Author Topic: Govt Employee: Do FERS Basic Benefit Withholdings Affect TSP Contrib Limits?  (Read 1408 times)

EscapedApe

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As a federal employee, the gov't withholds a certain amount of my paycheck automatically and puts it into a FERS account for my basic benefits plan.

But does this automatic withholding get deducted from the amount I am permitted to contribute to my TSP? The TSP is like a 401(k), for those who don't know.

Can any govt employees or knowledgable FIRErs weigh in?

Michael in ABQ

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As a federal employee, the gov't withholds a certain amount of my paycheck automatically and puts it into a FERS account for my basic benefits plan.

But does this automatic withholding get deducted from the amount I am permitted to contribute to my TSP? The TSP is like a 401(k), for those who don't know.

Can any govt employees or knowledgable FIRErs weigh in?

I don't have anything specific to cite but I am 99% sure that it has no effect. FERS is a pension plan that is involuntary, TSP is a voluntary plan that has limits imposed by statute.

insufFIcientfunds

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They are separate. You can put the IRS max in the TSP and your FERS contribution does not lower it.

EscapedApe

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They are separate. You can put the IRS max in the TSP and your FERS contribution does not lower it.

Good to know. Thanks!

EscapedApe

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It also looks like the TSP cuts off any contributions made after the $19,000 annual limit. That means a Mega Backdoor Roth strategy is not available via the TSP.

So in order to maximize my tax-advantaged accounts, I need to determine the maximum contribution I can make per pay period without killing agency matching contributions before the end of the year. And I need to factor in my plans to make use of an HSA.

Thanks for your input everyone.

charis

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It also looks like the TSP cuts off any contributions made after the $19,000 annual limit. That means a Mega Backdoor Roth strategy is not available via the TSP.

So in order to maximize my tax-advantaged accounts, I need to determine the maximum contribution I can make per pay period without killing agency matching contributions before the end of the year. And I need to factor in my plans to make use of an HSA.

Thanks for your input everyone.

Just divide the yearly max (19,500) by the number of pay periods for the year (usually 26 if biweekly).  Are you trying to front load contributions in some way?  That seems more complicated in light of the match, but you can change your contribution at any time throughout the year.  HSA is unrelated to your TSP contributions and the calculation is similar but pass-through contributions count toward the max (max contribution [minus any pass-through contribution] / # of pay periods).

EscapedApe

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Just divide the yearly max (19,500) by the number of pay periods for the year (usually 26 if biweekly).

Is the yearly max $19,500? I thought it was $19,000.

Are you trying to front load contributions in some way?  That seems more complicated in light of the match, but you can change your contribution at any time throughout the year. 

I'm not trying to front-load contributions. Just trying to spread my contributions evenly over the entire year so that my month-to-month finances are easier to manage. I think I have it properly calculated so that after 26 contributions, I'm right at the 19,000 limit so I do not lose the employer matching.

HSA is unrelated to your TSP contributions and the calculation is similar but pass-through contributions count toward the max (max contribution [minus any pass-through contribution] / # of pay periods).

Yes, I read that in the literature of one of the FEHB providers. Since open-season is coming up, I'll be switching to a plan that has an HSA program and begin contributing to it ASAP.

It's just too bad that there's no way to fund a Mega Backdoor Roth via TSP, since contributions are halted once the maximum is reached.

The next calculation I'm trying to figure out is, if I leave federal service after five-years, should I leave my FERS funds alone and collect the basic benefits when I reach 62, or should I withdraw the funds after leaving federal service and put that lump sum into a different account (perhaps an IRA).

Do you know if the government makes contributions to the FERS basic benefits fund? Or is it only funded by what is withheld from my check by payroll?

charis

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TSP/401K contributions are 19,000 in 2019 but predicted to be 19500 in 2020. I don't know if the IRS has issued numbers yet.  Your employer contributions to the pension can be seen on your paycheck.  I don't believe you can withdraw those after vesting -  I think the choice is getting refund of your contributions or taking the benefit at 62.

EscapedApe

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Your employer contributions to the pension can be seen on your paycheck.  I don't believe you can withdraw those after vesting -  I think the choice is getting refund of your contributions or taking the benefit at 62.

Your are correct. You can fill out a form upon leaving government service to have those contributions refunded to you, or you can leave them in there, assuming you've done at least five years of government service.

Frankly, it seems like a waste for people who have alternate retirement plans. That money could be collecting interest in an HSA or the TSP.

aboatguy

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As a GS I can confirm/reiterate that :
FERS deductions do not impact your TSP contributions at all and Standard Form (SF) 3106 is the application for refund of retirement deductions. 











Fomerly known as something

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Also keep an eye on HR related e-mail messages.  My agency will sometime soon tell me how much is the maximum amount per paycheck without front loading and which pay period to make the change effective for the expected change in 2020 to $19,500.

DeniseNJ

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You can only take your own contribution.  From OPM:
If you leave your Government job before becoming eligible for retirement:

you can ask that your retirement contributions be returned to you in a lump sum payment, or
if you have at least five years of creditable service, you can wait until you are at retirement age to apply for monthly retirement benefit payments. This is called a deferred retirement. View the deferred retirement web page.
Historically, if you receive a refund of FERS deductions after the effective date of your FERS coverage, you could never redeposit these funds, and the period covered by the refund would not be used to establish title to an annuity or in calculating the annuity benefit.

However, one of the provisions of PL 111-84 allows individuals who were covered under the FERS system on or after October 28, 2009, to make a redeposit for refunded FERS service.  If the redeposit is not paid, the service is still used toward title and in the average salary computation, but not to compute the annuity benefit.

insufFIcientfunds

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You can only take your own contribution.  From OPM:
If you leave your Government job before becoming eligible for retirement:

you can ask that your retirement contributions be returned to you in a lump sum payment, or
if you have at least five years of creditable service, you can wait until you are at retirement age to apply for monthly retirement benefit payments. This is called a deferred retirement. View the deferred retirement web page.
Historically, if you receive a refund of FERS deductions after the effective date of your FERS coverage, you could never redeposit these funds, and the period covered by the refund would not be used to establish title to an annuity or in calculating the annuity benefit.


Denise - I read that too earlier today. I was hired in Sept 2009 lol. How would one calculate what their return of contributions would be? Maybe there is no easy formula.

However, one of the provisions of PL 111-84 allows individuals who were covered under the FERS system on or after October 28, 2009, to make a redeposit for refunded FERS service.  If the redeposit is not paid, the service is still used toward title and in the average salary computation, but not to compute the annuity benefit.

EscapedApe

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You can only take your own contribution.  From OPM:
If you leave your Government job before becoming eligible for retirement:

you can ask that your retirement contributions be returned to you in a lump sum payment, or
if you have at least five years of creditable service, you can wait until you are at retirement age to apply for monthly retirement benefit payments. This is called a deferred retirement. View the deferred retirement web page.
Historically, if you receive a refund of FERS deductions after the effective date of your FERS coverage, you could never redeposit these funds, and the period covered by the refund would not be used to establish title to an annuity or in calculating the annuity benefit.

However, one of the provisions of PL 111-84 allows individuals who were covered under the FERS system on or after October 28, 2009, to make a redeposit for refunded FERS service.  If the redeposit is not paid, the service is still used toward title and in the average salary computation, but not to compute the annuity benefit.

See, that's one of the things that confused me.

From what I've read so far, FERS basic benefit calculation is based on years of service and high-3 average. Where does the withheld amount factor into the annuity calculation?

Fomerly known as something

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You can only take your own contribution.  From OPM:
If you leave your Government job before becoming eligible for retirement:

you can ask that your retirement contributions be returned to you in a lump sum payment, or
if you have at least five years of creditable service, you can wait until you are at retirement age to apply for monthly retirement benefit payments. This is called a deferred retirement. View the deferred retirement web page.
Historically, if you receive a refund of FERS deductions after the effective date of your FERS coverage, you could never redeposit these funds, and the period covered by the refund would not be used to establish title to an annuity or in calculating the annuity benefit.

However, one of the provisions of PL 111-84 allows individuals who were covered under the FERS system on or after October 28, 2009, to make a redeposit for refunded FERS service.  If the redeposit is not paid, the service is still used toward title and in the average salary computation, but not to compute the annuity benefit.

See, that's one of the things that confused me.

From what I've read so far, FERS basic benefit calculation is based on years of service and high-3 average. Where does the withheld amount factor into the annuity calculation?

I doesn't

EscapedApe

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You can only take your own contribution.  From OPM:
If you leave your Government job before becoming eligible for retirement:

you can ask that your retirement contributions be returned to you in a lump sum payment, or
if you have at least five years of creditable service, you can wait until you are at retirement age to apply for monthly retirement benefit payments. This is called a deferred retirement. View the deferred retirement web page.
Historically, if you receive a refund of FERS deductions after the effective date of your FERS coverage, you could never redeposit these funds, and the period covered by the refund would not be used to establish title to an annuity or in calculating the annuity benefit.

However, one of the provisions of PL 111-84 allows individuals who were covered under the FERS system on or after October 28, 2009, to make a redeposit for refunded FERS service.  If the redeposit is not paid, the service is still used toward title and in the average salary computation, but not to compute the annuity benefit.

See, that's one of the things that confused me.

From what I've read so far, FERS basic benefit calculation is based on years of service and high-3 average. Where does the withheld amount factor into the annuity calculation?

I doesn't

Then knowing how much you've contributed is only good for running calculations to see whether you should withdraw the money and reinvest it after federal service, or leave it in there and collect pension annuities at 62.

I wish you could opt out of the withholding. Given that I plan on FIREing, I would probably never end up working with the gov't long enough for the pension option to be worth it. But all that money is still sitting in an inert account gaining no interest.

Michael in ABQ

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You can only take your own contribution.  From OPM:
If you leave your Government job before becoming eligible for retirement:

you can ask that your retirement contributions be returned to you in a lump sum payment, or
if you have at least five years of creditable service, you can wait until you are at retirement age to apply for monthly retirement benefit payments. This is called a deferred retirement. View the deferred retirement web page.
Historically, if you receive a refund of FERS deductions after the effective date of your FERS coverage, you could never redeposit these funds, and the period covered by the refund would not be used to establish title to an annuity or in calculating the annuity benefit.

However, one of the provisions of PL 111-84 allows individuals who were covered under the FERS system on or after October 28, 2009, to make a redeposit for refunded FERS service.  If the redeposit is not paid, the service is still used toward title and in the average salary computation, but not to compute the annuity benefit.

See, that's one of the things that confused me.

From what I've read so far, FERS basic benefit calculation is based on years of service and high-3 average. Where does the withheld amount factor into the annuity calculation?

I doesn't

Then knowing how much you've contributed is only good for running calculations to see whether you should withdraw the money and reinvest it after federal service, or leave it in there and collect pension annuities at 62.

I wish you could opt out of the withholding. Given that I plan on FIREing, I would probably never end up working with the gov't long enough for the pension option to be worth it. But all that money is still sitting in an inert account gaining no interest.

Yep. I'm in the same boat. 4.4% involuntarily withheld from every paycheck for a so-so pension.

With my military service I could buy back time and be eligible for the pension in about two years. By the time I hit 5 years of service (minimum for a pension) I'll probably have about $8k in FERS. That would translate to about $4k a year when I hit 62. I'll run the numbers whenever I leave federal service to see if it makes sense to pull it out and invest it in VTSAX or just leave it in there as another income stream to count in retirement.

Fomerly known as something

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Yes for you "new folks" it hurts a lot more, for us old folk under the first FERS it is an easy decision.  Currently I have only contributed $27,000 into it over 19 years.  My Pension if I quit today would be at least $25,000 at age 62.

DeniseNJ

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You can only take your own contribution.  From OPM:
If you leave your Government job before becoming eligible for retirement:

you can ask that your retirement contributions be returned to you in a lump sum payment, or
if you have at least five years of creditable service, you can wait until you are at retirement age to apply for monthly retirement benefit payments. This is called a deferred retirement. View the deferred retirement web page.
Historically, if you receive a refund of FERS deductions after the effective date of your FERS coverage, you could never redeposit these funds, and the period covered by the refund would not be used to establish title to an annuity or in calculating the annuity benefit.

However, one of the provisions of PL 111-84 allows individuals who were covered under the FERS system on or after October 28, 2009, to make a redeposit for refunded FERS service.  If the redeposit is not paid, the service is still used toward title and in the average salary computation, but not to compute the annuity benefit.

See, that's one of the things that confused me.

From what I've read so far, FERS basic benefit calculation is based on years of service and high-3 average. Where does the withheld amount factor into the annuity calculation?

I doesn't

Then knowing how much you've contributed is only good for running calculations to see whether you should withdraw the money and reinvest it after federal service, or leave it in there and collect pension annuities at 62.

I wish you could opt out of the withholding. Given that I plan on FIREing, I would probably never end up working with the gov't long enough for the pension option to be worth it. But all that money is still sitting in an inert account gaining no interest.

True there is not a direct relationship, like you are buying an annuity for this much and you get this much payout.  But your contribution is based on your years and your salary, since it's a percentage of your salary.  But, no, it doesn't directly correlate--that's why they raise the precentage for new employees, so you pay more for your pension bc they charge more but it's calculated the same.

DeniseNJ

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https://www.opm.gov/forms/pdf_fill/sf3106.pdf
Checkit out--page 7 of 9, #4 on left. 

The pay your interest on your contribution when they return it "at the same rate earned by gov't securities." Still stinks but at least they aren't just keeping your money and not paying any interest.