Watch Out For TSP Tax Penalties

By Tammy Flanagan
National Institute of Transition Planning
June 28, 2018

A few weeks ago, we looked at the issue of paying taxes on your retirement income. This week, our topic will be avoiding tax penalties. In life, if you break the rules, you can expect some sort of penalty. For example, if you drive on a highway at a speed above the posted limit, there's a chance you'll get a ticket. After all, those are not "suggested" speed limits—as I once thought.

You can incur tax penalties on your federal benefits if you don't follow the tax rules. So it's important to know them, or you could end up with a higher tax bill than you were expecting.

The tax penalties are summarized in the instructions for IRS Form 5329, "Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts." This form is used to report taxes on a variety of tax-favored benefits, but for this week's column, we'll focus on penalties assessed on Thrift Savings Plan distributions (or the lack of distributions) for separated and retired employees.

There are tax penalties both if you withdraw money from your TSP account too early and if you don't begin to withdraw funds early enough.

The early withdrawal tax penalty is 10 percent above the income tax due on the withdrawal and is generally assessed when people receive a taxable distribution prior to age 59 1/2. Federal employees are exempt from the penalty if they separate from federal service in the year they turn 55 (or 50 for retired public safety officers).

There are additional exceptions from the penalty, which can be found in the TSP brochure titled "Important Tax Information About Payments From Your TSP Account." For more information, see my previous column, TSP and Taxes, and this GovExec article.

On the other end of the age spectrum, the IRS requires that TSP participants begin receiving a portion of the money in their accounts no later than April 1 of the year following the year the participant becomes age 70 ½ (and is separated from federal service). These are known as required minimum distributions. If a participant does not begin receiving payments or withdraw their account balance, then the TSP is required to make the RMD for the participant by April 1 of the following year.

There are severe penalties if the RMD is not taken. These include an IRS penalty of 50 percent of the amount that should have been taken as an RMD when you make a late election and a TSP penalty of account forfeiture if you don't make a withdrawal election by the second distribution year. The TSP makes an effort to notify you of this requirement, but if the correspondence is "returned to sender" you run the risk of your account being considered abandoned and the balance in the account being forfeited. (You can reclaim your account but your funds will not accrue earnings after it is abandoned.)

Be sure to keep your address current with the TSP if you move after retirement or after you leave federal service. If you are separated from federal employment, you can change your address online at the TSP website. You can also call the TSP's ThriftLine at 877-968-3778.

The TSP provides the following example of how to compute the RMD in a fact sheet:

The participant reaches age 75 in 2018. As of December 31, 2017 (the last day of the calendar year immediately preceding the calendar year for which the required distribution will be made), the value of the participant's TSP account was $229,000. … The expected distribution period (in years) for a 75-year-old individual would be 22.9, so the participant would divide $229,000 by 22.9. Through this calculation, the participant would determine that the calendar year 2018 would require a minimum distribution of $10,000.

Another way to estimate the RMD is by using the TSP Retirement Income Calculator. The RMD amount can be found under the results tab for "TSP Monthly Payments" under the "Life Expectancy" column.

For example, let's say your account balance is $200,000 and you have separated from federal service and haven't begun taking payments from your TSP account. You reached your 70th birthday in January and will turn 70 1/2 in July. You will need to make your election before next April. You may elect a partial distribution or monthly payments to satisfy the requirement. The initial monthly payment for this example would be $610.20 ($7,322.40 per year) if you indicate you would like to begin payments at age 70.

You may wonder why this amount is less than the required distribution from the previous example. It's because of the age difference of the participants (and the difference in the account balance). Every year, the amount will be automatically recomputed using the year-end account balance and your new age. If you are receiving a series of monthly payments from your TSP account when you turn age 70½, but have not chosen the "life expectancy" payout option, your monthly payment election will be used to satisfy that requirement. (If the total amount of your monthly payments does not satisfy the requirement, the TSP will issue a supplemental payment for the remaining amount in December.)

If you didn't take an RMD or didn't take the entire amount required, the best advice, according to this article from Kiplinger's Personal Finance, is to take the RMD immediately. The IRS can waive part or all of the 50 percent penalty if you can show that any shortfall in distributions was due to reasonable error and that you're taking steps to remedy the situation. File IRS Form 5329, and attach a statement of explanation. Waivers typically are granted when people neglected to take distributions because of physical illness or dementia.

Here are some TSP resources to learn more about RMD requirements:

Fact sheet on required minimum distributions
Required minimum distributions for beneficiary participants
Late request for a full withdrawal form (used to reestablish your account and request a full withdrawal after your account has been deemed abandoned)

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Happy Friday Everyone........

In regards to the TSP performance ( or lack thereof ), am I the only one who will be licking my wounds this weekend ?

Dang!!!!

On ‎Sunday‎, ‎June‎ ‎24‎, ‎2018‎ ‎08‎:‎23‎:‎37‎ ‎AM, Gary tweet_pa@yahoo.com [TSP_Strategy] <TSP_Strategy@yahoogroups.com> wrote:

Interesting article :

-------- Forwarded Message --------

Subject:	The Criminal Gold Slam
Date:	Wed, 20 Jun 2018 19:28:10 -0400 (EDT)
From:	InvestYourself <editor@investyourself.com>
Reply-To:	editor@investyourself.com
To:

June 20, 2018

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Financial Intelligence Report

The Newsletter for people willing to take control of their financial future

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Greetings Friends!

This is today's issue of the Financial Intelligence Report

Contributing Editors: Bob Rinear, Robert Foster, Ted, Chuck and the Crew!

Wall Street Lunacy donated by Jerome Powell, and Central Bankers the world over! Who else can print money and buy stocks?!

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Part 1: General Commentary

Part 2: Market Commentary

The Gold Slam

Last Friday, "someone" or a bunch of "someone's" thought it a good idea to dump 34 billion worth of paper shorts onto the Gold and silver market. All of it at basically the same time. Yet it brings into question, well, several questions.

When you look at the open positions from that day, you see that they weren't opened to close out shorts, they were opened as sells. In other words, they were shorting the price of gold and silver, and since it's price is based on paper transactions at places like the COMEX, we saw big moves down on gold and silver that day.

What was that all about? Well, obviously those "someone's" didn't like the look of gold and silver both looking like they were about to break out into a nice run higher. But why? Who has the ability to conjure up 34 billion worth of paper? And why don't they want the price of these two metals going higher?

Listen up folks, this wasn't mommy and daddy in their PJ's trading on their Etrade account while eating Cheetos in bed. This was big time. If you add up all the gold that all the contracts represented that day, we're talking about over a hundred tons of gold. So obviously they didn't want the price of gold or silver going much higher. But why?

One way to look at it is this: Back in the big run up from say 2007 - 2011, the gold and silver markets were just days away from being over run. The US mint had several times "run out" of silver to make one ounce Eagle coins and the amount of gold on the COMEX for delivery, was within one big buyer of default. ( Note, the COMEX has already defaulted in the past, by passing a rule that they could settle a delivery in cash in stead of a metal, if they couldn't get the metal to satisfy the demand)

After they finally got a handle on it and turned gold and silver lower, the pressure came off and the metals have been forgotten for a long time. But that's not really true at all. While a lot of mom's and pops, stopped buying it, and a lot of people who got seduced into thinking that Crypto currencies were really like gold and swung from buying it, the "big guys" kept right at it.

Let me repeat that line for a second, just for clarity. An awful lot of people that were silver ( and gold) bullion buyers, got lured into thinking that things like Bitcoin were just as wonderful, as they were told it was anonymous, and there was only "so much of it" etc. They not only stopped buying gold and silver, a lot of them sold their metals and went into crypto.

But guess what? The Chinese didn't stop buying it. Nor did the Russians. Nor did the Central banks. In FACT, just from the first quarter of 2017 to the first quarter reading of 2018, gold buying has surged 42% at the sovereign level. (NOTE>> Russia has effectively sold half their US treasuries, but they have increased their gold holdings since the first of the year)

So that brings up the question: Who wanted to smash the price of gold and silver last Friday? I tend to think it was the very sovereigns themselves. Sure you could suggest that as the metals were about to break out, money that flowed into Crypto's might come funneling out and back into gold and silver, especially the folks that bought bitcoin at 16,17,18 or 19,000 dollars, only to see it evaporate to 7000.

And yes a tidal wave of newly revived demand could once again push the COMEX into the situation of not having the very metal they'd be called on to deliver. But I tend to think it's more than that. I think the CB's, and the sovereign Governments themselves are the big players behind trying to keep the price suppressed.

Think about it like this. Let's suppose you're Russia and you hate the idea of the US shutting you off the SWIFT system, and being able to shut down your financing. Or you're China and you hate that you have had to amass dollars to buy things such as oil. Or you're one of any number of nations that see's the US enjoy benefits of being the worlds reserve currency. If your plan is to one day reject the US dollar, who is going to want your currency? No one if it's just another fiat currency whipped up out of thin air. But, if you back your currency with a percentage of gold, now you've got a more interesting animal.

I said long ago, that when the eventual "reset" hits, and there will be one, no one on earth is going to want a currency based on nothing. We've had decades of fiat money and all we've managed to do is create more debt than the planet has ever seen. We've seen it translate into unfair trade, currency wars, etc.

If your ultimate goal is to ride the current system until it implodes, while building a reserve of real gold in the meantime, so that when the system does implode, you have the means to back up your resultant currency, wouldn't you want to amass it as cheaply as possible? You sure would.

And, if you realized that you could indeed keep the price low, or at least keep it from breaking out and running, just by paper shorting some criminal market, wouldn't you do it? You probably would and SO WOULD THEY. And that's what I think we're looking at here folks.

They don't want any excitement coming into the metals market. They want the public playing with overpriced stocks, and chasing this dog and that pony, and pushing any one of the 1700 crypto currencies. As long as they're trying to amass as much of it as they can get, they're going to do their best to keep the price from rising.

Each day that goes by brings us one day closer to the "end game." One would have to be genuinely silly to try and put a date on that event, but you all know it's coming. The US dollar's days as the world reserve is going to come to an end. The big wheels at Brussels have already mentioned many times that the world doesn't like the set up any more and want it changed. They've added China into the SDR basket. We're seeing more and more nations attempting to trade with each other without the dollar. We're seeing nations curbing their buying of Treasuries. We're seeing nations selling their treasuries. Yet through it all, we see month after month, the unrelenting push to buy more gold.

Are the Chinese stupid? I think not. Are the Russians stupid? I assure you they're not. India, Switzerland, France, and a host of other nations have a sizable gold hoard. And they're all buying more. If your ultimate goal is to reduce your dependence on US treasuries and dollars, the only real alternative you have is gold ( and silver) Yet there's only so much of it around. Many are suggesting that global mine output is falling rapidly. All the "easy stuff" has been found already.

It appears that they're going to continue to suppress the metals for as long as they can. They've already kept it unrealistically low for the last 7 years. Friday's attack was proof positive that they still have the ammunition to take the momentum right out from under the metal market. One day they won't be able to pull it off. Or, one day their entire concept will flip. Once they have all they think they need, their mindset will change and they'll hope the value goes sky high.

I think it will. I believe that one day, the suppression will stop and these nations will be more than happy to see gold over 3000 dollars and silver over 100. Once they have as much as they can get/need, consider the payday they'll get once it's allowed to soar. As we've stated before, we can't back our dollars with any realistic percent of gold backing right now, We simply don't have enough gold to match the amount of dollars. But we could in an instant if gold was 8500 an ounce instead of 1200. And that's what I think their ultimate goal is. Get enough metal that at some point they can back their rubles and Yuans with say a 30% gold backing. And they can all do it if gold is over 8 grand an ounce.

Let me wrap this up. I love gold. I love silver. I know how much they "should" be worth, but they're not allowed to go there ( yet). I've seen my dollars inflated away to the point that Uncle Sam says they're worth 3.9 cents as compared to the 1913 dollar. The day that the Federal Reserve has to reverse course, restart QE, and cut rates again ( and they will one day) that is going to be the big test. People will realize that the Central banks have no choice but to print forever and the metals will go crazy. That's when I want to see if they can still keep the price down. What a war that will be.

The Market:

Manic? Distorted? Desperate? All the above? Yeah, probably. On Monday they fretted over the news that instead of 50 billion worth of tariffs, word had it that the volume expanded to 200 billion. That got people nervous that China would retaliate and make it 300 billion against us, and so on. We ended the day red on the DOW and S&P.

Tuesday they felt better about things, but it still wasn't a very good outing. However,they have been buying into the small caps and some technology. The thinking there is that if we get in a real trade war, they're better off buying into smaller companies that only do business inside the US. They were still selling the big multinationals.

Today, we got word that they're yanking GE out of the DOW Jones Industrial average. This company has been in that index for 100 years. But you all know the drill. Just like the "Nifty fifty" of the 60's, when DOW stocks get mired down, they yank them out and replace them with the next latest/greatest. So out with GE and in with Walgreens. Interesting, industry out, opioids and anti-depressants in.

After yesterdays 200+ point drop, and its 6th down day in a row, one might have thought they'd bounce the DOW today, but no. It fell again. Yes, they made sure it ended the day just north of its 50 day moving average, but lets be real, the index is sickly.

That said, money has to go somewhere and it continued into the small caps and the tech sector. As much as the DOW is getting overextended to the down side, the IWM and QQQ's are overdone to the upside. But that's how it is in this market, "extremes".

It isn't trade wars, or border walls, or locusts that have this market in a funk. Since putting in a high in early January, this market has fallen, bounced, and traded sideways since. A couple rate hikes, and some talk about cutting the Fed's balance sheets has bothered them. Toss in the "fears" of trade wars, and the hot money is desperate to find a home that they can believe in.

So, the techs and the Russell are getting all the attention, as if somehow rising rates don't bother them. Oh, they will indeed. Most of these companies have gone into big debt to borrow money to buy up their own stock. If rates go up, so do their carry costs.

I think what we're seeing here is a market that's long in the tooth. A market that's been poked and prodded to remain higher than it should be. A market that's looking under rocks to find some reason to stay up. Well yanking GE isn't a good reason. Starbux shutting 150 stores isn't a good reason. The Fed's saying September is still on the table for a rate hike isn't. There's a lot of reasons actually. Have you noticed home sales? Down sharply, as they've risen in price and shut people out.

The end of a 9 year bull run won't come easy. There's going to be pops and drops, desperation, false hopes, headfakes. But we are indeed very near the very end of this bull. Maybe tomorrow is the day they cool their jets on the techs and small caps and buy the big dip in the DOW stocks. I actually thought they'd do that today. But will it prove anything? Nope. Just sector rotation. Somehow I just don't think we've got new highs in this market ( DOW/S&P) And at some point, the techs and smallies will feel the heat too.

Trade this market folks, but don't marry it. There's simply too many plates in the air.

Good luck out there, and if you're interested in seeing what stocks we're long of, or considering buying or shorting, go snag yourself a subscription to the Insiders Club. It's just 199 a year, for 3 daily updates per day. One MCD play pays for several years worth of updates. Go to www.investyourself.com and hit the big red "subscribe" button. It's worth it.

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Disclaimer!!!!! Must Read!!!

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We at InvestYourself are not brokers. NO advice is given or implied. This newsletter is for educational purposes ONLY. Nothing should be considered a recommendation to buy or sell any stock or security. We strongly recommend that you consult with a professional broker or financial planner before you buy or sell any stock or security. We believe the information in this publication to be true but assume no responsibility for any incorrect information. This is not a solicitation to buy or sell any security. Writers of InvestYourself may at times hold positions in any of the stocks mentioned in this newsletter. Investing in securities carries a high degree of risk and you can lose all of your investment money. Past performances do not guarantee future results. Please consult with your own independent tax, business and financial advisors with respect to any investment, including any contemplated investment in any company mentioned. All information contained in this publication must be independently investigated for accuracy. We will NOT be responsible for the consequences of anyone acting on this purely educational material.

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