Greetings! New to Forum

[evilanne]

Just Celebrated 1st Year of Early Retirement from Federal Gov't

I retired a little over a year ago from federal government under VERA/VSIP. I'm 52 years old and still trying to figure out when to start withdrawing from my TSP (401k equivalent) but I want to roll over a portion of the TSP to an IRA prior to taking starting life expectancy payments. Once they begin, I'm locked in until 59.5. I have a small pension and some rental income that covers all my living expenses currently. I would like to convert the roll over IRA to a Roth IRA gradually to minimizing taxes but my marginal tax rate still seems like a lot of taxes. At 56 I will also get FERS Supplement to complicate things just a bit. So many variables to consider--I really need to make a plan and take action. I can't complain, I am very fortunate. Retirement is good!

 

[broadway]

Welcome!

There should be others here who have experience with VERA/VSIP and FERS to help you out with specific numbers.

 

[brucethebroker]

Can't help you, but welcome!

 

[MBAustin]

Welcome! I also can't help with your specific situation but hopefully someone else will chime in. Your situation is complex enough, though, that you might want to find a financial advisor and/or CPA to pay on an hourly basis to give you some counsel.

 

[Blue Collar Guy]

im not familiar with those abbreviations but enjoy ur retirement

 

[kimcdougc]

Can't help here either but keep enjoying your retirement.

 

[ABQ2015]

Congratulations on one year of retirement! I'm currently a Fed planning to retire in September. I can't help much on the Roth conversions either except to say that if you are in the 15% tax bracket, now is the time to act assuming no 10% penalty but you seem to know more about it than me. It is also my understanding that the FERS Supplement is treated like SS for tax purposes so not all of it will be taxed or contribute to taxable income.

Update: I got the info on the FERS Supplement from a 5/25/2011 article in Federal Times. Apparently it was incorrect and caused a lot of confusion. Thanks, Gerard3, for correcting me.

 

[Gerard3]

No, the FERS Supplement is not treated like Social Security, since it is not Social Security money. It is money from the Office of Personnel Management (OMB) and is added to your FERS annuity without any distinction (i.e., it is not identified as the FERS Supplement). It is taxed just as the FERS annuity is taxed.


Not sure what the OP's question is, but this link provides more information on TSP withdrawal options if a VERA is taken before the retiree reaches the year he or she turns 55:


How "Early" Federal Retirees Can Make Penalty-Free TSP Withdrawals


If the OP wishes to take life expectancy payments longer than when she turns 59.5, she can take, under a VERA, life expectancy payments until the TSP is depleted without the IRS penalty. True, she would need to transfer part of the TSP to an IRA, if she wants those withdrawals to stop at 59.5, and do the 72t. But, if she wants to take a life expectancy payout for the rest of her life, she can leave it in the TSP and do it from that vehicle.


Since she took a VERA, she could also "annuitize" all or part of the TSP and escape the IRS 10 percent penalty.

 

[travelover]

Welcome, Evil!

 

[Markola]

DW is a federal employee and that system is complicated. When the time comes, we're probably going to hire this guy, who is a private planner specializing in advising feds, to do a plan for us: http://www.plan-your-federal-retirement.com/financial-planner-for-federal-employees

 

[Hermit]

Welcome to the forum! I hope you have some travel planned to get away from the summer heat!

 

[Ronstar]

Welcome, evilanne! Sorry I can't answer your questions either.

 

[pb4uski]

Do you do your own taxes or hire it out? You can get some idea of what the incremental taxes would be if you did a Roth conversion on top of your pension and rental income by using the What-If Worksheet in TurboTax or a tool like Taxcaster. If you hire it out then your tax preparer might be able to do such an analysis for you for a nominal fee.

We convert to the top of the 15% tax bracket for the last 4 years and paid 7.3% of the amounts converted on average, which is much better than the ~25% or more that we expect to pay later in life once our SS starts.

 

[evilanne]

Thank you for the welcomes

pb4uski, I do my own taxes. I've been playing with Turbo Tax the last few days to run different scenarios for 2017. I may have a little more flexibility this year and next if I'm able to claim son (22 yo), but can't rely on that with any certainty at this point in time.

I just finished reading all of imoldernu's thread on 23+ years of frugal retirement, which gave me lots to think about. I will probably increase the amount I plan to transfer out of TSP to an IRA (~15-25%). I will have over 15 years to convert that to Roth. Since it will grow tax free and doesn't require RMDs, this would be available to cover any health needs in late retirement. Traditional plans (TSP, 401k, IRAs, etc) are designed to be expended during your lifetime or no later than 110 per IRS tables. In late 80's or 90's when extended medical services may be needed, traditional plans are drawing down and may not be adequate to cover elevated costs. If not needed, my son will have fun spending it

 

[Hermit]

Thank you for the welcomes

pb4uski, I do my own taxes. I've been playing with Turbo Tax the last few days to run different scenarios for 2017. I may have a little more flexibility this year and next if I'm able to claim son (22 yo), but can't rely on that with any certainty at this point in time.

I just finished reading all of imoldernu's thread on 23+ years of frugal retirement, which gave me lots to think about. I will probably increase the amount I plan to transfer out of TSP to an IRA (~15-25%). I will have over 15 years to convert that to Roth. Since it will grow tax free and doesn't require RMDs, this would be available to cover any health needs in late retirement. Traditional plans (TSP, 401k, IRAs, etc) are designed to be expended during your lifetime or no later than 110 per IRS tables. In late 80's or 90's when extended medical services may be needed, traditional plans are drawing down and may not be adequate to cover elevated costs. If not needed, my son will have fun spending it

Those traditional plans don't have to be spent, but you do have to pay the taxes. You can simply move the required RMD amount to taxable accounts and pay the taxes. After that those investments are there to continue to grow or spend as you wish or need.

 

[evilanne]

True Hermit, but the Roth provides more flexibility in managing taxes and earnings will be tax free.