Author Topic: Any FERS + TSP FIRE folks out there?  (Read 27914 times)

frugalecon

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Re: Any FERS + TSP FIRE folks out there?
« Reply #150 on: December 11, 2017, 11:25:40 AM »
I have 13 years in as a FERS LEO. I am 36. At 43, I'll have 20 years but cannot access my pension until age 50, limited in my TSP options (72t, annuity, or wait until 59 1/2). At age 48, I'll have 25 years and get my pension right away but still limited in TSP options as at age 43. Backdoor ROTH conversion, IMO, won't work out well because my tax bracket will be too high. Does anyone know if the ROTH TSP can help get around that issue?

At age 50, I get my pension and TSP penalty free. Yes its 14 more years, yes it sucks, and yes I am looking for other options....buuuuuut...until then I'm here because the benefits are too good as the sole income earner and it looks like ACA will change not making it wise to depart FEHB.

I hope someone smarter than me can come up with a better method to get out.

Why won't a Roth ladder work?  You shouldn't be in a high tax bracket once you quit, unless you're spending a buttload of money.

As a Fed LEO with 20+ years of service, it's almost a guarantee that he'll have too much income from his pension (and SRS) to make a Roth conversion ladder work. I'm in the same boat.

bhleigh, the Roth TSP is of very limited use unless you're 100% in it. That's because TSP withdrawals will come out of BOTH your traditional TSP and Roth TSP (regardless of your desire otherwise) in proportion to your investment in each. For example, if you have 60% of your account in traditional TSP and 40% in Roth TSP, if you withdraw $1,000, $600 will come from your traditional TSP account, and $400 will come from your Roth TSP account.

What you CAN do right now is fund a Roth IRA each year (hopefully up to the max), and if your income is too high, then fund one through a backdoor conversion each year (that is, you open a traditional IRA, then convert it a day/week/month later.  There's lots of info out there on how to do this, and it's perfectly legal. I had to do this last year when I exceeded the income threshold.  Be aware of the pro rata rule, however -- if you have ANY other IRAs, or rollover IRAs, the backdoor conversion can screw you.  Read up on it.

While it is true that TSP withdrawals come out of both Roth and Traditional, I believe that one way around this is to do a rollover upon retirement, to get just the Roth portion out. I am not sure if it is a one-step or two-step process (i.e., just roll out Roth, or roll out substantially everything and then roll the Traditional back in), but I think it can be done.

coffeefueled

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Re: Any FERS + TSP FIRE folks out there?
« Reply #151 on: December 11, 2017, 02:01:13 PM »
Posting to follow.

Dragonswan

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Re: Any FERS + TSP FIRE folks out there?
« Reply #152 on: December 11, 2017, 02:11:24 PM »
Correct.  Upon separation from service at any age you can roll the Roth portion of your TSP to a Roth IRA.  I am unsure of the 5 year aging rule for rolledover money so you'll have to research that.  You could contribute to a Roth IRA as suggested above and if there is an aging requirement, at least the money you put in now will have aged by the time you need it.

Ricksun

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Re: Any FERS + TSP FIRE folks out there?
« Reply #153 on: December 12, 2017, 02:45:43 PM »
Correct.  Upon separation from service at any age you can roll the Roth portion of your TSP to a Roth IRA.  I am unsure of the 5 year aging rule for rolledover money so you'll have to research that.  You could contribute to a Roth IRA as suggested above and if there is an aging requirement, at least the money you put in now will have aged by the time you need it.

I may be wrong here, or the TSP modernization law may have changed this, but I don't think one can just roll over their ROTH portion of the their TSP.  I understood that any withdrawal must be proportionate to the account balance.  So you'd have to roll over the entire TSP balance to a Traditional and Roth IRA respectively.

frugalecon

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Re: Any FERS + TSP FIRE folks out there?
« Reply #154 on: December 14, 2017, 06:42:49 AM »
Correct.  Upon separation from service at any age you can roll the Roth portion of your TSP to a Roth IRA.  I am unsure of the 5 year aging rule for rolledover money so you'll have to research that.  You could contribute to a Roth IRA as suggested above and if there is an aging requirement, at least the money you put in now will have aged by the time you need it.

I may be wrong here, or the TSP modernization law may have changed this, but I don't think one can just roll over their ROTH portion of the their TSP.  I understood that any withdrawal must be proportionate to the account balance.  So you'd have to roll over the entire TSP balance to a Traditional and Roth IRA respectively.

I seem to recall that this is true, but I think that the way around this is to roll almost all of it out, leaving a token amount in, and then reroll the Traditional portion back in. I will be looking into this as I decide whether to shift my contributions to Roth, but that is at least my recollection.

DebtFreeinPhilly

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Re: Any FERS + TSP FIRE folks out there?
« Reply #155 on: December 14, 2017, 09:49:43 AM »
Why won't a Roth ladder work?  You shouldn't be in a high tax bracket once you quit, unless you're spending a buttload of money.


As a Fed LEO with 20+ years of service, it's almost a guarantee that he'll have too much income from his pension (and SRS) to make a Roth conversion ladder work.

This is why a Roth conversion ladder won't work. In today's dollars, I would receive a $47k pension + $12k SRS ($59k total). As far as I know, there is no way to not receive this money. As a LEO I don't have the option to defer acceptance. I'm still new to the Roth Conversion Ladder concept so correct me if I'm wrong, but converting anything more than $20k would put me into the same tax bracket I am now (25%).
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DebtFreeinPhilly

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Re: Any FERS + TSP FIRE folks out there?
« Reply #156 on: December 14, 2017, 09:53:04 AM »
Correct.  Upon separation from service at any age you can roll the Roth portion of your TSP to a Roth IRA.  I am unsure of the 5 year aging rule for rolledover money so you'll have to research that.  You could contribute to a Roth IRA as suggested above and if there is an aging requirement, at least the money you put in now will have aged by the time you need it.

I may be wrong here, or the TSP modernization law may have changed this, but I don't think one can just roll over their ROTH portion of the their TSP.  I understood that any withdrawal must be proportionate to the account balance.  So you'd have to roll over the entire TSP balance to a Traditional and Roth IRA respectively.

I seem to recall that this is true, but I think that the way around this is to roll almost all of it out, leaving a token amount in, and then reroll the Traditional portion back in. I will be looking into this as I decide whether to shift my contributions to Roth, but that is at least my recollection.

Yes, you can take all of your money out of the TSP (Roth and Trad) and roll it into a private sector account. The private sector accounts would separate out the Roth and Trad amounts into the proper Roth IRA and Trad IRA for you. Then, as long as you left some money in your TSP ($2k or so), you can roll the Trad IRA back into the TSP.
There are no problems. Only solutions we haven't found yet.

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DebtFreeinPhilly

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Re: Any FERS + TSP FIRE folks out there?
« Reply #157 on: December 14, 2017, 09:55:55 AM »
Correct.  Upon separation from service at any age you can roll the Roth portion of your TSP to a Roth IRA.  I am unsure of the 5 year aging rule for rolledover money so you'll have to research that.  You could contribute to a Roth IRA as suggested above and if there is an aging requirement, at least the money you put in now will have aged by the time you need it.

As I understand it, rollover Roth IRAs don't reset the clock on the 5 year aging rule on existing Roth IRAs. I found an article by Mike Kitces that explained it really well.
There are no problems. Only solutions we haven't found yet.

My Journal: B-Leigh's Mid-Life Crisis Avoidance

Fomerly known as something

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Re: Any FERS + TSP FIRE folks out there?
« Reply #158 on: December 19, 2017, 08:22:54 AM »
I have 13 years in as a FERS LEO. I am 36. At 43, I'll have 20 years but cannot access my pension until age 50, limited in my TSP options (72t, annuity, or wait until 59 1/2). At age 48, I'll have 25 years and get my pension right away but still limited in TSP options as at age 43. Backdoor ROTH conversion, IMO, won't work out well because my tax bracket will be too high. Does anyone know if the ROTH TSP can help get around that issue?

At age 50, I get my pension and TSP penalty free. Yes its 14 more years, yes it sucks, and yes I am looking for other options....buuuuuut...until then I'm here because the benefits are too good as the sole income earner and it looks like ACA will change not making it wise to depart FEHB.

I hope someone smarter than me can come up with a better method to get out.

Fellow LEO.  I'm 4 years ahead of you.

Check out the FERS guide from Dan Jamison.  https://fersguide.com/

He's a former FBI SA and for $15 for the year he does a guide for LEOs at the GS 13 journeyman level and another aimed at the GS 9 journeyman.

On Roth his opinion is no unless you are going to roll thing out of TSP.

Fomerly known as something

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Re: Any FERS + TSP FIRE folks out there?
« Reply #159 on: December 19, 2017, 09:23:00 AM »
Just got this update from previously referenced Dan Jamison.

"There was a BIG surprise in the TSP's most-recent Fact Sheet publication!  On 12/14/2017, the TSP released a publication (TSP Fact Sheet 10) answering questions about the TSP Modernization Act of 2017. Near the beginning of the document, which you can view here, the TSP states that in addition to the changes required by the Act, "we're also adding the ability to specify how much of your withdrawal should be Roth and how much should be Traditional; withdrawals currently come out pro rata from both sources." 

Dragonswan

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Re: Any FERS + TSP FIRE folks out there?
« Reply #160 on: December 20, 2017, 07:26:31 AM »
This is great news!  But to answer the other question about rolling over just your Roth, yes you can do that under current rules.  You don't have to do any tricky manipulations.  When you separate you specify you would like to rollover your Roth balance to your Roth IRA.  You can do this because it's a direct rollover or transfer and is not considered a withdrawal for purposes of the one withdrawal rule.  Just make sure you have the money transferred directly from TSP to Roth IRA (do not take the money yourself then deposit into the Roth IRA, that counts as a withdrawal or indirect rollover).

DebtFreeinPhilly

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Re: Any FERS + TSP FIRE folks out there?
« Reply #161 on: December 20, 2017, 09:04:07 AM »
Check out the FERS guide from Dan Jamison.  https://fersguide.com/


I already subscribe to the FERSGUIDE. Its a huge wealth of knowledge in there. I also saw the most recent update as well. It seems like it will remove the need for the Roth conversion ladder if we can withdraw amounts from specific accounts.

Now the question is this: I have $300k in my TSP ($275k in Traditional & $25k in Roth) and I currently max out the Traditional ($18k). With 14 years left, do I start contributing to the Roth instead of the Traditional? The idea being that I use my traditional when I retire at age 50 and then switch to Roth at 59.5.

The theory is that the Traditional TSP would reach $700k in the next 14 years ($275k at 7%) and the Roth TSP would reach $913k in the next 23 years. Does this sound good?   
There are no problems. Only solutions we haven't found yet.

My Journal: B-Leigh's Mid-Life Crisis Avoidance

dude

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Re: Any FERS + TSP FIRE folks out there?
« Reply #162 on: December 20, 2017, 01:11:02 PM »
Couple thoughts -- how big will the tax hit be if you are no longer contributing pre-tax dollars?  The MadFientist has shown that the Traditional is generally the better way to go. Also, rather than tap the Roth at 59.5, I'd want to hang onto it until 70.5, when RMDs on your traditional might push you into a higher tax bracket. Might be better to draw down your traditional account before age 70.5, then use the Roth to manage your tax situation. Also, Roth a much better deal for passing on to heirs than traditional.

Dragonswan

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Re: Any FERS + TSP FIRE folks out there?
« Reply #163 on: December 21, 2017, 06:53:02 AM »
Or you could think of it as when will you need the tax break most during your career.  At the earlier stages of your career you make less money and are typically in the lowest tax bracket you'll ever be in ('cause your pension will be hefty) so you might want to do Roth early on then as your salary increases and you need the tax break more, you could switch to Traditional.  The new higher standard deduction also comes into play if you won't be itemizing anymore or never itemized. With double the standard deduction you could hedge your bet and put $6000 into Roth and the rest traditional and break even with current year taxes while still setting up some future tax free income.  Lots of options.  You really can't go wrong just so long as you do continue to contribute to the TSP.

DebtFreeinPhilly

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Re: Any FERS + TSP FIRE folks out there?
« Reply #164 on: December 21, 2017, 07:05:41 AM »
Soooo many options....sooo confusing!! Who designed this anyway?! LOL!

Thanks for the help. I will have to find a tax professional that knows the Federal system to figure out the best route. My initial feeling is that Traditional will be the way to go for now since my salary is $125k +/-.
There are no problems. Only solutions we haven't found yet.

My Journal: B-Leigh's Mid-Life Crisis Avoidance

dude

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Re: Any FERS + TSP FIRE folks out there?
« Reply #165 on: December 21, 2017, 12:36:09 PM »
Soooo many options....sooo confusing!! Who designed this anyway?! LOL!

Thanks for the help. I will have to find a tax professional that knows the Federal system to figure out the best route. My initial feeling is that Traditional will be the way to go for now since my salary is $125k +/-.

Consider fully funding a Roth IRA too if you're below the income phaseout limits, or a backdoor if you're over.

Cycling Stache

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Re: Any FERS + TSP FIRE folks out there?
« Reply #166 on: December 22, 2017, 07:27:40 AM »
Our office just told us to adjust our TSP withholding for 2018 because there will be 27 pay periods in calendar year 2018.  Anyone else receive that advice?

Came up when I bumped up my withholding to $18,500 to new max.

sol

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Re: Any FERS + TSP FIRE folks out there?
« Reply #167 on: December 22, 2017, 08:25:49 AM »
Our office just told us to adjust our TSP withholding for 2018 because there will be 27 pay periods in calendar year 2018.  Anyone else receive that advice?

Came up when I bumped up my withholding to $18,500 to new max.


Yes, we will also have 27 and they will each be 1/26 smaller than average.  I think it depends on what day of the week your agency does payroll, because some still have 26 next year.

dude

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Re: Any FERS + TSP FIRE folks out there?
« Reply #168 on: December 22, 2017, 12:46:14 PM »
Yep, for NFC, it's 27 because the official pay date for PP25 2018 falls on the Monday EFT payday of Dec. 31. Very confusing because my E&L statement always lists the Thursday after the payroll processing weekend as the official pay date.

For GSA and some other payroll providers, there's 26.

frugalecon

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Re: Any FERS + TSP FIRE folks out there?
« Reply #169 on: December 29, 2017, 01:21:57 PM »
Our office just told us to adjust our TSP withholding for 2018 because there will be 27 pay periods in calendar year 2018.  Anyone else receive that advice?

Came up when I bumped up my withholding to $18,500 to new max.


Yes, we will also have 27 and they will each be 1/26 smaller than average.  I think it depends on what day of the week your agency does payroll, because some still have 26 next year.

Sol,

I believe that you are incorrect that your paychecks will be 1/26 smaller than average. I believe that they will be exactly the same as before. In years with 26 paychecks, your actual wages are slightly less than what is listed in the GS table, because of the extra work day. You basically get that back every 9 or 10 years. Thus, in a year with 27 paychecks, you will earn more than is listed for your grade and step in the GS table. Plus you will get an extra day of leave! (or however many hours you earn per pay period)

I hope that this information improves your holiday weekend.

Regards,
FE

sol

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Re: Any FERS + TSP FIRE folks out there?
« Reply #170 on: December 29, 2017, 01:29:47 PM »
Thanks for the optimistic update.

Unfortunately, I'm far enough along my FI journey that it won't matter.

frugalecon

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Re: Any FERS + TSP FIRE folks out there?
« Reply #171 on: December 29, 2017, 01:59:24 PM »
Thanks for the optimistic update.

Unfortunately, I'm far enough along my FI journey that it won't matter.

Unfortunately!?!