency.
Try logging your income and purchases on a daily basis for a month. Analyze the results and decide what you can do differently with your spending.
P. S. Always Remember to Share What You Know.
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What Is Effective Retirement Decision-Making
/by Dianna TafazoliFor Federal Employees, when it comes to Retirement Planning, effective decision-making involves flexibility in thought and actions. One must be prepared to make sacrifices now to achieve something better later. We must also understand the value of trade-offs. Decisions you make today will inevitably impact future retirement decisions. All decisions made carry associated consequences that affect us, our families, and the society we live in.
We can all improve our skills in effective decision-making through consistent practice and application. But, there is no financial plan nor individual action plan (IAP), no matter how well designed or thought out that works if you don’t follow it. We must develop strategies that will motivate us to stay the course. No financial plan is set in concrete, rather plans are designed to be flexible, changeable and evolve over time as our lives evolve. We need to monitor plans and know when important changes need to be made. Updating your financial plan is critical to your plan’s success.
A financial plan will assist you in identifying, determining, and directing what you want to have and achieve in retirement. A financial plan helps to target the outcome desired, map out how to get there and how to stay on track.
Start our with a conversation with your spouse, a friend or someone you trust. Talk about what is important to you and your well-being in your retirement future. After the conversation, begin to put your plans to work by putting them in writing. Nobody can take what you have in your head if you are not there to tell the story. Prepare soon. Prepare wisely. Prepare to live in comfort and security.
P. S. Always Remember to Share What You Know.
Access your TSP.gov Account HERE
RELATED FINANCIAL PLANNING ARTICLES
Thrift Savings Plan (TSP) Withdrawal Options
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Who Is Watching the Market?
/by Dianna TafazoliAs a federal retirement specialist and educator, I am most intimately concerned about how federal employees view retirement and how they make ready for perhaps the most difficult transition in their lives. I recently heard that Market Watch did a survey of employees to decipher whether they were most attached to large salaries or means to support their future retirement. I was very pleased with the overwhelming response.
Six Figures or Comfortable Retirement?
A majority of those surveyed said they would much rather forgo a six-figured salary for greater contributions to their retirement fund. If they could get a 25% match in a 401K for the private sector and the Thrift Savings Plan (TSP) for the federal force, that would be the scenario most sought. It is good to know that workers are thinking about how to fund their future given Americans are living on average, 30 years past retirement. That is a significantly long time to make certain your resources outlast you. What you save today and the plans you put in place today will determine how well you are able to live in retirement.
Getting prepared financially is a big piece of the puzzle, but we do know that financial preparation hinges upon the ability to accept the emotional and psychological paradigm that comes with making such a transition. If we are emotionally and psychologically prepared, then it stands to reason that we will be much more inclined to manage our money. It is sometimes a denial of realty that steers us away from putting very critical and necessary plans in place.
The best education any of us can receive is to fully embrace the inevitability of seasons. In most parts of the country, Winter appears after the joy of Fall. Spring alerts us to the notion that Summer is coming. Just as the seasons of the year come and go, so do seasons in our lives. Work and hopefully a stable job is a part of the season of our adulthood into the age of maturity. For the senior sect, I think the age of maturity is more fitting than saying old age. That term ill fits the new generation of seniors because they are living active, meaningful, productive lives and doing things their parents and grandparents never dreamed of.
While I don’t believe in traditional retirement as long as you are physically and mentally able to chase your passion, choices and options should certainly be on your vision board. If you choose to work or travel or play then you should have the financial means to do so. If you decide that working full-time or part-time or going back to school fit you best, then the plans you put in place during your earlier years should allow you to do that.
Another caveat and a teachable moment here is the definition of true compensation. Salary and benefits make up true compensation. If you are making a salary of $80,000 annually and your benefits package is worth $25,000 – your true compensation is $105,000. You might say, I can’t spend my benefits. Wrong – because if you didn’t have them you would have to take care of your medical concerns out of your $80,000. Can you feel the number sinking quickly to $50,000 and you haven’t even paid taxes. What about the contributions made to your retirement fund from your employer? Let’s ratchet the remaining $50,000 down to about $45,000. What if you have no sick leave provisions or vacation? You might be able to take a weekendcation or a homecation, but when you are sick, you are sick. Now since illness cannot be avoided, let move the $45,000 down to about $40,000 and we are being generous. Get the picture?
Total compensation is something that should never be dismissed in planning for your future. Having a plan that is flexible and SMART (Specific, Measurable, Attainable, Realistic and Time Sensitive) should be at the center of your vision board.
P.S. Always Remember to Share What You Know.
Dianna Tafazoli
Can I Name Any Beneficiary To My TSP
/by Dianna TafazoliBeneficiary Differences for TSP
There are a number of rules that exist when naming a beneficiary for your Federal Employees’ Group Life Insurance (FEGLI) and your Civil Service Retirement System (CSRS) and your Federal Employees Retirement System (FERS) survivor annuity. In most cases, the spouse a spouse is named as the beneficiary. However, the same rules do not apply for the Thrift Savings Plan (TSP). You may name anyone you choose, it does not have to be a spouse. The TSP also allows for the naming of contingent beneficiaries.
TSP Contingent Beneficiaries
Contingent beneficiaries is always a good posture to take under any circumstances because there is always that possibility that something might happen to the person you have named. The TSP also allows for the TSP account holder to name beneficiaries and designate the percentage intended for each beneficiary.
The TSP, like the Federal Government, does not honor Wills. The TSP uses the Order of Precedence in the case where no beneficiary is named. It is important to always update your beneficiary designation forms. Visit your eOPF (electronic Official Personnel Folder) and your TSP folder to review the contents and to make sure you are updating your files and keeping things in place. Updating your files means getting to determine how your assets and resources will be distributed.
The TSP-3 (Designation of Beneficiary) is the form used to select your beneficiary or beneficiaries.
P. S. Always Remember to Share What You Know.
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An Affordable Luxury – The TSP
/by Dianna TafazoliAffording the TSP
People who don’t consider themselves wealthy often live vicariously by watching the rich and famous on television and reading about them in magazines. They never imagine themselves having the same advantages as ‘the beautiful’ people. How wealth is measured is relative. There are people who are billionaires and millionaires. Then there are people who are thousandaires. The term doesn’t sound too bad to me. If I had $400,000 or $600,000 I wouldn’t consider it a negative thing to have in my possession. While those figures might not qualify you to be in the million dollar or billion dollar club, they qualify you to be in a club that is doing just fine – a club that will allow you to retire on your own terms.
Maximize the TSP Opportunity
The idea is not to think as a minimalist when it comes to possibilities for your life and that of your family. Think of yourself as a maximumlist – willing to maximize every opportunity that comes your way and the TSP is no exception. After all, you are a big investor with a whole team of financial experts keeping watch over your massive portfolio. If you participate in the TSP, then you are an investor with a portfolio housing some of the most sought after stocks, bonds and government securities in the world. Although, your TSP does not necessarily fall into the category of active management – it is taking care of the business of your retirement by managing your federal wealth as directed.
Automatic TSP Enrollment
For a few years now, the TSP has begun to participate in automatic enrollment for new employees coming into the federal service. Each new employee is automatically enrolled in the TSP with the 1% agency contribution going into the G Fund or the Government Securities Investment Fund. The Fund is safe guaranteeing minimal or no loss. The G Fund by statutory law via the authority of the Secretary of Treasury granted by the Congress can determine when the G Fund is unable to be fully invested without exceeding the debit limit. However, this Fund action has no impact on active workers or retirees.
Although the automatic 1% is invested in the G Fund, the new employee can select not to participate in the TSP or they can decide they want their money put into one of the other TSP Funds. Not participating in the Thrift Savings Plan (TSP) is tantamount to putting your money in a bucket and setting fire to it – throwing money away. Putting your money in the TSP is an affordable luxury you don’t have to dream about.
P.S. Always Remember to Share What You Know.
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If You Could Have One Close Friend – Choose the TSP
/by Dianna TafazoliThe TSP offers an advantage both to the employees in the Civil Service Retirement System (CSRS) and those in the Federal Employees Retirement System (FERS). Many CSRS eligible employees tend to ignore the TSP because of no matching contributions. However, the advantage to CSRS employees is the tax-deferment piece. Anytime earnings can be protected from taxes, it is a bonus. The contributions made by CSRS employees have an opportunity to grow without being taxed until they are withdrawn, although there is no agency match. CSRS employees must not miss out on the opportunity to invest in the TSP. Investing in the TSP, acts as a supplement for CSRS employees – just another way of increasing their resources available in retirement.
As for FERS (Federal Employees Retirement System) employees, it would be well-advised to get very well acquainted with the TSP (Thrift Savings Plan) because it represents the largest part of the retirement profile. The FERS system consists of a basic benefit (.8%) of basic pay, Social Security and the Thrift Savings Plan (TSP). Fully investing in the TSP is a smart step to take towards protecting your retirement future. Saving early and consistently just makes good sense. However, it is never too late to start saving and planning for your future. Taking advantage of the perks of the TSP is probably one of the wisest investments you will ever make.
Currently every member of the federal workforce participating in the TSP have the opportunity to contribute $17,500 annually into the TSP. The Thrift Savings Board has expanded offering both a Traditional TSP and a Roth TSP to the federal workforce. Although the Traditional TSP and Roth TSP are treated separately for tax purposes, it is still one TSP account. In other words, you don’t get to put $17,500 in the Roth and another $17,500 in the Traditional TSP. It is one account governed by the same contribution limits. It would be a sweet treat if such a thing existed, but it does not.
Back to the real world. Once you decide to participate in the TSP, the best decision of your life, then there is an automatic 1% agency contribution whether you make contributions or not. The 1% contribution is yours if you stay in the service for 3 years. However, if you leave prior to the 3 year vesting period, you forfeit everything in the account. If you pass away prior to meeting the vesting requirements, everything in the account is yours. Now that we are clear about the 1% automatic contribution, let’s talk about the rest of the good stuff the TSP has to offer.
The government matches up to 5% of what you contribute to the TSP. Anything over the 5% is not matched. The allocation is the government matches dollar-for-dollar on the first 3 percent of your contribution and 50 cents on the dollar for the next 2% of contributions. It is an unparalleled opportunity to invest in your federal wealth management. Not investing in the TSP is akin to giving away free money. An analogy – we contribute to Social Security and the Disability Trust Fund during our work careers, by having 1.45% withheld from our check for Medicare and 6.25% for Social Security so we earn enough credits (quarters) or Medicare equivalents to qualify for the future benefits offered from either one or both programs. Suppose we had a choice of not making those contributions, then upon reaching retirement age (65) we could not benefit from Medicare Part A or what we call Free Medicare.
We wouldn’t feel very happy about paying for something that should be free because of the investment we made prior. Therefore, investing in the TSP now reaps similar rewards when planning your retirement future. Where else are you going to find such a sweet deal that even 1% would be invested in your future where you virtually had nothing to do except breathe. The Federal Government offers a number of benefits to the federal workforce, but if you don’t take advantage of those benefits, you stand to lose much more than you will ever gain. Educate yourself. Invest in your future and give yourself and your family a real opportunity at retiring well. I will let you in on a secret – the TSP is one of the best friends you will ever meet on your road to retiring with comfort and security.
P. S. Always Remember to Share What You Know.
What is the Difference Between a Broker and an RIA?
/by Dianna TafazoliThis question came into my mailbox. The writer said he asked his HR Director what was the difference between the two and she said she didn’t know. She gave him the right answer. HR Directors are usually not Financial Advisors and typically are not licensed (and therefore shouldn’t) offer investment or financial advice. They know retirement and may have a fairly sound knowledge about certain financial terms and instruments because of their knowledge of benefits. However, I find absolutely nothing unusual about the HR Director’s answer. She probably looked at the writer very strangely and wondered why he was asking her such a questions. We are going to take a shot at answering this question because of our financial literacy educational platform.
The difference between a broker and a registered investment advisor (RIA) has a lot to do with how that professional’s business is structured. This might sound a little unkind, but it is what I believe constitutes the most significant difference between the two. The broker is generally a representative who works for a brokerage firm selling securities. Brokers are not really financial advisors (regardless of the name they might call themselves), but are selling a product. The selling of products generally carries a commission, sort of like in the movie – The Wolf of Wall Street. The brokers, not to say they are not good people, but they truly have a motive to sell a product. The question becomes – Does their interest come before yours? Just a question to think about.
A Registered Investment Advisor (RIA) is required by law to not only give you suitable advice or recommendations, but must act with a tremendous amount of fiduciary responsibility. Both are regulated by the Securities Exchange Act of 1934 but to different degrees or operating parameters. RIAs are required to put the client’s interest first and not their own. In short – if you have a choice, a RIA may be your better option.
The most important requirement is making sure you are educated about what direction you want to take when it comes to financial planning and managing and transferring your wealth.
P. S. Always Remember to Share What You Know.
The SEC Gives Financial Advisors A Pass
/by Dianna TafazoliThe Securities and Exchange Commission (SEC) regulates financial advisors
The Securities and Exchange Commission (SEC) regulates financial advisors via The Investment Advisers Act of 1940. They have now opened the way for financial advisors and money managers to start promoting investor reviews that are present on social networks. Prior to the SEC opening the door for these professionals, social media was already there – Twitter, Linkedin and Yelp. I suppose the SEC did not notice the presence of those vehicles before. Long before the SEC made its ruling, investors had the ability to post and review comments from advisors on websites that had been around for a very long time.
As long as the posting was put up by the investor and not coerced by the Advisor, then there was no problem with the SEC. The SEC gave the green light for advisors to integrate positive posts and testimonials into their marketing strategies. There is one little catch, the advisors and money managers cannot edit out the negative comments. More and more people are beginning to use the internet to search for all of their needs.
A recent Corporate Insight survey revealed that 67 percent of millenniums would use online search engines to learn more about the financial advisors they select. Only 28 percent of baby boomers would be inclined to use online tools. Investors and individuals looking to financial advisors and money managers to help with their financial challenges need to have as much access to information about these professionals as possible. When individuals have adequate and relevant information, they can then make an informed decision. Transparency is best for all concerned.
P. S. Always Remember to Share What You Know.
Recommended Articles
Understanding The Thrift Savings Plan, By Todd Carmack
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Can You Participate In The TSP After Retirement?
/by Dianna TafazoliYour Thrift Savings Plan (TSP) is funded via payroll deductions. Therefore, once you are no longer an employee your participation in the TSP stops as far as being able to make contributions. However, you don’t have to take your money out of the TSP, you just cannot put money into it.
TSP After Leaving Federal Employment – TSP Withdrawals
If you leave service and decide to make a TSP withdrawal, you may do so in two ways. You may make a partial TSP withdrawal or a full-withdrawal. You can make a partial withdrawal of $1,000 or more. You can make a request for a partial withdrawal online or use Form TSP-77. If you make a full withdrawal you can request a single payment withdrawal of your entire TSP balance. You may also request a series of monthly payments. In this way you can choose a specific dollar amount to receive each month or you can receive a monthly amount based on your age and your account balance. If you are requesting a specific dollar amounts, the monthly payment must be a minimum of $25.00.
TSP-77 Form
TSP Annuity
You may also elect a TSP life annuity. The TSP life annuity pays you a monthly benefit for life. The TSP will purchase an annuity for you from their provider (Currently Metropolitan Life Insurance Company – MetLife). Make sure that you read up on the pros and cons of purchasing a TSP annuity directly through the TSP (We at PSRetirement.com suggest to strongly consider NOT taking this option). You may also mix up your withdrawals. You may use the methods outlined in the TSP Full Withdrawal option in a number of combinations – single payment, TSP monthly payments or the life annuity. You can combine two options or all three, which ever fits into the plans you have made for you and your family and always make sure to speak with a trust Financial Professional before making any decisions.
Read over your TSP account(s) and make sure you understand how your TSP works in retirement and how to maximize your federal retirement benefits. If you have put a retirement action plan in place, then you want to gain as much information as possible to help you live in retirement on your own terms. FERS employees have to be especially cautious, yet assertive, by fully funding their TSP whenever possible because the TSP is the larget monetary component of the FERS retirement system.
How you manage your financial affairs is an individual matter. However, just like any good work, it takes time to examine and analyze to choose the best options that fit your situation. No two situations are alike, so don’t take a position because it sounds good. Use your planning tools and take a position because it works for you.
P. S. Always Remember to Share What You Know.
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What Thrift Saving Plan Fund Choices Do You Have?
/by AdminThe Thrift Savings Plan (TSP) offered to the current or retired employees of the federal civil service, is one of the simplest and most efficient retirement plans used today. However, out of thousands of civilian and military employees who defer a portion of their earnings into the plan each year, many of them do not have a clear picture of the TSP fund options available in this plan
There are five core investment funds available in the TSP:
#1 – TSP G Fund – Government Securities Investment Fund
Objective – to generate a higher rate of return than inflation without exposing the fund to risk of default and market price fluctuations.
Key Features
– Offers opportunity to earn interest rates similar to U.S. Government notes and bonds without risk of loss of principal.
– Is invested in short-term U.S. Treasury securities particularly issued to the TSP. Payment of principal and interest is guaranteed by the U.S. Government, so no “credit risk.”
– Interest rate resets monthly; is based on the weighted average yield of all outstanding Treasury notes and bonds with 4+ years to maturity.
– Earnings comprise entirely of interest income on the securities.
– Subject to inflation risk.
#2 – TSP F Fund – Fixed Income Index Investment Fund:
Objective – to match the performance of the Barclays Capital U.S. Aggregate Bond Index, a broad index representing the U.S. bond market.
Key Features
– Offers opportunity to earn rates of return more than money market funds in long term, with relatively low risk.
– Risk of nonpayment of interest or principal is relatively low because the fund includes only investment-grade securities and is broadly diversified.
– Earnings comprise of interest income on the securities and gains (or losses) in the value of the securities.
#3 – TSP C Fund – Common Stock Index Investment Fund
Objective – to match the performance of the Standard and Poor’s 500 (S&P 500) Index, a broad market index made up of stocks of 500 large to medium-sized U.S. companies.
Key Features
– Offers opportunity to earn high investment return in long term from a diversified portfolio of stocks of large and medium-sized US companies.
– Risk of loss if the S&P 500 Index declines in response to changes in overall economic conditions (market risk).
– Earnings comprise of gains (or losses) in the prices of stocks and dividend income.
#4 – TSP S Fund – Small Cap Stock Index Investment Fund:
Objective – to match the performance of the Dow Jones U.S. Completion Total Stock Market Index, a broad market index made up of stocks of U.S. companies not included in the S&P 500 Index.
Key Features
– Offers opportunity to earn high investment return in long term by investing in stocks of small and medium sized US companies.
– Risk of loss if the Dow Jones US Completion TSM Index moves up or down due to changes in economic conditions.
– Earnings comprise of gains (or losses) in the prices of stocks and dividend income.
#5 – TSP I Fund – International Stock Index Investment Fund”
Objective – to match the performance of the Morgan Stanley Capital International EAFE (Europe, Australasia, Far East) Index.
Key Features
– Offers opportunity to earn a potentially high investment return in long term by investing sticks of companies in developed countries outside the US.
– Risk of loss if the EAFE Index responds to changes in economic conditions or to increase in the value of US dollar.
– Earnings comprise of the gains (or losses) in stock prices, currency fluctuations of US dollar value and dividend income
#6 – TSP L Funds – “Lifecycle” Funds:
Objective – to provide the highest expected rate of return for the amount of risk expected.
Key Features
– Diversify participant accounts among the G, F, C, S, and I Funds by using tailored investment mixes.
– Do not guarantee protection against loss or elimination of risk.
– Returns are nearly equal to the weighted average of the G, F, C, S, and I Funds’ returns.
– Earnings are calculated daily, with a daily share price for each L Fund.
Federal Employees: Have you made Tax Considerations for TSP?
/by AdminTSP Tax Considerations
Understanding the tax treatment of Thrift Savings Plan (TSP) payments can help federal employees avoid making costly mistakes. The rules governing distributions from your TSP are complicated and the tax treatment of TSP Annuity is also complex, it is important to be informed and knowledgeable about the various TSP tax regulations. Tax rules vary depending on which method you opt for as you access your money or as you roll your TSP into an IRA and then subsequently withdrawal money in the future.
TSP Rollovers
If you opt for a TSP to IRA rollover, you withdrawal money from your TSP and deposit those funds into your traditional IRA or eligible employer plan. If you elect to receive the funds directly, instead of making a direct rollover, you have 60 days to re-deposit the funds into a qualified plan (like a 401k) or IRA.
Therefore, if you rollover your entire TSP balance, you will not owe any immediate taxes on the amount you move from plan to plan (TSP to IRA for instance). However, should you rollover only a portion of the money in your TSP and receive the remaining portion in a TSP distribution, you will owe taxes on the amount not rolled into your IRA.
TSP Withdrawals
Should you wish to withdrawal some of your savings from your TSP to make those funds available for living expenses, 100% of these withdrawals will become subject to Federal income tax, and might also be subject to a 10% early withdrawal penalty tax if the recipient is not yet 59 1/2 years old.
There are methods to withdrawal funds from your IRA designed to avoid these penalties and the rules governing the distributions from you TSP also take into consideration the potential need of a recipient to access these funds. – Generally the TSP is more generous with regard to the withdrawal options available. You should consult with your own financial professional before making any TSP withdrawal decisions to ensure you fully understand the impacts.
Note: The TSP cannot accept transfers from Roth IRAs.
Death and the TSP
/by Dianna TafazoliWhen a retired federal employee dies, notification should not only be made to the Office of Personnel Management but to the Thrift Savings Plan (TSP) if the deceased was a participant. Notification should be made as soon as possible to the TSP by a family member or a representative of the deceased.
If an individual dies who is still an active employee in the federal service or a member of the uniformed services, then the report of death should be made to the deceased employing agency or service. If the employer is a former or retired employee, the family member or representative should call the TSP at 1-877-968-3778 to speak to a TSP service representative.
With the TSP, it is important to move forward as quickly as possible in providing the necessary information to the TSP so that a determination of potential beneficiaries can be made. After completing the forms, a TSP-17 for regular employees and a TSP-U-17 for the uniformed services, a death certificate must accompany the submission. The completed form and all supporting documents can be mailed to TSP Death Benefits Processing Unit-P.O. Box 4450, Fairfax Virginia 22038-4450 or you may overnight it to ATTN: TSP Death Benefits Processing Unit, 12210 Fairfax Town Center, Unit 906, Fairfax, VA 22033.
P. S. Always Remember to Share What You Know.
Death Benefits
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Thrift Savings Plan / Power of Attorney (POA)
/by Dianna TafazoliThere are circumstances where the death of a loved one is so overwhelming, taking care of necessary business might have to be delegated to someone else – this is where the Thrift Savings Plan Power of Attorney (POA) would come into play. There is absolutely nothing wrong with getting help to handle affairs when the task simply seems too much or you might decide the situation would be best handled by a professional.
The Thrift Savings Plan (TSP) has provisions for a Power of Attorney (POA) to be used to represent your account. The TSP Power of Attorney can be used to appoint someone else to act on your behalf. It does not have to be a professional, but someone you trust to handle your affairs and act in your best interest.
The person you designate as your TSP Power of Attorney may handle all of your affairs associated with your TSP, including borrowing or making withdrawals from the account. On the other hand, you might simply want the TSP Power of Attorney to handle certain aspects of your account. The extent to which you want your TSP Power of Attorney to act on your behalf is entirely up to you. There is a Special Power of Attorney Form that is available at the TSP allowing for the designation of your TSP Power of Attorney.
The TSP suggests reading the booklet Court Orders and Power of Attorney to gain a better understanding of the provisions, issues and guidelines and language used for granting Power of Attorney. It is important to understand the process, procedures, your rights and responsibilities and the decision to withdraw a TSP POA.
P. S. Always Remember to Share What You Know.
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TSP Payments to Beneficiaries
/by Dianna TafazoliWhen a family member passes away most of us are not only pained by the passing but saturated with how to pay for the arrangements and everything else that comes with death. Even if we know that our loved one had life insurance or other means to take care of things, it may not be immediate that those funds are made available. Make sure you receive your TSP payments.
In the case of TSP funds, although you can request accelerated or expedited processing, generally it takes about 60 days or better to receive payment. Once the original notification of death is made, participant’s beneficiaries have been determined and all the information has been gathered, the process may take several months. Filling out the information required for submission to the TSP is critical. The sooner you do your part, the faster the TSP can begin the process.
Because receiving payments might be delayed in process, you should notify the TSP about any changes to your address, phone number, or other means of notification. Not to mention you should consider working with a knowledgable financial planner who can help you ensure that you have enough money to live on before your TSP funds become available. When notifying the TSP of any changes be sure to place your name and Social Security Number on the correspondence as the beneficiary along with the name and Social Security Number of the deceased TSP participant.
Therefore, when you are making plans it is important to have knowledge of such information beforehand so that both you and your family will know that if something happens to you, what you intend for your family to have may not be immediately available. Evaluate what might be done to making the waiting process more tolerable. Just as it takes a little time for you to receive your first annuity payment upon retirement, generally everything else takes a little time to guarantee the integrity of the process.
P. S. Always Remember to Share What You Know.
TSP 90 form – Withdrawal Request for Beneficiary Participants
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TSP 17 Distributions at Death
/by Dianna TafazoliTSP 17
When an individual passes away who was a participant in the TSP and has a valid designation of beneficiary form on file on the date of death, the TSP will make the distribution accordingly (Use Form TSP 17). However, if there is no designated beneficiary on file, the TSP will distribute the entire account in accordance with the Order of Precedence.
First – a surviving spouse;
Second – the children of the deceased to be shared in equal portions, if a child of the deceased has passed away, then the children of the deceased child will receive the portion that the deceased child would have been entitled to;
Third – the parents with equal shares or the surviving parent;
Fourth – the executor of the estate;
Fifth – if none of the above exist, the next of kin in the state where the deceased lived at the time of death; not where he/she passed away.
Visit your personnel folder and your TSP account often to make sure you have made necessary changes and updates so that your resources will be distributed in the way you intended.
P. S. Always Remember to Share What You Know.
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TSP: Completing the TSP 17
/by Dianna TafazoliTSP Beneficiaries
You are required to complete the TSP 17 form so that the TSP can determine potential beneficiaries. The TSP 17 has several parts and must be completed with care. Always check with the TSP to make certain that all forms you are requested to complete have been updated and are current. When new TSP forms are rolled out all previous editions of the form become obsolete and cannot be used. So make sure you are completing the right form.
TSP – 17
The information relating to TSP 17 Form (also referred to as the Deceased Participant Form) has a number of sections that require your careful attention. Section 1 is information about the deceased participant. Section 2 is information about the person submitting the form. Section 3 is information about potential beneficiaries. This is the part that can be very challenging. You may not have all of the information and you may not know the information. When you don’t know the information simply check the – Don’t Know- box and follow the instructions. Section 4 of the TSP 17 form asks about detailed information about potential beneficiaries. Remember, provide as much information on the TSP 17 form as you can and if you don’t know write on the line -Don’t Know. Section 5 asks that you provide referral information so that they can contact someone else who might be able to provide the information you don’t know. This section needs you to provide any information possible even if a telephone number or address is not known. Section 6 of the TSP 17 form is the additional information area where you provide any additional information you think might help with the distribution of the deceased participant’s account. Section 7 is the certification area where you affix your signature to affirm the information given.
Don’t forget to attach a copy of the deceased participant’s death certificate. The more thorough and accurate you are, the quicker the agency can execute the process.
P. S. Always Remember to Share What You Know.
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