Re: [TSPStrategy] Matching

The matches are on a per pay period basis.  When the max annual amount is reached, the matches stop.

If you reach the max before the 26^th pay period, you miss the match for the remaining pay periods.

Say you reach the annual max at 20 pay periods – you won't get any match for the remaining 6.

 

From: TSPStrategy@groups.io <TSPStrategy@groups.io> On Behalf Of Roy Puderer via groups.io
Sent: Saturday, July 31, 2021 1:15 PM
To: TSPStrategy@groups.io
Subject: Re: [TSPStrategy] Matching

 

I don't understand the issue.  

 

The employee is receiving the full authorized match on their maximum contribution of $26,000 in the first 10 pay periods.  They wouldn't receive any more matching funds if they had spread the contributions over 26 periods.

 

The problem I see is the risk they are taking by front loading instead of dollar cost averaging purchases

On Jul 31, 2021, at 6:55 AM, sarah_oz via groups.io <sarah_oz=yahoo.com@groups.io> wrote:



How Matching Pays Off in the TSP

By Tammy Flanagan

July 29, 2021

Sometimes, it's a good idea to question the advice even of a professional financial adviser, especially when it comes to the ins and outs of the federal retirement system. 

Recently, an employee told me about meeting with their financial adviser to help plan their retirement at the end of this year. The adviser recommended that they front load their Thrift Savings Plan investments by contributing the maximum of $26,000 ($19,500 regular contributions and an additional $6,500 in catch-up contributions) over 10 pay periods.

The employee's salary was high enough to do this, so they contributed $2,600 each pay period through pay period 10, which ended in May. For the rest of the year until they retire on Dec. 31, they will make no additional employee contributions. As long as their TSP funds perform well over the rest of the year, this strategy could result in healthy gains. This is because their later returns will be based on a bigger pot of money accumulated early in the year.

Here's how it would work: By making the maximum contributions through the end of pay period 10, the employee would have put in an extra $16,000. Suppose this money had been invested in the C Fund in 2020. From June through December, the strategy of investing the maximum earlier in the year would have resulted in an additional $3,935 in investment returns on the extra $16,000. That would have worked out well last year, and it might this year, too—in June, the C Fund rate of return for this year was a whopping 2.33%.

This would have been a terrific strategy for someone who retired at the end of pay period 10 this year. But there are no guarantees about how the investment will perform for the rest of the year.

More importantly, though, the employee will lose out on agency matching funds for TSP contributions from pay periods 11 through 26. That's money they would have received regardless of whether the market went up or down. 

Let's see just how much that would add up to. Contributions of $2,600 for 10 pay periods would be matched by $331 in agency funds each period ($66 due to automatic agency contributions of 1% of basic salary rate, plus $199 in dollar-for-dollar matching on the first 3% of employee contributions and another $66 for matching at a rate of 50 cents on the dollar for the rest of the contributions). 

After pay period 10, the agency automatic contributions continue at $66 per pay period, but the matching stops for the remaining 16 pay periods because there are no employee contributions left to match.

For this employee, that would result in a loss of $265 over each of the remaining 16 pay periods, or $4,240 in agency matching funds. Although the C Fund saw strong gains in 2020, the risk-free agency contributions were bigger, even when considering the employee front-loaded contributions to have a bigger balance earlier in the year. Not to mention that for most employees, front-loading their TSP investments just isn't practical from a budgeting point of view.

Federal employees hired or rehired on or after Oct. 1, 2020 are automatically enrolled in the TSP at 5% of their salary. This means that they get the full match from their agency. If they (or employees hired before that date) decrease their contributions below 5%, they will not receive the full amount of agency matching funds. And that could mean leaving valuable retirement dollars on the table.

---

By Tammy Flanagan

July 29, 2021

https://www.govexec.com/pay-benefits/2021/07/how-matching-pays-tsp/184159/

Re: [TSPStrategy] Matching

Matching is based on the amount your are paid each pay period, not how much you contribute each pay period.  So you will lose matching for the remaining 16 pay periods if you front load your contributions in the first 10 pay periods.  It generally only make sense to front load your contributions in the year you retire to reduce your taxable income.  

On Sat, Jul 31, 2021, 10:18 AM Roy Puderer via groups.io <roypude=yahoo.com@groups.io> wrote:

I don't understand the issue.  

The employee is receiving the full authorized match on their maximum contribution of $26,000 in the first 10 pay periods.  They wouldn't receive any more matching funds if they had spread the contributions over 26 periods.

The problem I see is the risk they are taking by front loading instead of dollar cost averaging purchases

On Jul 31, 2021, at 6:55 AM, sarah_oz via groups.io <sarah_oz=yahoo.com@groups.io> wrote:



How Matching Pays Off in the TSP

By Tammy Flanagan

July 29, 2021

Sometimes, it's a good idea to question the advice even of a professional financial adviser, especially when it comes to the ins and outs of the federal retirement system. 

Recently, an employee told me about meeting with their financial adviser to help plan their retirement at the end of this year. The adviser recommended that they front load their Thrift Savings Plan investments by contributing the maximum of $26,000 ($19,500 regular contributions and an additional $6,500 in catch-up contributions) over 10 pay periods.

The employee's salary was high enough to do this, so they contributed $2,600 each pay period through pay period 10, which ended in May. For the rest of the year until they retire on Dec. 31, they will make no additional employee contributions. As long as their TSP funds perform well over the rest of the year, this strategy could result in healthy gains. This is because their later returns will be based on a bigger pot of money accumulated early in the year.

Here's how it would work: By making the maximum contributions through the end of pay period 10, the employee would have put in an extra $16,000. Suppose this money had been invested in the C Fund in 2020. From June through December, the strategy of investing the maximum earlier in the year would have resulted in an additional $3,935 in investment returns on the extra $16,000. That would have worked out well last year, and it might this year, too—in June, the C Fund rate of return for this year was a whopping 2.33%.

This would have been a terrific strategy for someone who retired at the end of pay period 10 this year. But there are no guarantees about how the investment will perform for the rest of the year.

More importantly, though, the employee will lose out on agency matching funds for TSP contributions from pay periods 11 through 26. That's money they would have received regardless of whether the market went up or down. 

Let's see just how much that would add up to. Contributions of $2,600 for 10 pay periods would be matched by $331 in agency funds each period ($66 due to automatic agency contributions of 1% of basic salary rate, plus $199 in dollar-for-dollar matching on the first 3% of employee contributions and another $66 for matching at a rate of 50 cents on the dollar for the rest of the contributions). 

After pay period 10, the agency automatic contributions continue at $66 per pay period, but the matching stops for the remaining 16 pay periods because there are no employee contributions left to match.

For this employee, that would result in a loss of $265 over each of the remaining 16 pay periods, or $4,240 in agency matching funds. Although the C Fund saw strong gains in 2020, the risk-free agency contributions were bigger, even when considering the employee front-loaded contributions to have a bigger balance earlier in the year. Not to mention that for most employees, front-loading their TSP investments just isn't practical from a budgeting point of view.

Federal employees hired or rehired on or after Oct. 1, 2020 are automatically enrolled in the TSP at 5% of their salary. This means that they get the full match from their agency. If they (or employees hired before that date) decrease their contributions below 5%, they will not receive the full amount of agency matching funds. And that could mean leaving valuable retirement dollars on the table.

---

By Tammy Flanagan

July 29, 2021

https://www.govexec.com/pay-benefits/2021/07/how-matching-pays-tsp/184159/

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Re: [TSPStrategy] Matching

I don't understand the issue.  

The employee is receiving the full authorized match on their maximum contribution of $26,000 in the first 10 pay periods.  They wouldn't receive any more matching funds if they had spread the contributions over 26 periods.

The problem I see is the risk they are taking by front loading instead of dollar cost averaging purchases

On Jul 31, 2021, at 6:55 AM, sarah_oz via groups.io <sarah_oz=yahoo.com@groups.io> wrote:



How Matching Pays Off in the TSP

By Tammy Flanagan

July 29, 2021

Sometimes, it's a good idea to question the advice even of a professional financial adviser, especially when it comes to the ins and outs of the federal retirement system. 

Recently, an employee told me about meeting with their financial adviser to help plan their retirement at the end of this year. The adviser recommended that they front load their Thrift Savings Plan investments by contributing the maximum of $26,000 ($19,500 regular contributions and an additional $6,500 in catch-up contributions) over 10 pay periods.

The employee's salary was high enough to do this, so they contributed $2,600 each pay period through pay period 10, which ended in May. For the rest of the year until they retire on Dec. 31, they will make no additional employee contributions. As long as their TSP funds perform well over the rest of the year, this strategy could result in healthy gains. This is because their later returns will be based on a bigger pot of money accumulated early in the year.

Here's how it would work: By making the maximum contributions through the end of pay period 10, the employee would have put in an extra $16,000. Suppose this money had been invested in the C Fund in 2020. From June through December, the strategy of investing the maximum earlier in the year would have resulted in an additional $3,935 in investment returns on the extra $16,000. That would have worked out well last year, and it might this year, too—in June, the C Fund rate of return for this year was a whopping 2.33%.

This would have been a terrific strategy for someone who retired at the end of pay period 10 this year. But there are no guarantees about how the investment will perform for the rest of the year.

More importantly, though, the employee will lose out on agency matching funds for TSP contributions from pay periods 11 through 26. That's money they would have received regardless of whether the market went up or down. 

Let's see just how much that would add up to. Contributions of $2,600 for 10 pay periods would be matched by $331 in agency funds each period ($66 due to automatic agency contributions of 1% of basic salary rate, plus $199 in dollar-for-dollar matching on the first 3% of employee contributions and another $66 for matching at a rate of 50 cents on the dollar for the rest of the contributions). 

After pay period 10, the agency automatic contributions continue at $66 per pay period, but the matching stops for the remaining 16 pay periods because there are no employee contributions left to match.

For this employee, that would result in a loss of $265 over each of the remaining 16 pay periods, or $4,240 in agency matching funds. Although the C Fund saw strong gains in 2020, the risk-free agency contributions were bigger, even when considering the employee front-loaded contributions to have a bigger balance earlier in the year. Not to mention that for most employees, front-loading their TSP investments just isn't practical from a budgeting point of view.

Federal employees hired or rehired on or after Oct. 1, 2020 are automatically enrolled in the TSP at 5% of their salary. This means that they get the full match from their agency. If they (or employees hired before that date) decrease their contributions below 5%, they will not receive the full amount of agency matching funds. And that could mean leaving valuable retirement dollars on the table.

---

By Tammy Flanagan

July 29, 2021

https://www.govexec.com/pay-benefits/2021/07/how-matching-pays-tsp/184159/

[TSPStrategy] Matching

How Matching Pays Off in the TSP

By Tammy Flanagan

July 29, 2021

Sometimes, it’s a good idea to question the advice even of a professional financial adviser, especially when it comes to the ins and outs of the federal retirement system. 

Recently, an employee told me about meeting with their financial adviser to help plan their retirement at the end of this year. The adviser recommended that they front load their Thrift Savings Plan investments by contributing the maximum of $26,000 ($19,500 regular contributions and an additional $6,500 in catch-up contributions) over 10 pay periods.

The employee’s salary was high enough to do this, so they contributed $2,600 each pay period through pay period 10, which ended in May. For the rest of the year until they retire on Dec. 31, they will make no additional employee contributions. As long as their TSP funds perform well over the rest of the year, this strategy could result in healthy gains. This is because their later returns will be based on a bigger pot of money accumulated early in the year.

Here’s how it would work: By making the maximum contributions through the end of pay period 10, the employee would have put in an extra $16,000. Suppose this money had been invested in the C Fund in 2020. From June through December, the strategy of investing the maximum earlier in the year would have resulted in an additional $3,935 in investment returns on the extra $16,000. That would have worked out well last year, and it might this year, too—in June, the C Fund rate of return for this year was a whopping 2.33%.

This would have been a terrific strategy for someone who retired at the end of pay period 10 this year. But there are no guarantees about how the investment will perform for the rest of the year.

More importantly, though, the employee will lose out on agency matching funds for TSP contributions from pay periods 11 through 26. That’s money they would have received regardless of whether the market went up or down. 

Let’s see just how much that would add up to. Contributions of $2,600 for 10 pay periods would be matched by $331 in agency funds each period ($66 due to automatic agency contributions of 1% of basic salary rate, plus $199 in dollar-for-dollar matching on the first 3% of employee contributions and another $66 for matching at a rate of 50 cents on the dollar for the rest of the contributions). 

After pay period 10, the agency automatic contributions continue at $66 per pay period, but the matching stops for the remaining 16 pay periods because there are no employee contributions left to match.

For this employee, that would result in a loss of $265 over each of the remaining 16 pay periods, or $4,240 in agency matching funds. Although the C Fund saw strong gains in 2020, the risk-free agency contributions were bigger, even when considering the employee front-loaded contributions to have a bigger balance earlier in the year. Not to mention that for most employees, front-loading their TSP investments just isn’t practical from a budgeting point of view.

Federal employees hired or rehired on or after Oct. 1, 2020 are automatically enrolled in the TSP at 5% of their salary. This means that they get the full match from their agency. If they (or employees hired before that date) decrease their contributions below 5%, they will not receive the full amount of agency matching funds. And that could mean leaving valuable retirement dollars on the table.

---

By Tammy Flanagan

July 29, 2021

https://www.govexec.com/pay-benefits/2021/07/how-matching-pays-tsp/184159/

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[TSPStrategy] Convert IRA to Roth IRA

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RETIREMENT

Converting a Traditional IRA to a Roth in Retirement

You can convert money to a Roth no matter how old you are. But if the conversion boosts your income, it could have taxing consequences.

by: Kimberly Lankford

June 1, 2018

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I read your article about contributing to an IRA after age 70½. I know I can't contribute to a traditional IRA at that age, but can I still roll over money from a traditional IRA to a Roth? Do I need to have earned income?

• 10 Things You Must Know About Roth Accounts

There's no age limit or income requirement to be able to convert a traditional IRA to a Roth. You must pay taxes on the amount converted, although part of the conversion will be tax-free if you have made nondeductible contributions to your traditional IRA. Once the money is in the Roth, you'll be able to take tax-free withdrawals (you may have to pay taxes on any earnings withdrawn within five years of the conversion, but only after you've withdrawn contributions and converted amounts). See Tax Rules for Roth Withdrawals for more information.

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Re: [TSPStrategy] 20% tax on withdrawals

Yes, transfers of Roth portions of the TSP to an outside Roth IRA has already been implemented as TSP-536 "Important Tax InformationAbout Payments From Your TSP Account", dated 4/2021 indicates. Such a transfer would prevent any amounts being included in RMDs.  But I believe that the TSP will soon be able to allow (if not already) a participant to specify that no RothTSP amounts are to be part of RMDs. In that case there would be no need to transfer Roth TSP amounts to an IRA. 

In any event, just because the Roth portion of a TSP fun can be transferred does not mean that it necessarily should be in all cases. Each individual's situation is different and a blanket statement of that nature isn't necessarily true for every person.

On Saturday, July 24, 2021, 19:54, eljosco@mail.com wrote:

The Roth portion of a TSP can and should be rolled over to a Roth IRA before 72 - this from one of the TSP webinars and also from a tax lawyer presenting during a NITP seminar. This will avoid RMDs from the Roth portion.



On 7/24/21 at 6:03 PM, Mo in Seattle (Mo4iu@yahoo.com) via groups.io wrote:

From: "Mo in Seattle (Mo4iu@yahoo.com) via groups.io" <Mo4iu=yahoo.com@groups.io>
Date: July 24, 2021
To: TSPStrategy@groups.io,
"eljosco@mail.com" <eljosco@mail.com>
Cc:
Subject: Re: [TSPStrategy] 20% tax on withdrawals

On Saturday, July 24, 2021, 12:20, lindalyc via groups.io <lindalyc=aol.com@groups.io> wrote:

Thank you, Mo:

I'm learning, so I do have questions:

Item#1:--------isn't Roth IRA (not Roth TSP) excludes from RMD by IRS?

ANSWER #1:  Yes, no RMDs are required to be taken from Roth IRAs, whereas, RMDs from your TSP includes the percentage ratio of Roth TSP amounts as mentioned.  I believe that this was because it was all Congress allowed when Roth IRAs were approved for the TSP system. I think this is going to be changed in the near future as part of several changes that Congress approved and that we will be able to designate if our withdrawals should be taken from Roth or non-Roth TSP balances and what better options are provided related to not having to include Roth funds as part of our RMD.

Item#2:--------so I take RMD from Roth TSP and since I don't need it I'd put it in regular brokerage where I'd be taxed on dividends earned or capital gain from sales, wouldn't it?==no more tax advantage (tax shield), right?  and what if I eventually have 100% TSP Roth before 72?

ANSWER #2:   Anytime you withdraw funds from any Roth IRA account,TSP Roth  or non-TSP Roth, and invest the withdrawal elsewhere, the earnings will be taxed. The earnings only accumulate tax free while part of a Roth account.  I may have misunderstood your earlier comment about this, as I thought you were referring to the earnings from funds remaining in your TSP Roth being taxed, which they are not. 

If you have 100% of your TSP balance in Roth then it might be beneficial to consider a transfer to a non-TSP Roth account depending upon what changes take effect next year regarding options with the TSP Roth. I think we will have the option not to have to withdraw any Roth balances. 

So I think a key part of your situation might be to consider what percentage of Roth funds constitute your total TSP balance? I had the same concern about my Roth funds in my TSP account but realized that, in my case, the Roth amount was such a small percentage of the total that it wasn't significant to worry about small withdrawals each year because the bulk of the Roth funds would still be there after many years of TSP RMD withdrawals and the Roth funds outside of the TSP is what were significant. If I had larger Roth balance inmy TSP, it might have been a different outcome. Again, what changes take affect will be key for future decisions.

Item#3---------"A portion of an IRA can be converted into a Roth while a person is still working but with certain limitations on the amount allowed each year.'  I didn't know that except I do know tax liablity from conversion. 1. Which portion of an IRA can NOT be converted into a Roth, please?   2. I only know in-service withdraw/rollover allowed 4 times per year and minmum of $1000 per occurance, but don't know the limitations on amount. would you point out the maxi. amount?

ANSWER:   I had to do further research on this question  because it has been some time since I had any personal interest in this area and some changes have been made since that time. Although there are some limitations on the amount of new money annual contributions that can be made each year while working, (less so for TSP participants) there is no restriction on the amount that can be converted from an existing IRA into a Roth IRA. There is a limitation on withdrawing those funds without penalty. If you withdraw them before being on deposit five years there is a 10% penalty.  Of course, as mentioned, whatever amount you convert from an IRA into a Roth is included in that year's taxable earnings. 

However, your question in this instance makes it sound like you are still working. If you are 72 but still working, you don't have to be concerned with RMDs from your TSP, as you can wait until you retire before any minimum distributions are required from your TSP account, but which is not  true with IRAs I believe.

Hope this helps. You might want to look at the TSP website which has a wealth of informational booklets and documents that all participants should read and re-read to become familiar with the TSP and retirement. It is better acquiring knowledge to answer your questions than to depend upon strangers. There are many, many, comments that I see posted here that are factually incorrect even though those posting give the impression of insisting what they say is accurate. I could be one of those people. Better for you to study and research on your own so that you can sort out fact from fiction. 😄🖖

p.s. I don't use any financial advisors. I'm DIY kind using major self-directed brokerages.

Thanks again.

-----Original Message-----
From: Mo in Seattle (Mo4iu@yahoo.com) via groups.io <Mo4iu=yahoo.com@groups.io>
To: TSPStrategy@groups.io; eljosco@mail.com <eljosco@mail.com>
Sent: Sat, Jul 24, 2021 2:37 pm
Subject: Re: [TSPStrategy] 20% tax on withdrawals

Lindalyc--

Item#1:  Tax law and the IRS requires a "forced" RMD not the TSP. An RMD is required by the IRS when a person reaches 72 (it used to be 701/2 but was recently changed. The TSP is your friend when it comes to ensuring that you comply with taking the appropriate amount because  failure to withdraw what the IRS requires would result in an IRS penalty of 50% of the amount that you failed to withdraw. At the end of the year, if you haven't withdrawn enough to comply with the law, the TSP will send you the remaining amount so that you are not penalized by the IRS.  It makes no difference whether or not you need the RMD--it is required based on your age. Prior to age 72, no withdrawals are required.  

Item#2:  The amount in your Roth TSP is still tax free when included as part of your RMD, so no, you do not lose your "tax free capital gain shield" as you state.  Withdrawals from the TSP do require that an amount of your Roth funds be included in the RMD in the percent that they exist in your total account balance, e.g. if your Roth comprises 2% of your total TSP account then your 2% of your annual RMD will be from your Roth balance. So transferring the Roth portion of your TSP to an outside Roth IRA, if allowed, could  be beneficial to eliminate the inclusion of a portion of the your Roth TSP in with your RMD. However, it may not be worth the trouble, if it is a just a small percentage anyway, because having a small part of your RMD comprised of Roth funds means that your taxable income is less since that portion is tax free.

Item #3:  It sounds as if you are under the impression that a TSP balance can be transferred to an IRA and then converted into a Roth IRA.  An IRA balance cannot just be "converted" to a Roth IRA. A portion of an IRA can be converted into a Roth while a person is still working but with certain limitations on the amount allowed each year. Whatever amount that is "converted" from an IRA into a Roth IRA,  increases your ordinary income and your tax liability that year because you have to pay taxes on an IRA when it is withdrawn.

There are a lot of rules and requirements for IRAs which are based in tax law passed by Congress and then enforced by the IRS. Those laws can be confusing. That is why CPA's and tax lawyers exist.  But the TSP helps you comply with those requirements at no extra cost to you.  Private companies and so-called "financial advisors" who earn commissions from investing your hard earned savings in what they recommend--are NOT your friend--and want you to believe that you are better off transferring your money out of the TSP and into an account with them. But doing so will cost you in commissions paid by your purchases or by investments in recommend that will have higher fees. 

On Saturday, July 24, 2021, 09:59, lindalyc via groups.io <lindalyc=aol.com@groups.io> wrote:

I attended it, not that helpful to me--they are for the best insterest of TSP board/company.

My concern is I want the flexibility of distributions not a forced RMD.

So even with Roth TSP, you're required to RMD. so in case I don't need it the RMD means I would lose the tax free captial gain shield.

Isn't it the best to transfer (after 59 1/2 year old) to outside/eventually convert into Roth IRA? 

well, I asked and they would confuse you with a lot "cautions".

-----Original Message-----
From: eljosco@mail.com
To: TSPStrategy@groups.io
Sent: Sat, Jul 24, 2021 2:44 am
Subject: Re: [TSPStrategy] 20% tax on withdrawals

That's interesting to know it happened that way.

An easy way to check out about TSP withdrawals is to attend one of their webinars on this topic. Besides their chat the live Q&As are always helpful. There's one specifically on post-service (retirement) withdrawals coming up this Wednesday at 10am. 

https://www.tsp.gov/online-learning/#tsp-post-service-withdrawals



On 7/23/21 at 7:45 PM, Karol Kusunose wrote:

From: "Karol Kusunose" <lochcarron@msn.com>
Date: July 23, 2021
To: "TSPStrategy@groups.io" <TSPStrategy@groups.io>
Cc:
Subject: Re: [TSPStrategy] 20% tax on withdrawals

This what HAPPENED.....  I requested 20% tax amount and filed it as an RMD.

 

They took out 10% BECAUSE I filed it as and RMD.  In previous years I requested a monthly amount and

they sent 20% as I requested to the IRS BECAUSE I DID NOT designate it as an RMD,

 

This was the verbal explainaton given to me when I called then for an explaination.

Re: [TSPStrategy] 20% tax on withdrawals

You'll find the password and other relevant information for joining any of the webinars here:

https://www.tsp.gov/online-learning



On 7/24/21 at 6:51 AM, Robert Albright wrote:

From: "Robert Albright" <albright101764@gmail.com>
Date: July 24, 2021
To: TSPStrategy@groups.io
Cc:
Subject: Re: [TSPStrategy] 20% tax on withdrawals

The webinar is a private event, you must have a password from the host to attend. Do you have any info on how to go about getting an invite?

On Jul 24, 2021, at 02:44, eljosco@mail.com wrote:



That's interesting to know it happened that way.

An easy way to check out about TSP withdrawals is to attend one of their webinars on this topic. Besides their chat the live Q&As are always helpful. There's one specifically on post-service (retirement) withdrawals coming up this Wednesday at 10am. 

https://www.tsp.gov/online-learning/#tsp-post-service-withdrawals



On 7/23/21 at 7:45 PM, Karol Kusunose wrote:

From: "Karol Kusunose" <lochcarron@msn.com>
Date: July 23, 2021
To: "TSPStrategy@groups.io" <TSPStrategy@groups.io>
Cc:
Subject: Re: [TSPStrategy] 20% tax on withdrawals

This what HAPPENED.....  I requested 20% tax amount and filed it as an RMD.

 

They took out 10% BECAUSE I filed it as and RMD.  In previous years I requested a monthly amount and

they sent 20% as I requested to the IRS BECAUSE I DID NOT designate it as an RMD,

 

This was the verbal explainaton given to me when I called then for an explaination.

Re: [TSPStrategy] 20% tax on withdrawals

The Roth portion of a TSP can and should be rolled over to a Roth IRA before 72 - this from one of the TSP webinars and also from a tax lawyer presenting during a NITP seminar. This will avoid RMDs from the Roth portion.



On 7/24/21 at 6:03 PM, Mo in Seattle (Mo4iu@yahoo.com) via groups.io wrote:

From: "Mo in Seattle (Mo4iu@yahoo.com) via groups.io" <Mo4iu=yahoo.com@groups.io>
Date: July 24, 2021
To: TSPStrategy@groups.io,
"eljosco@mail.com" <eljosco@mail.com>
Cc:
Subject: Re: [TSPStrategy] 20% tax on withdrawals

On Saturday, July 24, 2021, 12:20, lindalyc via groups.io <lindalyc=aol.com@groups.io> wrote:

Thank you, Mo:

I'm learning, so I do have questions:

Item#1:--------isn't Roth IRA (not Roth TSP) excludes from RMD by IRS?

ANSWER #1:  Yes, no RMDs are required to be taken from Roth IRAs, whereas, RMDs from your TSP includes the percentage ratio of Roth TSP amounts as mentioned.  I believe that this was because it was all Congress allowed when Roth IRAs were approved for the TSP system. I think this is going to be changed in the near future as part of several changes that Congress approved and that we will be able to designate if our withdrawals should be taken from Roth or non-Roth TSP balances and what better options are provided related to not having to include Roth funds as part of our RMD.

Item#2:--------so I take RMD from Roth TSP and since I don't need it I'd put it in regular brokerage where I'd be taxed on dividends earned or capital gain from sales, wouldn't it?==no more tax advantage (tax shield), right?  and what if I eventually have 100% TSP Roth before 72?

ANSWER #2:   Anytime you withdraw funds from any Roth IRA account,TSP Roth  or non-TSP Roth, and invest the withdrawal elsewhere, the earnings will be taxed. The earnings only accumulate tax free while part of a Roth account.  I may have misunderstood your earlier comment about this, as I thought you were referring to the earnings from funds remaining in your TSP Roth being taxed, which they are not. 

If you have 100% of your TSP balance in Roth then it might be beneficial to consider a transfer to a non-TSP Roth account depending upon what changes take effect next year regarding options with the TSP Roth. I think we will have the option not to have to withdraw any Roth balances. 

So I think a key part of your situation might be to consider what percentage of Roth funds constitute your total TSP balance? I had the same concern about my Roth funds in my TSP account but realized that, in my case, the Roth amount was such a small percentage of the total that it wasn't significant to worry about small withdrawals each year because the bulk of the Roth funds would still be there after many years of TSP RMD withdrawals and the Roth funds outside of the TSP is what were significant. If I had larger Roth balance inmy TSP, it might have been a different outcome. Again, what changes take affect will be key for future decisions.

Item#3---------"A portion of an IRA can be converted into a Roth while a person is still working but with certain limitations on the amount allowed each year.'  I didn't know that except I do know tax liablity from conversion. 1. Which portion of an IRA can NOT be converted into a Roth, please?   2. I only know in-service withdraw/rollover allowed 4 times per year and minmum of $1000 per occurance, but don't know the limitations on amount. would you point out the maxi. amount?

ANSWER:   I had to do further research on this question  because it has been some time since I had any personal interest in this area and some changes have been made since that time. Although there are some limitations on the amount of new money annual contributions that can be made each year while working, (less so for TSP participants) there is no restriction on the amount that can be converted from an existing IRA into a Roth IRA. There is a limitation on withdrawing those funds without penalty. If you withdraw them before being on deposit five years there is a 10% penalty.  Of course, as mentioned, whatever amount you convert from an IRA into a Roth is included in that year's taxable earnings. 

However, your question in this instance makes it sound like you are still working. If you are 72 but still working, you don't have to be concerned with RMDs from your TSP, as you can wait until you retire before any minimum distributions are required from your TSP account, but which is not  true with IRAs I believe.

Hope this helps. You might want to look at the TSP website which has a wealth of informational booklets and documents that all participants should read and re-read to become familiar with the TSP and retirement. It is better acquiring knowledge to answer your questions than to depend upon strangers. There are many, many, comments that I see posted here that are factually incorrect even though those posting give the impression of insisting what they say is accurate. I could be one of those people. Better for you to study and research on your own so that you can sort out fact from fiction. 😄🖖

p.s. I don't use any financial advisors. I'm DIY kind using major self-directed brokerages.

Thanks again.

-----Original Message-----
From: Mo in Seattle (Mo4iu@yahoo.com) via groups.io <Mo4iu=yahoo.com@groups.io>
To: TSPStrategy@groups.io; eljosco@mail.com <eljosco@mail.com>
Sent: Sat, Jul 24, 2021 2:37 pm
Subject: Re: [TSPStrategy] 20% tax on withdrawals

Lindalyc--

Item#1:  Tax law and the IRS requires a "forced" RMD not the TSP. An RMD is required by the IRS when a person reaches 72 (it used to be 701/2 but was recently changed. The TSP is your friend when it comes to ensuring that you comply with taking the appropriate amount because  failure to withdraw what the IRS requires would result in an IRS penalty of 50% of the amount that you failed to withdraw. At the end of the year, if you haven't withdrawn enough to comply with the law, the TSP will send you the remaining amount so that you are not penalized by the IRS.  It makes no difference whether or not you need the RMD--it is required based on your age. Prior to age 72, no withdrawals are required.  

Item#2:  The amount in your Roth TSP is still tax free when included as part of your RMD, so no, you do not lose your "tax free capital gain shield" as you state.  Withdrawals from the TSP do require that an amount of your Roth funds be included in the RMD in the percent that they exist in your total account balance, e.g. if your Roth comprises 2% of your total TSP account then your 2% of your annual RMD will be from your Roth balance. So transferring the Roth portion of your TSP to an outside Roth IRA, if allowed, could  be beneficial to eliminate the inclusion of a portion of the your Roth TSP in with your RMD. However, it may not be worth the trouble, if it is a just a small percentage anyway, because having a small part of your RMD comprised of Roth funds means that your taxable income is less since that portion is tax free.

Item #3:  It sounds as if you are under the impression that a TSP balance can be transferred to an IRA and then converted into a Roth IRA.  An IRA balance cannot just be "converted" to a Roth IRA. A portion of an IRA can be converted into a Roth while a person is still working but with certain limitations on the amount allowed each year. Whatever amount that is "converted" from an IRA into a Roth IRA,  increases your ordinary income and your tax liability that year because you have to pay taxes on an IRA when it is withdrawn.

There are a lot of rules and requirements for IRAs which are based in tax law passed by Congress and then enforced by the IRS. Those laws can be confusing. That is why CPA's and tax lawyers exist.  But the TSP helps you comply with those requirements at no extra cost to you.  Private companies and so-called "financial advisors" who earn commissions from investing your hard earned savings in what they recommend--are NOT your friend--and want you to believe that you are better off transferring your money out of the TSP and into an account with them. But doing so will cost you in commissions paid by your purchases or by investments in recommend that will have higher fees. 

On Saturday, July 24, 2021, 09:59, lindalyc via groups.io <lindalyc=aol.com@groups.io> wrote:

I attended it, not that helpful to me--they are for the best insterest of TSP board/company.

My concern is I want the flexibility of distributions not a forced RMD.

So even with Roth TSP, you're required to RMD. so in case I don't need it the RMD means I would lose the tax free captial gain shield.

Isn't it the best to transfer (after 59 1/2 year old) to outside/eventually convert into Roth IRA? 

well, I asked and they would confuse you with a lot "cautions".

-----Original Message-----
From: eljosco@mail.com
To: TSPStrategy@groups.io
Sent: Sat, Jul 24, 2021 2:44 am
Subject: Re: [TSPStrategy] 20% tax on withdrawals

That's interesting to know it happened that way.

An easy way to check out about TSP withdrawals is to attend one of their webinars on this topic. Besides their chat the live Q&As are always helpful. There's one specifically on post-service (retirement) withdrawals coming up this Wednesday at 10am. 

https://www.tsp.gov/online-learning/#tsp-post-service-withdrawals



On 7/23/21 at 7:45 PM, Karol Kusunose wrote:

From: "Karol Kusunose" <lochcarron@msn.com>
Date: July 23, 2021
To: "TSPStrategy@groups.io" <TSPStrategy@groups.io>
Cc:
Subject: Re: [TSPStrategy] 20% tax on withdrawals

This what HAPPENED.....  I requested 20% tax amount and filed it as an RMD.

 

They took out 10% BECAUSE I filed it as and RMD.  In previous years I requested a monthly amount and

they sent 20% as I requested to the IRS BECAUSE I DID NOT designate it as an RMD,

 

This was the verbal explainaton given to me when I called then for an explaination.

Re: [TSPStrategy] 20% tax on withdrawals

On Saturday, July 24, 2021, 12:20, lindalyc via groups.io <lindalyc=aol.com@groups.io> wrote:

Thank you, Mo:

I'm learning, so I do have questions:

Item#1:--------isn't Roth IRA (not Roth TSP) excludes from RMD by IRS?

ANSWER #1:  Yes, no RMDs are required to be taken from Roth IRAs, whereas, RMDs from your TSP includes the percentage ratio of Roth TSP amounts as mentioned.  I believe that this was because it was all Congress allowed when Roth IRAs were approved for the TSP system. I think this is going to be changed in the near future as part of several changes that Congress approved and that we will be able to designate if our withdrawals should be taken from Roth or non-Roth TSP balances and what better options are provided related to not having to include Roth funds as part of our RMD.

Item#2:--------so I take RMD from Roth TSP and since I don't need it I'd put it in regular brokerage where I'd be taxed on dividends earned or capital gain from sales, wouldn't it?==no more tax advantage (tax shield), right?  and what if I eventually have 100% TSP Roth before 72?

ANSWER #2:   Anytime you withdraw funds from any Roth IRA account,TSP Roth  or non-TSP Roth, and invest the withdrawal elsewhere, the earnings will be taxed. The earnings only accumulate tax free while part of a Roth account.  I may have misunderstood your earlier comment about this, as I thought you were referring to the earnings from funds remaining in your TSP Roth being taxed, which they are not. 

If you have 100% of your TSP balance in Roth then it might be beneficial to consider a transfer to a non-TSP Roth account depending upon what changes take effect next year regarding options with the TSP Roth. I think we will have the option not to have to withdraw any Roth balances. 

So I think a key part of your situation might be to consider what percentage of Roth funds constitute your total TSP balance? I had the same concern about my Roth funds in my TSP account but realized that, in my case, the Roth amount was such a small percentage of the total that it wasn't significant to worry about small withdrawals each year because the bulk of the Roth funds would still be there after many years of TSP RMD withdrawals and the Roth funds outside of the TSP is what were significant. If I had larger Roth balance inmy TSP, it might have been a different outcome. Again, what changes take affect will be key for future decisions.

Item#3---------"A portion of an IRA can be converted into a Roth while a person is still working but with certain limitations on the amount allowed each year.'  I didn't know that except I do know tax liablity from conversion. 1. Which portion of an IRA can NOT be converted into a Roth, please?   2. I only know in-service withdraw/rollover allowed 4 times per year and minmum of $1000 per occurance, but don't know the limitations on amount. would you point out the maxi. amount?

ANSWER:   I had to do further research on this question  because it has been some time since I had any personal interest in this area and some changes have been made since that time. Although there are some limitations on the amount of new money annual contributions that can be made each year while working, (less so for TSP participants) there is no restriction on the amount that can be converted from an existing IRA into a Roth IRA. There is a limitation on withdrawing those funds without penalty. If you withdraw them before being on deposit five years there is a 10% penalty.  Of course, as mentioned, whatever amount you convert from an IRA into a Roth is included in that year's taxable earnings. 

However, your question in this instance makes it sound like you are still working. If you are 72 but still working, you don't have to be concerned with RMDs from your TSP, as you can wait until you retire before any minimum distributions are required from your TSP account, but which is not  true with IRAs I believe.

Hope this helps. You might want to look at the TSP website which has a wealth of informational booklets and documents that all participants should read and re-read to become familiar with the TSP and retirement. It is better acquiring knowledge to answer your questions than to depend upon strangers. There are many, many, comments that I see posted here that are factually incorrect even though those posting give the impression of insisting what they say is accurate. I could be one of those people. Better for you to study and research on your own so that you can sort out fact from fiction. 😄🖖

p.s. I don't use any financial advisors. I'm DIY kind using major self-directed brokerages.

Thanks again.

-----Original Message-----
From: Mo in Seattle (Mo4iu@yahoo.com) via groups.io <Mo4iu=yahoo.com@groups.io>
To: TSPStrategy@groups.io; eljosco@mail.com <eljosco@mail.com>
Sent: Sat, Jul 24, 2021 2:37 pm
Subject: Re: [TSPStrategy] 20% tax on withdrawals

Lindalyc--

Item#1:  Tax law and the IRS requires a "forced" RMD not the TSP. An RMD is required by the IRS when a person reaches 72 (it used to be 701/2 but was recently changed. The TSP is your friend when it comes to ensuring that you comply with taking the appropriate amount because  failure to withdraw what the IRS requires would result in an IRS penalty of 50% of the amount that you failed to withdraw. At the end of the year, if you haven't withdrawn enough to comply with the law, the TSP will send you the remaining amount so that you are not penalized by the IRS.  It makes no difference whether or not you need the RMD--it is required based on your age. Prior to age 72, no withdrawals are required.  

Item#2:  The amount in your Roth TSP is still tax free when included as part of your RMD, so no, you do not lose your "tax free capital gain shield" as you state.  Withdrawals from the TSP do require that an amount of your Roth funds be included in the RMD in the percent that they exist in your total account balance, e.g. if your Roth comprises 2% of your total TSP account then your 2% of your annual RMD will be from your Roth balance. So transferring the Roth portion of your TSP to an outside Roth IRA, if allowed, could  be beneficial to eliminate the inclusion of a portion of the your Roth TSP in with your RMD. However, it may not be worth the trouble, if it is a just a small percentage anyway, because having a small part of your RMD comprised of Roth funds means that your taxable income is less since that portion is tax free.

Item #3:  It sounds as if you are under the impression that a TSP balance can be transferred to an IRA and then converted into a Roth IRA.  An IRA balance cannot just be "converted" to a Roth IRA. A portion of an IRA can be converted into a Roth while a person is still working but with certain limitations on the amount allowed each year. Whatever amount that is "converted" from an IRA into a Roth IRA,  increases your ordinary income and your tax liability that year because you have to pay taxes on an IRA when it is withdrawn.

There are a lot of rules and requirements for IRAs which are based in tax law passed by Congress and then enforced by the IRS. Those laws can be confusing. That is why CPA's and tax lawyers exist.  But the TSP helps you comply with those requirements at no extra cost to you.  Private companies and so-called "financial advisors" who earn commissions from investing your hard earned savings in what they recommend--are NOT your friend--and want you to believe that you are better off transferring your money out of the TSP and into an account with them. But doing so will cost you in commissions paid by your purchases or by investments in recommend that will have higher fees. 

On Saturday, July 24, 2021, 09:59, lindalyc via groups.io <lindalyc=aol.com@groups.io> wrote:

I attended it, not that helpful to me--they are for the best insterest of TSP board/company.

My concern is I want the flexibility of distributions not a forced RMD.

So even with Roth TSP, you're required to RMD. so in case I don't need it the RMD means I would lose the tax free captial gain shield.

Isn't it the best to transfer (after 59 1/2 year old) to outside/eventually convert into Roth IRA? 

well, I asked and they would confuse you with a lot "cautions".

-----Original Message-----
From: eljosco@mail.com
To: TSPStrategy@groups.io
Sent: Sat, Jul 24, 2021 2:44 am
Subject: Re: [TSPStrategy] 20% tax on withdrawals

That's interesting to know it happened that way.

An easy way to check out about TSP withdrawals is to attend one of their webinars on this topic. Besides their chat the live Q&As are always helpful. There's one specifically on post-service (retirement) withdrawals coming up this Wednesday at 10am. 

https://www.tsp.gov/online-learning/#tsp-post-service-withdrawals



On 7/23/21 at 7:45 PM, Karol Kusunose wrote:

From: "Karol Kusunose" <lochcarron@msn.com>
Date: July 23, 2021
To: "TSPStrategy@groups.io" <TSPStrategy@groups.io>
Cc:
Subject: Re: [TSPStrategy] 20% tax on withdrawals

This what HAPPENED.....  I requested 20% tax amount and filed it as an RMD.

 

They took out 10% BECAUSE I filed it as and RMD.  In previous years I requested a monthly amount and

they sent 20% as I requested to the IRS BECAUSE I DID NOT designate it as an RMD,

 

This was the verbal explainaton given to me when I called then for an explaination.

Re: [TSPStrategy] 20% tax on withdrawals

Mo's comment here is the most completely accurate and comprehensive on this topic posted so far. Agree that TSP has been my friend on these matters. RMD is forced by IRS. TSP only helps us out with compliance so we don't get screwed with IRS 50% penalty. There is NO way to shelter income by going to ROTH, as all ROTH deposits must have been taxed before hand.

_._,_._,_

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Re: [TSPStrategy] 20% tax on withdrawals

Thank you, Mo:

I'm learning, so I do have questions:

Item#1:--------isn't Roth IRA (not Roth TSP) excludes from RMD by IRS?

Item#2:--------so I take RMD from Roth TSP and since I don't need it I'd put it in regular brokerage where I'd be taxed on dividends earned or capital gain from sales, wouldn't it?==no more tax advantage (tax shield), right?  and what if I eventually have 100% TSP Roth before 72?

Item#3---------"A portion of an IRA can be converted into a Roth while a person is still working but with certain limitations on the amount allowed each year.'  I didn't know that except I do know tax liablity from conversion. 1. Which portion of an IRA can NOT be converted into a Roth, please?   2. I only know in-service withdraw/rollover allowed 4 times per year and minmum of $1000 per occurance, but don't know the limitations on amount. would you point out the maxi. amount?

p.s. I don't use any financial advisors. I'm DIY kind using major self-directed brokerages.

Thanks again.

-----Original Message-----
From: Mo in Seattle (Mo4iu@yahoo.com) via groups.io <Mo4iu=yahoo.com@groups.io>
To: TSPStrategy@groups.io; eljosco@mail.com <eljosco@mail.com>
Sent: Sat, Jul 24, 2021 2:37 pm
Subject: Re: [TSPStrategy] 20% tax on withdrawals

Lindalyc--

Item#1:  Tax law and the IRS requires a "forced" RMD not the TSP. An RMD is required by the IRS when a person reaches 72 (it used to be 701/2 but was recently changed. The TSP is your friend when it comes to ensuring that you comply with taking the appropriate amount because  failure to withdraw what the IRS requires would result in an IRS penalty of 50% of the amount that you failed to withdraw. At the end of the year, if you haven't withdrawn enough to comply with the law, the TSP will send you the remaining amount so that you are not penalized by the IRS.  It makes no difference whether or not you need the RMD--it is required based on your age. Prior to age 72, no withdrawals are required.  

Item#2:  The amount in your Roth TSP is still tax free when included as part of your RMD, so no, you do not lose your "tax free capital gain shield" as you state.  Withdrawals from the TSP do require that an amount of your Roth funds be included in the RMD in the percent that they exist in your total account balance, e.g. if your Roth comprises 2% of your total TSP account then your 2% of your annual RMD will be from your Roth balance. So transferring the Roth portion of your TSP to an outside Roth IRA, if allowed, could  be beneficial to eliminate the inclusion of a portion of the your Roth TSP in with your RMD. However, it may not be worth the trouble, if it is a just a small percentage anyway, because having a small part of your RMD comprised of Roth funds means that your taxable income is less since that portion is tax free.

Item #3:  It sounds as if you are under the impression that a TSP balance can be transferred to an IRA and then converted into a Roth IRA.  An IRA balance cannot just be "converted" to a Roth IRA. A portion of an IRA can be converted into a Roth while a person is still working but with certain limitations on the amount allowed each year. Whatever amount that is "converted" from an IRA into a Roth IRA,  increases your ordinary income and your tax liability that year because you have to pay taxes on an IRA when it is withdrawn.

There are a lot of rules and requirements for IRAs which are based in tax law passed by Congress and then enforced by the IRS. Those laws can be confusing. That is why CPA's and tax lawyers exist.  But the TSP helps you comply with those requirements at no extra cost to you.  Private companies and so-called "financial advisors" who earn commissions from investing your hard earned savings in what they recommend--are NOT your friend--and want you to believe that you are better off transferring your money out of the TSP and into an account with them. But doing so will cost you in commissions paid by your purchases or by investments in recommend that will have higher fees. 

On Saturday, July 24, 2021, 09:59, lindalyc via groups.io <lindalyc=aol.com@groups.io> wrote:

I attended it, not that helpful to me--they are for the best insterest of TSP board/company.

My concern is I want the flexibility of distributions not a forced RMD.

So even with Roth TSP, you're required to RMD. so in case I don't need it the RMD means I would lose the tax free captial gain shield.

Isn't it the best to transfer (after 59 1/2 year old) to outside/eventually convert into Roth IRA? 

well, I asked and they would confuse you with a lot "cautions".

-----Original Message-----
From: eljosco@mail.com
To: TSPStrategy@groups.io
Sent: Sat, Jul 24, 2021 2:44 am
Subject: Re: [TSPStrategy] 20% tax on withdrawals

That's interesting to know it happened that way.

An easy way to check out about TSP withdrawals is to attend one of their webinars on this topic. Besides their chat the live Q&As are always helpful. There's one specifically on post-service (retirement) withdrawals coming up this Wednesday at 10am. 

https://www.tsp.gov/online-learning/#tsp-post-service-withdrawals



On 7/23/21 at 7:45 PM, Karol Kusunose wrote:

From: "Karol Kusunose" <lochcarron@msn.com>
Date: July 23, 2021
To: "TSPStrategy@groups.io" <TSPStrategy@groups.io>
Cc:
Subject: Re: [TSPStrategy] 20% tax on withdrawals

This what HAPPENED.....  I requested 20% tax amount and filed it as an RMD.

 

They took out 10% BECAUSE I filed it as and RMD.  In previous years I requested a monthly amount and

they sent 20% as I requested to the IRS BECAUSE I DID NOT designate it as an RMD,

 

This was the verbal explainaton given to me when I called then for an explaination.

_._,_._,_

---

Groups.io Links:

You receive all messages sent to this group.

View/Reply Online (#2657) | Reply To Group | Reply To Sender | Mute This Topic | New Topic
Your Subscription | Contact Group Owner | Unsubscribe [prefander.leadersworkshop@blogger.com]

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